Sky Harbour Group Q3 2026 Earnings Call Transcript

Sky Harbour Group (AMEX:SKYH) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Sky Harbour Group reported a sequential increase in cash flow from operations to $3.2 million, marking 12 consecutive quarters of positive cash flow.

The company anticipates improved gross profit and EBITDA margins due to expanded campuses and efficient use of existing resources.

Adjusted EBITDA improved but remained negative at approximately -$0.5 million, with expectations for continued improvement.

Strategic focus remains on Tier 1 airport markets, with significant expansion noted at Dulles International Airport and new site acquisitions at Van Nuys.

The company introduced a new revenue line by offering manufacturing and contracting services for third parties, securing contracts worth $38 million.

Future guidance was updated, with revenue projections increased to $44-$48 million, but EBITDA guidance slightly trimmed due to timing of campus openings.

The company has significant liquidity, with nearly $200 million in cash and Treasuries and plans to upsize its credit facility to $300 million.

Management expressed confidence in mitigating inflationary pressures through vertical integration and cost efficiencies.

Full Transcript

Francisco Gonzalez (Chief Financial Officer)

We expect a marked increase in gross profit and EBITDA margin expansion with these added revenues and limited increases in operating costs, given the ability to use the same personnel and equipment with an expanded campus doubling in size. You may recall we experienced a similar phenomenon when we had Opa-locka Phase 2 open a couple of quarters ago. Cash flow from operations reached 3.2 million, an increase from 2.9 million sequentially. This constitutes 12 consecutive quarters of positive cash flow from operations, providing ample and growing debt service coverage for our bondholders and bank facility lenders.

Let me draw your attention to how the operating margin at existing stabilized campuses in this first portfolio compares favorably with the operating margin that we saw in the prior slide on a consolidated basis. Meaning it’s a timing issue, that with leases continuing lease-up, continuing increases in occupancy and stabilization at new campuses will drive operating margin higher on a consolidated basis, as already proven in this first portfolio of stabilized campuses, which are not yet fully stabilized, given the Addison Phase 2 opening in February.

Let me now pass it to Mike for a brief review of our adjusted EBITDA progression. Mike.

Weber Michael Schmitt (Chief Accounting Officer)

Thank you, Francisco. As with prior quarters, I’d like to take this opportunity to provide additional context regarding elements of our reported results. We provided a reconciliation of adjusted EBITDA from our GAAP net income results for the quarter ended September 30, 2026. We believe this measure is particularly important due to the impact of non-cash items within our reported results, such as non-cash operating lease expense, particularly at our campuses that are not yet operational, stock compensation expense, and gains and losses arising from marking our liability-classified warrants to market.

As seen in the diagram, our adjusted EBITDA continued its positive trajectory and improved to approximately negative half a million for the quarter. This was driven by continued improvement of our operating margin at our campuses in operation and a slight reduction in corporate overhead. We expect this trajectory to continue and accelerate toward positive territory as rental rates and occupancy continue to improve and as additional campuses open.

With that I will pass to Tom.

Tom

All right, thank you, Mike. So we’re going to go through site acquisition, development and leasing as always. So on the site acquisition side, yeah, people who have been paying attention for the last few calls know our main focus is on what we call Tier 1 airports — $50 and up revenue per square foot available. What we have in the last quarter is Van Nuys in Los Angeles, or as we know it internally, Teterboro West. That is the result of six years of work and, again, for those who’ve been paying attention, we planted dozens of seeds six or seven years ago across the country.

So we expect those to continue sprouting as we go forward. And these are top-tier airports for us. Second theme is clustering, right. One of the things we’ve seen: there are markets where the Sky Harbour Group-equivalent rents are very high and can also absorb large numbers of aircraft. And those are places where you get kind of a triple win — your revenues, obviously your revenue potential is very high at those airports, but your operating margins are going to be extremely high.

Right. Because as we saw in Miami, we added one full-time equivalent when we opened Phase 2, essentially doubling the revenue of that campus for a very marginal increase in OpEx. So perhaps chief among those opportunities in the country, at least so far in our portfolio, has been Dulles International Airport, where the demand as we see it is nearly insatiable. We were able to add a third phase. So the phase that we’re developing right now, Phase 1, is about 170,000 square feet.

We can phase it. We might actually leapfrog and develop faster than we’re planning right now. But I think it’s prudent to have the option at least to stagger that development. But very significant opportunity for us at Dulles. The general site acquisition slide. Next slide. Thank you. So I won’t dwell on whatever is self-explanatory. I’ll just point people’s attention to the chart on the right and look at the development pipeline, the gray chart. And what I think you can expect to see over time is an increasing percentage of our revenue capture per square foot at Tier 1 campuses. That is our effort. We love the Tier 2. There’s a great market in Tier 2, and even some of the Tier 3 is interesting.

But as we kind of want to really exploit our first-mover advantage in this space to the maximum extent, our focus, at least in the coming, call it, year or two, is going to remain on the Tier 1 campuses. Next slide. So on the development side, you know, it’s daunting to look at that chart on the left. Obviously we spent much of the last 18 months gearing ourselves up to be a major — the biggest construction company on airports. That’s what you’re looking at right now. We feel we’re ready. Obviously the proof is going to be in the pudding, but we have a massive leap ahead of us. Just to remind everybody, we are vertically integrated. We manufacture our own steel.

We’re not dependent on somebody else’s supply chain. We do our own general contracting. We are the world experts at building our own hangars. Right. Nobody knows how to build Sky Harbour Group hangars the way we do. Same hangar. It’s a prototype that we apply on every airport. So I think what we intend to achieve from that is increasing cost efficiencies, increasing quality consistency, and what we consider the best product in aviation. I forgot to stick it in this slide, but we already got questions on it, so I’m going to answer it right now — the third-party construction. So we’re kind of looking — this is not a fleeting thing. This is a new business line for Sky Harbour Group. We kind of looked out and said, all right, getting these things built quickly at the highest quality and the lowest cost possible is obviously key to driving our business. But it’s not our secret sauce.

That is not what makes Sky Harbour Group differentiated. I’ll address what does in a few slides. We are recognized by everybody in the industry as having the best hangar, the best hangar in business aviation. And at some point we said, all right, we feel confident enough in what we’re doing and it is increasingly a rinse-and-repeat process for us. Why don’t we start manufacturing and even general contracting for third parties? It is not the secret sauce, but it is a really interesting new revenue line.

So we just announced our first three contracts to build for others. That’s about $38 million in revenue. That’s something we intend to continue doing. The other reason that’s driving that is, as you can imagine, having a steel manufacturing plant — that’s an asset with massive operating leverage in it. We’re not operating it anywhere close to capacity yet. Even with what you see in the chart on the left, we still have plenty of capacity in that factory.

So filling it up — remember, every ton of steel that goes through that factory makes the other tons cheaper. So there’s real operating leverage in that. That’s another, I think, benefit of going into this third-party business. We debated it for, you know, for a good while before doing it. I don’t feel like it’s a distraction. It’s really doing exactly what we do everywhere else. It’s just getting our efficiency down and adding actually a significant new revenue line to the business.

Moving on to leasing. Next slide. Thank you. So I think the things to call attention to in this slide is, number one, the difference between stabilized campuses and campuses in initial lease-up. We’ve been through it a lot of times, but I think it bears repeating. When you show up in Miami with 12 brand-new hangars, 160-ish thousand square feet, that is more hangar capacity than anybody has introduced to a single market in one shot ever. No one’s ever done that.

And it puts you in an interesting position where you’ve got 12 hangars, 12 vacancies, and your counterparties are the shrewdest, savviest people in, you know, in U.S. business. So they have the leverage in that negotiation. We experienced that in Miami and Nashville. That has been repeating. However, once those get leased up, the leverage changes. And if you do a good job operating these campuses and people increasingly understand the unique value proposition you get in a home-based operator like Sky Harbour Group, which is distinct from the FBOs, you can really drive premium in those markets.

So that manifests itself both in revenue per square foot and in economic occupancy. So you see on those fully leased campuses, we’re trending toward the 100% and up in economic occupancy. And you can see those rents. And for people who’ve been tracking, we don’t have a longitudinal study here, but for those who’ve been paying attention and tracking, you see significant growth every single year in revenue per square foot on those campuses. Campuses in initial lease-up — you know, the way we do it today is get them filled as quickly as possible at reasonable rents. You’re not capturing your full target rents on those campuses in initial lease-up, but you keep the terms short. And when you rotate them, you start seeing numbers that look a lot more like the stabilized campus numbers. That’s the first thing I’ll point people’s attention to on that. The second is, it’s not really expressed here, but it was in the second chart that Francisco showed, is the increasing profitability as you grow these campuses.

Right? So remember, as you scale, just to remind everybody, our leases feature annual escalators of CPI with a floor of 4%. And when they expire and the new lease is signed, that same square foot goes at an average of 20% markup of the already escalated — remember, you’ve been growing it at least 4% for the years of that first lease. Then there’s a 20% bump in that. There is no corresponding bump in the OpEx on these campuses. So the profitability grows quite strongly.

Even if you’re not reducing OpEx, as we are, you’re going to see your operating margin continue to grow on these campuses. The second is what I alluded to earlier — your local reputation. Again, if you’re doing a good job, a campus where we’re known well — take San Jose, take Miami, where we’ve been operating for a while — there’s a very long waiting list in those markets, not so much in a new market. And again we’ve been working on becoming more of a national brand rather than a collection of local brands, and hopefully that will come at some point in the next year or so.

But you definitely see the benefit on the local side. The scarcity dynamic that I just referred to earlier is another part of that. And then lastly is just operating leverage. Again, that OpEx line doesn’t change as your economic occupancy goes up and, frankly, as your square footage goes up. So if you add a phase like we just did in Miami or we’re about to do in San Jose and Dallas, Addison, you don’t add commensurate OpEx. Last thing I’m going to say is if you look at the column all the way on the right, the pre-leasing column, you’ll see that the rents are very robust in those markets. That is purely a consequence of increasing the percentage of Tier 1 markets in lease-up. Again, the big test is going to be end of this year as we open Bradley, Connecticut. How much is that going to be leased? I was there yesterday with one of our prospective residents, feeling very strong about Bradley’s prospects.

Hopefully we have some very positive surprises, again in a market that we’ve never operated in before. This is not like a Miami Phase 2. This is a different type of test. That’s all I have on leasing. Let me hand it back to Tim.

Tim

Thank you, Tal. We continue to have ample on- and off-balance-sheet liquidity to fund our future construction. Cash and Treasuries totaled nearly $200 million at the end of Q3 with almost $130 million of additional funds available through our committed J.P. Morgan bank facility. Regarding future growth capital, we continue to be optimistic that our public warrants will be exercised in January and provide efficient equity capital of over $90 million to the company.

We’re also working with our lenders to upsize our credit facility to $300 million with the philosophy of having capital available way prior to when we need it for construction of our airfield campuses. Let me turn it over to Francisco for additional comments.

Francisco Gonzalez (Chief Financial Officer)

Thank you, Tim. Before discussing our guidance, given the recent increase in interest rates—today, for example, the U.S. 10-year Treasury is back at 5%, and obviously increases in the past few months—wanted to note that all of our debt is fixed rate. Our Series 2001 bonds are fixed at 4.18% until the maturity in 30 years. Our J.P. Morgan facility swapped for four years to an effective 4.73% even for the amounts we have yet to draw, meaning we did effectively a forward hedge a year ago, and the Series 2026 subordinated bonds at 6% fixed for another four and a half years.

We will not be tapping the long-term bond market until at least three to four years from now, at which time we expect to be investment grade in our borrowing program, mitigating a lot of the recent increase in base interest rates. Next slide. Just wanted to take a moment to revisit our guidance for the end of the year that we introduced back in May. On revenues, we expect now to finish the year with an annualized run rate of between $44 to $48 million, up from our prior guidance of $42 to $44 to $46 million. This increase has been driven by higher-than-expected increased rental rates of Phase 2 at Opa-locka and increased occupancy at other campuses, especially San Jose. On adjusted EBITDA, we are trimming our guidance slightly, and we expect now to end the year at an annualized run rate of between break-even and $4 million, down from prior guidance of $4 to $6 million.

This is driven by timing. The opening of Addison Phase 2 campus is now scheduled for February, delaying those revenues until next quarter. More importantly, the Bradley opening in December is going to be a drag on EBITDA run rate temporarily as we absorb 100% of the operating expenses at year end, offset only with limited revenues of the first few leases there. Again, these are timing things and our stabilized operating margin targets remain intact.

Let me now pass it back to Tal for our discussion of the highlights and next steps in the four areas of our business.

Tal Keinan (Chief Executive Officer)

Thanks, Francisco. I’ll highlight a couple things on site acquisition. Again, all of the expansion in the last quarter is in Tier 1 markets. Expect to see more of that. Nothing to add on the development side. On the leasing side, those three bullets are all what I would call stabilized campus phenomena—what I described earlier; I won’t repeat it. And then on the operations side, increasingly you can look at the testimonials on the bottom, including a very nice compliment from our competitors—maybe competitors is a big word, but our friends over in the FBO industry.

We continue to rank as the number one home basing solution in aviation. That is what drives the premiums that we get on all these campuses. And I was saying the secret sauce is not necessarily in the hangar itself. Part of it is how it all flows together. But what the resident really experiences is our operations team. Then on the margin bump for mature campuses. Again, I think we’ve said it before, we’re targeting 80% operating margins. We’re pretty much there on the first obligated group campuses. We’re getting very close to it, at least. By the way, it doesn’t have to stop there. Again, the one thing I will repeat is the revenues continue going up.

If you accept our original premise in this entire business that inflation on airport real estate is going to outstrip CPI, we’d be completely unlinked from CPI over the coming years and decades, and understand that OPEX just doesn’t rise at that rate, or anywhere near that rate, then perhaps we can even do better than 80% over time. Looking forward to the next slide. The things I’ll point out again on site acquisition: look for a bias toward Tier 1. It’s not only Tier 1. Again, there are some great Tier 2 airports out there that we’re going for, especially situations where your development cost is particularly low. Those are situations where, again, you can make the same or similar yields even on a Tier 2 airport. So it’s not going to be exclusively Tier 1, but expect that to be the bias going forward.

Nothing to add on development that we haven’t already said. On the leasing side, you know, that is the nut we need to crack. I mean, to be clear, our leasing team has grown in the last quarter. There’s still some growth that needs to happen in the leasing team that is eyeballing about 826,000 square feet that needs to get filled. Remember, if you get to economic occupancy of above 100%, then it’s more than 826,000 square feet of hangar that needs to get filled in 2027.

So big challenge ahead for the leasing team. That is all I have. I think we can open up to questions.

OPERATOR

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tom Catherwood with BTIG.

Your line is open. Please go ahead.

Tom Catherwood (Analyst at BTIG)

Thank you, and good afternoon, everybody. Tal, maybe go back to your final comments on leasing and the leasing team. It looks like you had a pretty significant pickup in leasing post quarter end. So by our math, it looks like you added roughly 22,000 square feet of economic occupancy in 3Q, but then another 36,000 square feet between October, November. What drove this acceleration, and do you think it reflects more of a sustainable uptick in demand going forward?

Tal Keinan (Chief Executive Officer)

Yeah. Tom, thanks for the question and thanks for the coverage. Look, part of it is just a function of more square feet coming online. You know, one of the things that we’re finding on the pre-leasing side, which, as you know, is a bigger and bigger component of our leasing effort, is if you start pre-leasing, let’s say, nine months in advance of opening a campus, you might see a few seeds sprout early—eight, seven, six months before opening the campus—but you really see it actually accumulate in the last two months before opening the campus, because everyone’s looking around and seeing it, and it takes one or two to move, and then people start saying, okay, I need to move now.

So I think that’s one of the phenomena that we’re seeing. I will say, and I think you know this, I think I’ve been remiss in building the leasing team too slowly. That’s the headcount that we’re adding. The talent that we’re bringing in today is probably talent that we should have brought in six to nine months ago. So we’re picking up on that and, yeah, hopefully we’ll see that leasing volume accelerate.

Tom Catherwood (Analyst at BTIG)

Got it. Appreciate that, Tal. And then as a follow-up, maybe going over to the development side. Inflation came in hotter than expected today, and I assume that there’s significant competition for labor and material in the majority of your markets. What are you seeing in terms of impacts on construction, either costs or timelines, and how are you able to get in front of those or address those inflationary pressures?

Tal Keinan (Chief Executive Officer)

Yeah, look, I mean, we are running on a treadmill, that’s for sure. There are headwinds here. So kind of every advance that we make in cost cutting seems likely to be matched by some 10-cent increase in our steel prices, for example. Or you’re right, in labor as well. What I can say is I don’t know when this is going to end. But what I do say, I think, kind of the optimistic side of this is I think the headwinds that we’re seeing are cyclical. Again, I don’t know how long the cycle is going to last, but I feel secular—cyclical—sorry.

The advances that we’re making in lowering our costs are secular. Okay. Our vertical integration is secular. The fact that we can effectively hedge the price of steel by inventorying a lot more steel than we need is secular. The fact that we’ve insourced a lot of our labor, that is a secular advantage going forward. So again, I don’t know how long this will last, but I would posit not forever. And hopefully we end up outpacing the treadmill on construction costs.

But you’re right, we’ve definitely felt headwinds, particularly in steel prices.

Francisco Gonzalez (Chief Financial Officer)

And if I may add, we’re not standing still—meaning that, take Stratus, our manufacturing facility, the general manager there. We’re investing at the margin on certain new equipment and painting bays and things like that to continue bringing in-house things that we might right now be doing with third parties, and also becoming more efficient, and so on. So to your point, yes, we have inflation creeping in certain places, but we’re trying to mitigate that with investments and being more efficient.

Similarly, our friends in Ascending are also implementing strategies to be more efficient. And the more volume that we do of our own general contracting, the more we’re going to reduce our unit costs at the margin.

Tom Catherwood (Analyst at BTIG)

Got it. Appreciate all the answers, guys.

OPERATOR

Your next question comes from the line of Timothy D’Agostino with B. Riley. Your line is open. Please go ahead.

Timothy D’Agostino (Analyst at B. Riley)

Yeah, hi. Thanks for taking the questions. I guess just to start, it’d be great to get some color from your end on, you know, entering new campuses. Like, obviously, you know, yesterday you announced Van Nuys, and just the competition you see with that. And so maybe it’d be great to get color on Van Nuys and then, without naming maybe the next steps or next campuses, you know, what that looks like at other regions in the country. That’d be great to hear.

Thank you.

Tal Keinan (Chief Executive Officer)

So the question is, what does the competitive field look like?

Timothy D’Agostino (Analyst at B. Riley)

Correct. Yes. And maybe using Van Nuys as an example right now, and then maybe just kind of forward thinking what you’re seeing—what’s in the pipeline, you know, across the country for other campuses that you’re bidding on. Thanks.

Tal Keinan (Chief Executive Officer)

Yeah, so look, I’d say it’s primarily the FBOs still, right? That’s who’s out there. That was our competition at Van Nuys. Tough competition, who came up with, I think, very creative and very aggressive packages to Los Angeles World Airports. One of the things that I think is important to note is the case that we’ve been making is that we’re not an FBO. This is a different model than the FBOs. So when you add a third or fourth FBO to a field, you’re not necessarily increasing the case for economic development or direct revenues to the airport sponsor. You are, in large part, cannibalizing the business of the prior three FBOs. Whereas when you bring in an HBS, it is an entirely new business and it’s base business.

If you’ve got a corporate, government, or private fleet that’s based in that jurisdiction, it’s paying taxes in that jurisdiction, it’s procuring services in that jurisdiction versus transient. So I think increasingly that is a compelling message to the airports, especially as we have, in most of the airports—Van Nuys is a bit of an anomaly in this case—but in most of the key airports in the country, you have exactly two FBOs, and they’re called Signature and Atlantic. And they’re both great companies, but fundamentally it has become a duopoly in that industry. So, you know, having a credible alternative that’s not a member of the duopoly, that is providing a unique and differentiated service with both direct and indirect benefits to the airport sponsor and their jurisdiction, has been a key piece of it.

I think there’ll be other HBS operators. You know, I don’t know, maybe a year from now on this call, we’ll have two or three people there. For the time being, we’re not seeing those, but I’m sure it will happen. But for now, it’s really primarily us and the FBOs.

Francisco Gonzalez (Chief Financial Officer)

Just one quick thing to add, Tim, is as I look out at the various ground leases that we’re negotiating right now and the announcements that are forthcoming, those have been non-RFP direct-negotiation ground leases, not anything that was coming out from a competitive process. I hope that helps answer also part of your question.

Timothy D’Agostino (Analyst at B. Riley)

Good point. Yes, it does. Thanks for the added color, Francisco. And then I guess a second question for you, Francisco. It was noted on the 2Q call about potentially providing 2027 guidance during 3Q. I don’t believe anything was mentioned about that today. So I was just wondering if there’s any updates there, or if things are maybe a little bit less visible in 2027. Thank you.

Francisco Gonzalez (Chief Financial Officer)

You know, thank you for the question. No, you’re right. We debated a lot to introduce guidance right now. We also researched a little bit that most companies out there provide their 2027 guidance in February, March, in conjunction with their end of the year, and we decided to move and do that. So we plan to introduce guidance for 2027 in March—early March—when we do our 10-K. And the sole reason is we want to have better visibility. You saw here that we have to adjust our guidance a little bit, up and down, revenues and EBITDA.

And, you know, we want to have just a few more months, have the year under our belt, and have also a Q1, Q2 on Salt Lake City and an ISOM 2 before we provide the guidance. But thanks for that question. Yes.

Timothy D’Agostino (Analyst at B. Riley)

Okay, great. Yeah, that makes sense. Thank you so much for taking the questions today.

OPERATOR

Your next question comes from the line of Gaurav Mehta with Alliance Global Partners. Your line is open. Please go ahead.

Gaurav Mehta (Analyst at Alliance Global Partners)

Thank you. I wanted to ask you on the manufacturing, general contracting for third parties that you mentioned. Can you maybe discuss the economic customer base for that part of the business?

Tal Keinan (Chief Executive Officer)

Yeah, Gaurav, thanks for the question. Thanks for the coverage. Let’s just step back again and look at the logic of doing that. If you look at what the core competencies of this company are—what are we good at that other people are not as good at? Number one is site acquisition. We know how to get land at airports in a way that nobody else does. That’s what we do. Remember, the FBOs grow primarily through M&A. It’s not our process. And there’s, I think, some very interesting ways to monetize that that are not what we’re doing today.

We’re not getting into them yet, but that’s down the road. Second, we know how to build on airports like nobody else does. We’re putting up more business aviation hangars than anybody in the country—as far as I know, in the world—and we’re increasingly specialized and owning the entire supply chain. The inputs are raw steel. The outputs are hangars ready to go. So that is a competency. Construction on airports is different from construction in other places from a regulatory perspective, from a lot of different perspectives.

So we kind of look at that and say—going back to my comments during the presentation—putting it all together with an operations and service package that works, that is the secret sauce. It’s the integration of all of those components; each one on a standalone basis is not. So we don’t feel like we’re giving up the crown jewels by offering our hangars to third parties. We’ve gotten to a place—and we’re not going to talk numbers yet because I want to see how those projects go. I just want to be very responsible about how profitable that business is going to be. But I can tell you that we’re very optimistic in that we see how much a pre-engineered metal building from Varco Pruden or Alliance costs today, and we know exactly how much it costs us because we’re manufacturing ourselves.

We see how much general contractors take that are not Sky Harbour building hangars, and we know how much it actually costs to build these buildings. We can deliver a far superior product at a better price than anyone else can deliver it and be extremely profitable in the process. So you’ll get numbers, I think, in the coming year as we get closer. I’d like to see us kind of 50–60% complete on some of these projects. But we’ve got plenty of capacity to do this, and it’s a very good business that doesn’t distract from what we’re doing today. So stand by for actual profitability on those things, but we’re quite optimistic that it’s going to be robust.

Gaurav Mehta (Analyst at Alliance Global Partners)

Thanks for those details. The second question I have is on Tier One and Tier Two. Can you maybe discuss what’s the yield difference between a Tier One and a Tier Two airport, and then what percentage of your current pipeline is Tier One versus Tier Two?

Tal Keinan (Chief Executive Officer)

Okay. So, Rick, remember we don’t define it in terms of yield. We define it in terms of available revenue per square foot. And the missing link in that is there are jurisdictions where it is more expensive to build and jurisdictions where it’s less expensive to build. So you can have a Tier One airport in an expensive jurisdiction where you’re going to get, you know, whatever—12, 13, 15% yield on cost. Great. We’re happy with that. You could have a Tier Two airport, though, in a jurisdiction where it’s inexpensive to build—you know, take, for example, Fort Worth, Texas, where we’re building right now, a very, very efficient market for building—where you can get the same 12 to 15% yield on cost in a Tier Two market.

So that’s how we look at it. And in terms of what percentage of the pipeline—you know, we don’t really… It’s a good question in that, remember, we have dozens and dozens of airports in the pipeline. I wish we could say, here is the sequence in which those airports are going to materialize into ground leases for us. But bottom line, we don’t really know. We know there’s a long gestation period. Like I said, Van Nuys was six years of work. By the way, Atlanta Peachtree was also six years of work to get to that place.

So we don’t know exactly when they’re materializing. So I think it’s difficult to say in the next 12 months, for example, what percentage are going to be Tier One. All I can say is that our efforts are focused primarily on the Tier One. So as you saw from the last quarter, and I think you’ll see in the coming quarters, the majority of what’s going to come on is Tier One. I wish I could give you a more precise number, but I think that’s the best we can do.

Gaurav Mehta (Analyst at Alliance Global Partners)

All right, thanks for those details.

OPERATOR

Your next question comes from the line of Joe Gomez with Noble Capital. Your line is open, please go ahead. Just a reminder, if you are currently muted, to unmute your device. And it looks like we have lost Joe. We’re going to move on to the next question. If you’d like to rejoin the queue, just press star one to raise your hand to ask a question. Your next question comes from the line of Dave Storms with Stonegate Capital Partners. Your line is open.

Please go ahead.

Maximus (Analyst at Stonegate Capital Partners)

Hello, good afternoon, this is Maximus asking questions for Dave. Last quarter you said it typically takes about three quarters to lease up a new campus. Given that Denver and Phoenix are taking longer than expected, have your overall expectations changed on the typical lease-up times, or are these primarily market-specific challenges? Thank you.

Tal Keinan (Chief Executive Officer)

Yeah, no, I wouldn’t say that. Look, I think there’s a range. There are situations that are going to go faster, situations that will go slower. I wish we could move Denver faster. It’s taking the time it’ll take. I remind you, Miami Phase One was 14 months. Nashville was 18 months. Some of these take a long time, but look at them when they’re stabilized. And, again, if we could double our footprint in Nashville, we’d do that right now, by the way.

Maximus, one thing also to kind of look at in that is—consider we have relatively little experience with this, but I think logically you’re going to see this repeat itself—is a Phase One lease-up in a market where we’re just not known yet should take a bit longer. A Phase Two lease-up—you know, look at Miami, for example—in a market where we’re known and there’s a lot of pent-up demand for this specific product should take a lot less time. And, again, just to demonstrate whether that’s true or not, watch Dallas Addison Phase Two opening up in the first quarter. Let’s watch San Jose Phase Two opening up later next year and see if we’re right about that.

Maximus (Analyst at Stonegate Capital Partners)

Great. Thank you. And then just one more question on fuel revenue. It was relatively flat sequentially, although net fuel revenue improved. I was just wondering how much of that reflects changes in fuel volumes versus pricing and margins. Are you seeing opportunities to grow ancillary revenue as overall occupancy increases?

Weber Michael Schmitt (Chief Accounting Officer)

Hi, Maximus. This is Michael Schmitt. It’s pretty much all volume this quarter versus price. We keep relatively consistent margins. So the increase in net fuel revenue that you see is almost 100% volume.

Maximus (Analyst at Stonegate Capital Partners)

Great. Thank you for answering my questions.

OPERATOR

This concludes the Q&A session. Mr. Francisco Gonzalez, I’d now like to turn the call back over to you.

Francisco Gonzalez (Chief Financial Officer)

Thank you, Sarah. And thank you, everybody, again for joining us this afternoon and for your interest in Sky Harbour Group. Additional information may be found on our website at www.skyharbor.group, and you can always reach out directly, especially our investors, with any additional questions through our email, investors@skyharbor.group. Thank you again for your participation. And with this, we have concluded our webcast. Thank you, operator.

OPERATOR

Thank you. This concludes today’s call. You may now disconnect.

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