Sky Harbour Group Corporation (SKYH) Earnings

Management highlights

- Leasing Operations • Leasing progress at Denver Centennial Phase 1 has been slower than expected, similar to early lease-up timelines for Miami and Nashville which are now high-performing cash-flowing campuses; management remains unconcerned by the slow pace. • On under-market average rents at Phoenix (DVT 1) and Dallas (Addison 1/ADS 1): The company uses an introductory short-term lease strategy to accelerate occupancy, with all long-term leases signed at or above target rental rates (Dallas multi-year tenants pay $40-$50 per square foot). As short-term leases expire, they will be replaced with long-term leases at market rates, driving future revenue growth. • Over the past 12 months, 100,360 square feet of expiring leases were renewed, with an average 19% rent step-up on renewal. The small decline from last quarter's 23% step-up reflects that more renewals are now third-term leases, which are already closer to market rates. - Site Acquisition Strategy • Total secured rentable hangar square footage (under ground lease, not yet developed) is 4 million square feet. Management emphasizes that ground lease acquisition is the primary source of value creation in the business, even ahead of construction and operations. • The company's current strategic focus is on large-scale expansions at Tier 1 airports, which deliver higher revenue per square foot and higher operating margins due to shared overhead across multiple phases. • Management remains highly conviction on continued expansion in California, despite net capital outflows from the state: High market rents justify investment, and many former California residents maintain permanent hangar space for frequent visits. Additionally, continued creation of new high-net-worth individuals in California sustains underlying demand for hangar space. - Development and Construction • All in-progress developments remain on schedule and on budget. Upcoming openings include Bradley (CT) in Q3/Q4 2026, Addison Phase 2 (Dallas) by end of 2026, and Salt Lake City in early 2027. Total square footage under construction will increase from ~600,000 square feet to over 1.2 million square feet by the end of 2026. • The third-generation hangar prototype has completed third-party testing and approval; the first prototype will be built at Fort Worth, with groundbreaking in Q4 2026. The new prototype is more functional, lower cost per square foot, and aesthetically improved. • Vertical integration into general contracting and national bulk purchasing have reduced construction costs; current average construction cost is $242 per square foot, down from the prior target of $250 per square foot, with further cost reductions expected from economies of scale as development volume grows. - Liquidity and Capital Raising • End-of-quarter liquidity was over $207 million in cash and U.S. treasuries, plus ~$130 million available from the committed J.P. Morgan construction loan. This excludes $40 million in fresh gross proceeds from a registered direct common equity placement that settled on the day of the call, issued at $10 per share (a 4.6% discount to the prior 30-day volume-weighted average price). Cumulative equity raised from shareholders now exceeds $300 million. • Combined with potential full exercise of public warrants in January 2027 (expected to generate ~$94 million in additional proceeds), this new equity raise covers all of the company's foreseeable equity needs, until growing operating cash flow can fund future project investment. - Operations and New Initiatives • The company runs an occupancy optimization program that can achieve greater than 100% effective occupancy at campuses with semi-private hangar configurations. Customer satisfaction surveys consistently rank Sky Harbour as the top home base solution for business aviation, with premium pricing and waiting lists at all stabilized campuses. • A new cross-network resident program called Sky Key has been launched, allowing top residents to access consistent service, privacy and security across all Sky Harbour campuses. The program is expected to become a new source of incremental revenue and increased customer retention.

Guidance

- Management reaffirms all prior full-year 2026 guidance issued in May 2026: • Annualized revenue run rate at end of 2026 is expected to be between $42 million and $46 million, up from the Q2 2026 run rate of $39.4 million, driven by leasing progress at Opa Locka Phase 2, DVT and APA. • Annualized adjusted EBITDA run rate at end of 2026 is expected to be between $4 million and $6 million, up from the current negative annualized run rate in Q2 2026. • 2027 guidance will be introduced for the first time on the Q3 2026 earnings call in November. - Management expects operating cash flow to trend higher through the end of 2026, with a step function increase to permanently positive levels starting in Q1/Q2 2027 after the opening of Bradley (CT) and Addison Phase 2 (Dallas).

Segment performance

On a consolidated basis: Total assets under construction and completed construction reached over $393 million, a $65 million increase year-to-date, the highest level in 6 months of the company's history. Q2 revenues increased 50% year-over-year and 13% sequentially, driven by new campus openings, higher occupancy and rising rental rates. Consolidated operating cash flow turned positive for the first time in the company's history at roughly $0.5 million. Adjusted EBITDA for the consolidated company improved to approximately negative $0.9 million in Q2 2026. For the obligated group (Sky Harbour Capital and operating subsidiaries, backed by Series 2021 bonds): Revenues increased 79% year-over-year and 22% sequentially. Operating cash flow reached almost $3 million in the quarter, up from $2.2 million year-over-year, marking 10 consecutive quarters of positive operating cash flow with growing debt service coverage for bondholders and lenders.

Risks & headwinds

- Leasing progress at Denver Centennial Phase 1 has been slower and slower than initial expectations, which management acknowledges is a disappointing outcome, though they expect it to improve over time similar to prior slow-leasing campuses that are now high-performing. - Non-cash operating expense accruals for new unconstructed ground leases are temporarily increasing reported operating expenses and reducing current profitability, prior to those projects generating revenue. - Potential macro construction inflation presents a headwind to the company's ongoing construction cost reduction targets. - All forward-looking statements are subject to inherent risks including development risk, construction risk, lease-up risk, and operating risk that may cause actual results to differ from management projections.

Analyst Q&A

• Q: What is pre-leasing progress for San Jose Phase 2 and other upcoming projects, and will you use the introductory rate strategy for new pre-leased campuses? /

  A: Pre-leasing for San Jose Phase 2 is already fully complete before construction starts, benefiting from pent-up demand from an existing operating Phase 1 in a high-demand market. Unlike the original introductory rate strategy used for new greenfield campuses, pre-leased Phase 2 expansions do not use introductory rates. Pre-leasing relies on FOMO: customers lock in space early to secure a spot before rates rise, so there is no need for discounted introductory pricing. San Jose Phase 2 already has unmet demand, and management would immediately pursue a Phase 3 if the opportunity became available.

• Q: With the slowdown in Denver lease-up, how should investors expect re-lease rent escalations to trend over the next 2-3 years, especially at campuses that used introductory rates? /

  A: For the three campuses using the introductory rate strategy, it is reasonable to expect large rent step-ups when those initial short-term leases expire for re-leasing. For pre-leased campuses already signed at above-target rents before opening, re-lease step-ups will be smaller. All leases include annual CPI escalators with a 4% floor. Management expects hangar rent growth to outpace CPI long-term due to limited available land at airports and growing business aircraft fleet, but does not provide specific long-term growth projections to allow investors to make their own assumptions.

• Q: What are the key drivers to reach the year-end 2026 adjusted EBITDA guidance of $4-6 million annualized run rate, given the current $0.9 million quarterly adjusted loss? /

  A: Current revenue trends are on track to meet guidance, with strong leasing momentum at Opa Locka Phase 2. The most important driver of EBITDA expansion is substantial operating leverage for Phase 2 expansions: Opa Locka Phase 2 can be operated with the same existing staff and equipment as Phase 1, so incremental revenue adds almost no incremental operating expense, driving significant margin and adjusted EBITDA growth. Management will review and reaffirm or update guidance alongside the introduction of 2027 guidance on the Q3 2026 earnings call.

• Q: What is your approach to pre-leasing going forward, will it be standard for all new construction? How many new ground leases do you expect to add this year? /

  A: Pre-leasing is now standard for all new construction projects, starting with Opa Locka Phase 2, followed by Bradley, Dallas Phase 2 and Salt Lake City. The current target is 50% to two-thirds pre-leased by project opening, and this framework may be adjusted slightly over time. Management no longer reports new ground lease targets by number of sites, instead focusing on total developable rentable square footage, prioritizing large square-footage projects at Tier 1 airports which deliver better operating margins and easier lease-up than multiple smaller sites.

• Q: As you focus more on Tier 1 airports with limited available land, has competition tightened, and what is your strategy for site acquisition? Did the recent secondary share sale by Boston Omaha signal reduced investor confidence? /

  A: Management remains aggressive, creative and patient in pursuing Tier 1 site opportunities; most ground lease wins take 5-6 years of multi-year engagement, and the company's multi-year pipeline of prospective sites is now starting to yield new opportunities, so site acquisition is actually accelerating. The recent coordinated secondary sale of 360,000 shares by Boston Omaha was very small, the first sale they have made in 1.5 years, and all other legacy long-term investors reaffirmed their intention to remain long-term shareholders, with no loss of confidence in the business.