Operator: Your next question comes from the line or comes from [Michael Schaeffer]. Considering the stock trading well above $11.50 have any warrants converted? Any thoughts on future conversion and money into SKYH?
Tal Keinan: I think I get a warrant question every week from someone out there. Just for everybody’s benefit, we inherited this warrant program at the time of the destock, two and a half years ago, and then we’ve been managing it. The interesting thing is indeed, it is the case that our stock has now surpassed the strike price of $11.50. And in the past year-to-date, certain holders have decided to exercise their warrants and basically purchase their stock. So roughly to give you a sense, Michael, out of the warrants outstanding, there’s been a roughly 250,000 round numbers of warrants exercised in the past few months and that has produced on a cumulative basis close to $3 million of proceeds to the company, which obviously we’re going to put to good use in terms of new fields, new hangars and more future growth for the company.
In terms of conversion and what we’re going to do with the warrants, because I get that question every week, we remain, right now, we monitor markets, we monitor the warrants and situation with our stock price. We don’t — we’re not planning, we have no current plans to do anything with our warrants right now and have them remain outstanding for now.
Operator: Your next question comes from [Alan Jackson]. Can you please explain the process of what a lease is signed and when it enters the obligation group? Is it the idea that most properties will enter the obligation group?
Tal Keinan: This is a very new one, but very important. One of the pillars of the business model of Sky Harbour is our ability to borrow tax exempt fixed rate municipal debt at attractive low interest rates. And thus, we created in our first bond insurances with the first six airports this obligate group. Now, it is not a one time phone issue. It’s a program. Meaning, in the future, we can do further bond issuances and they will join the existing bond issue and be part of the affiliated group at that point. It’s when you do the bond transaction that you basically make it part of the obligated group. Now in theory, it doesn’t mean necessarily that when we do a new field, we’re going to merely finance it as part of the obligated group.
We might do interim financings. We may even do some long-term money issues outside the obligated group and wait to collapse them at a later time. So that’s something that depends on market conditions. Maybe one critical thing that I will say is that we’ll always be thinking from the standpoint of the current bond holders and the obligated group that we do things that are credit accretive in terms of as we go grow the program.
Operator: Your next question comes from [Jordan Mullins]. You have indicated you expect three new ground leases in the first half of the year. You announced two today. Are you able to provide an update on ground lease negotiations, especially in top tier markets? And have you found those top tier markets tend to take longer? Appreciate any color you can provide here.
Tal Keinan : So our policy is to announce agreements only when they become binding. So we can’t provide specific names. What I think is okay to say is, look, the site acquisition team has grown a lot over the past year. We’re working a lot smarter and a lot faster than we did a year ago and still the amount of work on each of our places is growing fast. So we’re quite enthusiastic about what the pipeline looks like. And, again, specific names will come out as the binding ground leases get signed. With regard to you asked if those Tier 1 markets take longer. I don’t think we’ve observed a correlation there. There’s a gestation period. It varies a lot. I don’t think it necessarily correlates to the attractiveness of the market.
Some takes a long time, some takes a little time, which is why we found the best approach is to be in process in many, many airports simultaneously. And they come through when they come through. This is an exercise in throughput rather than cycle time.
Operator: Your next question comes from [Michael Diana]. How do you get more than 100% occupancy?
Tal Keinan : If you have 12,000 feet of hangar and you lease it as we do in most cases to a single tenant who might have multiple aircraft, it doesn’t really matter to us what actually goes into the hangar. However, we’ve had a lot of success, particularly in Nashville and to maybe a lesser extent in Miami and what we call semi private leasing. If you have a midsize aircraft, you’re flying a Challenger or Falcon 900 or something like that, it’s not necessarily justified for you to take a full Sky Harbour 16 hangar. So what we’ve done is provide private office and lounge space, but you have one or two or three other aircraft with you in the hangar. And there we price the hangars in the — or the hangar slots in the same way that FBOs do, which is by square footage of aircraft, which is defined as length times wingspan, the industry convention.
And, of course, that entire rectangle is not occupied. The corners are empty. So you can get to slightly higher than 100% occupancy. Now the Sky Harbour 16 is okay for that. It was really intended originally as a private hangar. We’ve moved as a consequence of the change in the NFPA 409 fire code that governs hangar construction to a new flagship hangar, which is the Sky Harbour 34, which is essentially two Sky Harbours 16. If you look at it kind of from an aerial shot, it looks like two Sky Harbours 16. You can demise a Sky Harbour 34 and create two fully private hangars, two fully private Sky Harbour 16. It’s just that the demising wall is now not fire rated. It’s just an acoustic all between those two hangars. However, when you open it up and use it for semi private use, it’s much more stackable.
So for example, you can get two heavy aircraft into two Sky Harbour 16. You can get three heavy aircraft into one Sky Harbour 34 for the same footprint on the ground. So what we expect is when the new airports come online with Sky Harbour 34 that occupancy above 100% will be I think a bigger part of the business plan. It may be a bit of a nuanced question, but I think that’s where you’re going to. Appreciate the question.
Operator: Your next question comes from [Peyton Skill]. The new airfield average RFS/hangar is in the 30,000 RFS range rationale for moving to larger sizes. Do larger hangars bring additional complexities/costs?
Tal Keinan: So that’s more or less what I was talking about now when I was answering Michael’s question about the utility of the Sky Harbour 34. By the way, particularly, at the at the Tier 1 airports where we just can’t get enough space. The more space we get, the happier we are. So the ability to create a higher revenue density at those airports is key. So the Sky Harbour 34 is far superior to the Sky Harbour 16 in that respect. In terms of complexity and cost not really. I can say that there is more steel that goes into it because we have a longer free span on the Sky Harbour 34 than you have on the Sky Harbour 16. So, yes, I’d say in terms of the amount of steel that goes into it a bit more, it’s not something that’s going to move the needle dramatically in terms of total cost of a new airfield.
And complexity, it’s actually, I would say, slightly simpler than the Sky Harbour 16 in that we don’t have to use vertical lift doors. Because one remember one of the more expensive components of our current construction is those vertical lift doors. We use vertical lift today because the hangars demise into each other, right? We want maximum revenue density on each campus. So there’s no space between the hangars, they adjoin each other, so to speak. So you can’t really have sliding doors. That’s why we use vertical lift doors today, which is expensive and adds a bit of complexity. In the Sky Harbour 34, you can have sliders without sleeves for the sliders and maybe we’ll put out something that kind of shows what that looks like at some point.
But in terms of operations, it’s actually slightly less complex.
Operator: Your next question comes from [Lucas Horton], a four-part question. One, do you have any longer term margin profit targets? Two, where do you expect to expand your headcount? What divisions do you see opportunities for headcount growth? Three, could you discuss your expectations for capital requirements for the foreseeable future? And four, how often are you competing with another provider when bidding for new contracts? What is the average number competitors you see when bidding for new builds?
Francisco Gonzalez: A lot of questions here but let me go quickly here in order. A long-term margin profile target. Yes. So, our margin really comes from the difference between our tenant leases and our operating expenses, our ground lease payments and our cost of capital of the overseas are capital intensive and we borrow a lot of money, in terms of debt to be capital equity and debt to finance it. So it is that margin that really drives a long-term margin for our business. So obviously, it’s interest rate sensitive, it’s sensitive also to the construction cost and so on. So once stabilized to have from an operating perspective attractive margins. It’s when you look at the totality of net margins that you have to bring all these first elements into account.
