16 Comments
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Allen Jackson's avatar

Great job! I've been a share holder since 2022. Just some feedback on the report. I think you should go into more detail about the PABs and how they are structured. This is a tailwind for the company too as they essentially have permanent low cost debt. You marry this with the "Growing Annuity" of income from hangar rent and you have a nice spread between the cost of capital and NOI yield. Great job again!

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Asymmetric Value's avatar

thank you! You are totally right. Tal was highlighting that in his latest interview. It's a very good point, and certainly a strong driver for future growth once the campuses will be operational. Thank you

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Alejandro Yela's avatar

Pretty decent job! Keep the write-ups coming

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Asymmetric Value's avatar

Thank you Alejandro!

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Summit Stocks's avatar

Wow! Amazingly detailed article, thanks for the idea and your work. I'd never heard of Sky Harbour before.

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Asymmetric Value's avatar

Thank you!! Let me know if you want to discuss about it

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Enrique G. Herrero's avatar

Enjoying and learning a lot with this great job. Thank you!

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Ahmanson Josifitz's avatar

Good job. I agree that the value add services offered onto of the hangers can be meaningful to the FCF per SQFT. Specially in the top 10 locations. Also a sale of a prime location at a very low cap rate will put them on the map as having some of the best real estate in the country.

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New Colony's avatar

What’s your view on value in shares v. warrants ?

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Asymmetric Value's avatar

I don't have a specific view on warrants. I just bought shares, because that's my comfort zone.

At the right price it can be a good alternative for sophisticated investors. Their exercise price is $11.5 and cost $2.15 right now (at $0.2 a couple years ago was a real bargain). I prefer a less sophisticated approach and just owning shares. Warrants have their own risks and benefits, but my view is more from a business perspective rather than the instrument.

Warrants have good characteristics like limiting the upfront and total money at risk, but they have a cost. With a more mature project like the one right now, I prefer to acquire shares as I see less risk right now. For me is simple: I acquire businesses, and view this company as a long-term investment. But depending on your time horizon, risk aversion, etc. can be a good alternative. I really can't say which one is better, as I just invested in shares.

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New Colony's avatar

If only I knew the company (and therefore, warrants) were even there 2 years ago!

I hold the warrants at ~$2 (so an effective purchase price of $13.5 if exercised in 2 years - not cheap on a nominal basis but $12.40 discounted back using the 10-year so a 10-15% premium to recent trading prices).

A number of reasons I’ve bought warrants but primarily lower holding costs and if we are right, potentially higher upside torque in the warrants - as you do a great job of pointing out, there’s much to play out over the next 2 years - particularly the number of locations becoming operational and being reflected in financial statements.

Qualitatively SKYH looks like an incredible business model and quantitatively management’s stated economics are compelling - I think we’ll be much surer about both in 2 years and we might even find out the economics are even better than management estimate. If so, the price should reflect that. If not, the warrant exposure is lower than buying the shares. Having said all that, if shares keep falling I’ll turn my attention there.

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Asymmetric Value's avatar

haha me too! imaging buying warrants at that price!

Agree with you - If you discount its not a huge premium.

We are aligned - It's a great business with strong economics and with strong growth options for the future

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v1111111's avatar

Really helpful write up - do you know why airports rent out the land so cheaply to SKYH and allow them t make such a large spread? The land is constraint and valuable so am also thinking about how airport considers rent available for alternative use such as hotels or commercial use?

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Asymmetric Value's avatar

Airports typically develop Master Plans that can last more than a decade.

Lease can be seen as cheap compared to the final rent, but consider that developing a campus requres millions of dollars. Plus they generate jobs, so ultimatelly the lesse agreement is a function of the economic Impact in the municipality. They will generare revenue not onlu from the lesse but also on everything that surrounds the new hangars (jobs, increased traffic, etc). So I would say is not that cheap given all the investments required.

The use of land varies on each location. Each local authority will seek to prioritize their main needs and try to expand if possible.

The airports where SKYH is located are normally not interesting for hotels. Additionally, hotels do not increase traffic and do not solve for the problem of airplane storage. So typically airports focus on their operations: commercial, civil and potentially logistics.

Commercial use can be the main priority, but will depend on the airport and their traffic. Based on the master plans I read, commercial is number 1 priority followed by general aviation (in those airports where commercial traffic is high enough).

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v1111111's avatar

Thanks for reply, it is helpful. Generally the economic rent flows to the place where the constraint or bottleneck lies. In this case, the unlevered yield of 10-15% seems high to the hanger construction company. I typically assume construction and real estate operation is fairly commoditized (albeit noting there should be some premium to compensate for construction risk) but the land itself is the unique asset which is bottlenecked. The way the economics is shared makes it look like SKYH is doing something very specialised or unique but I cant put my finger on it. Do you think there is something in particular they can do that others can't? Appreciate your insights as I am new to this company. It is obviously the case given the contracts to date and it seems that this will continue but am trying to get my head around why it is the case. There is material investment required but SKYH do not have a huge balance sheet capacity so their cost of capital shouldn't really be a competitive advantage unless I am missing something

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SourceResult Stocks's avatar

Incredibly helpful, the valuation models especially to map out all the developments. Thanks!

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