Sky Harbour Group Corp 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   Market Information   (a) Market Information   The Company’s Class A Common Stock and Public Warrants are listed on the NYSE American under the symbols “SKYH” and “SKYH WS,” respectively. Prior to the consummation of the Business Combination, YAC’s Units, YAC’s Class A Common Stock and YAC’s Public Warrants were listed on the NASDAQ Capital Market under the symbols “YSACU”, “YSAC” and “YSACW,” respectively. Upon consummation of the Business Combination, YAC’s Units automatically separated into the component securities, YAC’s Class A Common Stock was reclassified as our Class A Common Stock and YAC’s Public Warrants were reclassified as our Public Warrants.   As of December 31, 2022, there were five holders of record of Class A Common Stock and three holders of record of Warrants. However, because many of the shares of Class A Common Stock and the Warrants are held by brokers and other institutions on behalf of stockholders, the Company believes there are substantially more beneficial holders of Class A Common Stock and Warrants than record holders.   (b) Dividends   We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of any Business Combination. The payment of any cash dividends subsequent to our Business Combination will be within the discretion of our Board at such time. In addition, our Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our Business Combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.   (c) Securities Authorized for Issuance Under Equity Compensation Plans   The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2023 Annual Meeting of Stockholders.   (d) Recent Sales of Unregistered Securities , Use of Proceeds from Registered Public Offering   None.   (e) Purchases of Equity Securities by the Issuer and Affiliated Purchasers   None.   ITEM 6. [RESERVED]   34 Table of Contents   ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion and analysis of the Company ’ s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “ Item 8. Financial Statements and Supplementary Data ” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “ Special Note Regarding Forward-Looking Statements, ” “ Item 1A. Risk Factors ” and elsewhere in this Annual Report on Form 10-K.   Overview and Background   We are an aviation infrastructure development company building the first nationwide network of HBS hangar campuses for business aircraft. We develop, lease, and manage general aviation hangars across the United States, targeting airfields in markets with significant aircraft populations and high hangar demand. Our HBS hangar campuses feature exclusive private hangars and a full suite of dedicated services specifically optimized for home-based, versus transient, aircraft.   The physical footprint of the U.S. business aviation fleet grew by almost 28 million square feet in the ten years preceding the beginning of the COVID-19 pandemic, with hangar supply lagging dramatically, especially in key growth markets. As the fleet of private jets in the United States continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium in part because new jets require more square footage of hangar space and the pace of new hangar construction has lagged behind the demand. The cumulative square footage of the business aircraft fleet in the United States increased 50% between 2010 and 2021. Moreover, over that same period, there was an 81% increase in the square footage of larger private jets – those with greater than a 24-foot tail height. A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next ten years, with up to 8,500 new business jet deliveries worth almost $275 billion expected to be delivered between 2023 and 2032, further supported by data from the major business aviation manufacturers that suggest the current order backlog for new business aviation aircraft is almost $47 billion.   These larger footprint aircraft do not fit in much of the existing hangar infrastructure and impose stacking challenges and constraints in the traditional shared or community hangars operated by FBOs. The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage. Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years.   We believe our scalable, real estate-centric business model is uniquely optimized to capture this market opportunity and address the increased imbalance between the supply and demand for private jet storage. We intend to capitalize on the existing hangar supply constraints at major U.S. airports by targeting high-end tenants in markets where there is a shortage of private and FBO hangar space, or where such hangars are or are becoming obsolete.   We realize economies of scale in construction through a proprietary prototype hangar design replicated at HBS hangar campuses across the United States. This allows for centralized procurement, straightforward permitting processes, efficient development processes, and the best hangar in business aviation. Unlike a service company, our revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows. This allows the Company to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk.   For a more complete description of our operations, including our HBS hangar campus development projects, refer to Item 1 — Business .   35 Table of Contents   Recent Developments   On October 27, 2022, we substantially completed the construction of our BNA Phase II development project. The total construction costs incurred associated with the project were slightly less than our initial estimated construction costs. In connection with the substantial completion of our BNA HBS hangar campus, certain tenant leases associated with our constructed hangars commenced starting in November 2022.   On January 19, 2023, we amended our existing ground lease agreement with the Town of Addison, TX to include additional parcels of land that will effectively double the land available for development at our ADS HBS hangar campus project.   On February 1, 2023, we substantially completed the construction of our OPF Phase I development project. In connection with the substantial completion of the OPF Phase I hangar campus, tenant leases for certain of our constructed hangars commenced starting in February 2023.   On March 22, 2023, we satisfied the requirements within the Series 2021 PABs indenture to fund construction costs associated with our ADS Phase I development project with proceeds received from our Series 2021 PABs. See “ Note 18 — Subsequent Events — Series 2021 PABs Scope Modification ” in the Notes to Consolidated Financial Statements for additional information regarding the modification of the scope of our Series 2021 PABs. The approval and exercise of such rights will allow approximately $26 million of proceeds to be used to fund the ADS Phase I development project, and is projected to improve our debt service coverage associated with the Series 2021 PABs.   Factors That May Influence Future Results of Operations   Revenues   Our revenues are earned pursuant to the lease agreements we enter into with our tenants. Our ability to expand through new ground leases and tenant leases at airports is integral to our long-term business strategy and requires that we identify and consummate suitable new ground leases or investment opportunities in real estate properties for our portfolio that meet our investment criteria and are compatible with our growth strategy. Our ability to enter into new ground leases and tenant leases on favorable terms, or at all, may be adversely affected by a number of factors. We believe that the business environment of the industry segments in which our tenants operate is generally positive for tenants. However, our existing and potential tenants are subject to economic, regulatory and market conditions that may affect their level of operations and demand for hangar space, which could impact our results of operations. Accordingly, we actively monitor certain key factors, including changes in those factors (fuel prices, new aircraft deliveries, hangar rental rates) that we believe may provide early indications of conditions that may affect the level of demand for new leases and our lease portfolio. See “ Risk Factor s— Risks Related to our Business and Operations ” for more information about the risks related to our tenants and our lease payments.   Operating Expense   One of our largest expenses are the lease payments payable under our ground leases. For the years ended December 31, 2022 and 2021, our operating expense related to ground leases was $3.7 million and $3.7 million, respectively. As we enter into new ground leases at new airport sites, our payments to airport landlords will continue to increase into the future. If airport landlords increase the per acre cost of the ground lease of our target campuses, the operating margins at potential target developments may be impacted negatively.   Interest Expense   Economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs. We expect to issue additional debt to finance future site developments and higher interest rates would impact our overall economic performance. In addition, we are subject to credit spreads demanded by fixed income investors and bank lenders. As a non-rated issuer, increases in general of credit spreads in the market, or for us, may result in a higher cost of borrowing in the future. We intend to access the bond market on an opportunistic basis. In addition, we may hedge against rising benchmark interest rates by entering into hedging strategies with high quality counterparties.   General and Administrative Expenses   The general and administrative expenses reflected in our statement of operations are reflective of the professional, legal and consulting fees, payroll costs, and other general and administrative expenses, including those necessary to support our business as a public company such as expenses associated with corporate governance, SEC reporting, and other compliance matters. While we expect that our general and administrative expenses will rise in some measure as our portfolio of campuses grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies, economies of scale, insourcing of job functions, and cost control measures.   36 Table of Contents   Construction Material Costs and Labor   When constructing our HBS hangar campuses, we use various materials and components. We generally contract for our materials and labor under guaranteed maximum price contracts upon receipt of building permits. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on an HBS hangar campus and the time it is completed. Typically, the materials and most of the components used to construct our HBS hangar campuses are readily available in the United States. In addition, the majority of our materials are supplied to us by our contractors and is included in the price of our contract with such contractors. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in steel, concrete, and labor. We believe that recent inflationary pressures and market conditions will lead to continued increases in construction costs as well as market rental rates for hangars within our HBS hangar campus development projects. However, there can be no assurance that we will be able to increase the lease rates for the hangars within our HBS hangar campuses to absorb these increased costs and/or delays, if at all.   We intend to continue to aggressively take action to mitigate these inflationary pressures, reduce construction costs, and shorten development schedules, both in the near term at our APA Phase I, DVT Phase I, and ADS Phase I development projects, and in the long term at future projects. We structure our guaranteed maximum price construction contracts with shared savings clauses to incentivize the general contractors to reduce construction costs. At our SGR Phase I and BNA Phase II development projects, our total construction costs were lower than both our original pricing estimate and the project’s contracted guaranteed maximum price.   In July 2022, we entered an exclusive strategic vendor partnership with a metal building and hangar door manufacturer that we expect to result in a reduction in the cost of the metal building and hangar door components at all future HBS hangar campuses. As our strategic partnership grows, we expect this vertical integration will enable us to deliver metal buildings to each development site in shorter timeframes, which we believe will reduce the overall construction duration of each development project. No assurance can be given that our cost mitigation strategies will be successful, the costs of our projects will not exceed budgets or the guaranteed maximum price for such projects, or that the completion will not be delayed beyond the projected completion dates.   Current Capital Requirements and Future Expenditures for Expansion   We previously funded SHC with over $200 million to fund the two phases at each of our five ground leased airport locations. These construction funds and reserves are held at the bondholder trustee.   We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than previously contemplated projects. We exercised this ability and received the requisite approvals and reports in March 2023 with respect to our ADS Phase I development project.   We consummated the Yellowstone Transaction on January 25, 2022, to raise additional equity capital to, along with potential future debt and further equity issuances, begin to fund additional airport campuses and reach up to 20 airport campuses over the next several years. On average, each future campus is anticipated to be composed of an average of 10-20 hangars and is expected to cost approximately $55 million per campus, with 60% or more to be funded with additional public activity bonds. All these future hangar campus projects are discretionary and require us to identify the appropriate airports with the target hangar demand economics, secure required ground leases and permits, and complete future construction at such sites.   The cumulative 20 airport site business plan is estimated to cost approximately $1.2 billion, with approximately 65% to 75% anticipated from long-term private activity bonds and the balance with equity or equity linked financing. The equity portion of this business plan has been partially funded upon the closing of the Yellowstone Transaction, which included an additional $45 million equity investment from Boston Omaha through the BOC PIPE.  Our ability to raise additional equity and/or debt financing will be subject to a number of risks, including our ability to obtain financing upon reasonable terms, if at all, costs of construction, delays in constructing new facilities, operating results, and other risk factors. In the event that we are unable to obtain additional financing, we may be required to raise additional equity capital, creating additional dilution to existing stockholders. There can be no assurance that we would be successful in raising such additional equity capital on favorable terms, if at all.  Even if we can obtain such additional equity financing if needed, there can be no assurance that we would be successful in raising such additional financing on favorable terms, if at all.   37 Table of Contents   Critical Accounting Policies and Estimates   The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:   Cost of Construction   Cost of construction on the consolidated balance sheets is carried at cost. The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use. Costs are capitalized once the construction of a specific capital project is probable. Construction labor and other direct costs of construction are capitalized. Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized. We allocate a portion of our internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas. Interest costs on the debt used to fund the capital projects are also capitalized until the capital project is completed.   Once a capital project is complete, the cost of the capital project is reclassified to Constructed Assets on the accompanying balance sheet and we begin to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms.   Leases   We account for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. We determine whether a contract contains a lease at the inception of the contract. ASC Topic 842 requires lessees to recognize operating lease liabilities and right-of-use (“ROU”) assets for all leases with terms of more than 12 months on the consolidated balance sheets. We have made an accounting policy election that will keep leases with an initial term of 12 months or less off our consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. When management determines that it is reasonably certain that we will exercise our options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and operating lease liability balances.   We also have tenant leases and account for those leases in accordance with the lessor guidance under ASC Topic 842.   We have lease agreements with lease and non-lease components; we have elected the accounting policy to not separate lease and non-lease components for all underlying asset classes.   We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations.    Revenue Recognition   We lease hangar facilities that we construct to third parties. The lease agreements are either on a month-to-month basis or have a defined term and may have options to extend the term. Some of the leases contain options to terminate the lease by either party with given notice. There are no options given to the lessee to purchase the underlying assets. Rental revenue is recognized in accordance with ASC Topic 842, Leases, and includes (i) fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and is recognized on a straight-line basis over the term of the lease and (ii) variable payments of tenant reimbursements, which are recoveries of all or a portion of the common area maintenance and operating expenses of the property and are recognized in the same period as the expenses are incurred.   The Company evaluates the collectability of tenant receivables for payments required under the lease agreements. If the Company determines that collectability is not probable, the Company recognizes any difference between revenue amounts recognized to date under ASC 842 and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to rental revenue.   Use of Estimates   The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining incentive compensation expense and equity instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities. Actual results could differ materially from those estimates.   Recent Accounting Pronouncements   See “ Note 2 —  Basis of Presentation and Significant Accounting Policies ”in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.   38 Table of Contents   Results of Operations   Year ended December 31, 2022 Compared to the Year ended December 31, 2021   The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods (in thousands).        Year ended               December 31, 2022     December 31, 2021     Change   Revenue:                         Rental revenue   $ 1,845     $ 1,578     $ 267   Total revenue     1,845       1,578       267                             Expenses:                         Operating     5,046       4,471       575   Depreciation     695       570       125   Loss on impairment of long-lived assets     248       -       248   General and administrative     14,714       8,737       5,977   Total expenses     20,703       13,778       6,925                             Other (income) expense:                         Interest expense, net of capitalized interest     -       1,160       (1,160 ) Other (income) expense     (98 )     -       (98 ) Unrealized (gain) loss on warrants     (5,082 )     -       (5,082 ) Loss on extinguishment of note payable to related party     -       250       (250 ) Total other (income) expense     (5,180 )     1,410       (6,590 )                           Net loss   $ (13,678 )   $ (13,610 )   $ (68 )   Revenues   Revenues for the year ended December 31, 2022 were approximately $1.8 million, compared to approximately $1.6 million for the year ended December 31, 2021. The 17% increase primarily resulted from additional tenant leases commencing at SGR during the second and third quarters of 2022 and BNA during late 2022.   Operating Expenses   Operating expenses increased approximately $0.6 million, or 13%, from approximately $4.5 million for the year ended December 31, 2021 to approximately $5.0 million for the year ended December 31, 2022. This increase was primarily driven by an approximately $0.4 million increase in salaries, wages, and benefits associated with our campus personnel. The increase was reflective of a headcount increase at BNA associated with the opening of the BNA campus in the three months ended December 31, 2022, an increase at OPF as we prepare to commence operations in the three months ending March 31, 2023, and a headcount increase at SGR to accommodate increased tenant activity. Repair and maintenance expense associated with our hangars and related ground service equipment increased approximately $0.1 million, primarily driven by increased operations at our BNA and SGR campuses.    Depreciation Expense   Depreciation increased approximately $0.1 million, or 18%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase reflects the opening of our BNA campus during the three months ended December 31, 2022 and the placement of additional ground support equipment into service throughout 2022.   General and Administrative Expenses   For the years ended December 31, 2022, and 2021, general and administrative expenses were approximately $14.7 million and approximately $8.7 million, respectively. The approximately $6.0 million increase was primarily driven by an approximately $2.5 million increase in salaries, wages, and benefits, which reflects an increase in full-time and contracted employees. The increase also reflects the implementation of stock and cash incentive compensation programs instituted to attract and retain employees. Other administrative expenses increased approximately $2.2 million driven primarily by insurance, franchise taxes, and computer and software expenses. Marketing and pursuit costs increased approximately $0.6 million in the year ended December 31, 2022, compared to the year ended December 31, 2021, reflecting our growth strategy in securing airport site acquisitions and potential tenants. Professional fees increased approximately $0.7 million due to an increase in legal, accounting, and consulting costs as compared to the prior year primarily as a result of becoming a public company.   Other (Income) Expenses   Other (income) expenses increased from approximately $1.4 million of other expense to approximately $5.2 million of other income for the year ended December 31, 2022 as compared to the year ended December 31, 2021. This increase was primarily due to an approximately $5.1 million mark-to-market gain of the outstanding warrants at December 31, 2022. These warrants were issued by YAC as part of its initial public offering. As a result, the warrants were not reflected in Sky’s financial statements for the Year ended December 31, 2021.   39 Table of Contents   Liquidity and Capital Resources   Overview   Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund the construction of new assets, fund working capital and other general business needs. Our primary sources of cash include the potential issuance of equity and debt securities and rental payments from tenants. Our long-term liquidity requirements include lease payments under our ground leases with airport authorities, repaying principal and interest on outstanding borrowings, funding the construction costs of our HBS hangar campuses (see  “— Construction Material Costs and Labor ”) funding for operations, and paying accrued expenses.    We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional private activity bonds and other debt and the issuance of additional equity securities. However, as a new publicly-traded company, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms. Our ability to incur additional debt will depend on multiple factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that are or may be imposed by future lenders. Our ability to access the equity and debt capital markets will depend on multiple factors as well, including general market conditions for real estate companies, our degree of leverage, the trading price of our common stock and debt and market perceptions about our Company.   Our cash deposits may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and the majority are maintained with a major financial institution with reputable credit. Our restricted cash is held in trust at a major financial institution pursuant to the Series 2021 PABs indenture. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Our portfolio of investments and restricted investments is composed entirely of U.S. Treasury securities as of December 31, 2022.   The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of December 31, 2022 and 2021 (in thousands):       December 31, 2022     December 31, 2021   Cash and cash equivalents   $ 2,174     $ 6,805   Restricted cash     39,222       197,130   Investments     24,895       -   Restricted investments     114,648       -   Total cash, restricted cash, investments, and restricted investments   $ 180,939     $ 203,935     Common Stock Purchase Agreement   On August 18, 2022, we entered into the Stock Purchase Agreement with B. Riley. Pursuant to the Stock Purchase Agreement, we have the right, in our sole discretion, to sell to B. Riley up to 10 million shares of our Class A Common Stock at 97% of the volume weighted average price of our Class A Common Stock calculated in accordance with the Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the Purchase Agreement. Sales and timing of any sales of Class A Common Stock are solely at our election, and we are under no obligation to sell any securities to B. Riley under the Purchase Agreement. As consideration for B. Riley’s commitment to purchase shares of our Class A Common Stock, we have issued 25,000 shares of our Class A Common Stock to B. Riley as initial commitment shares and may issue up to an aggregate of 75,000 shares of our Class A Common Stock to B. Riley as additional commitment shares if certain conditions are met. As of December 31, 2022, we have sold no shares of our Class A Common Stock to B. Riley pursuant to the Stock Purchase Agreement. See “ Note 10  —  Equity and Redeemable Equity ” in the Notes to Consolidated Financial Statements for additional information regarding the Stock Purchase Agreement.   Equity Financing   On the Closing Date, we completed the Yellowstone Transaction, Yellowstone changed its name to Sky Harbour Group Corporation, and Sky restructured its capitalization, issuing its Sky Common Units to the Company. As a result of the Yellowstone Transaction, the Sky Common Units that Sky issued to BOC YAC in respect of its Series B Preferred Units were converted into 5,500,000 shares of the Company’s Class A Common Stock and holders of Sky Common Units received one share of the Company’s Class B Common Stock for each Common Unit. As consideration for the issuance of Sky Common Units to the Company, Yellowstone contributed approximately $48 million of net proceeds to us, consisting primarily of the BOC PIPE, and the amount held in the Yellowstone trust account, net of redemptions and transaction costs.   Private Activity Bonds   On September 14, 2021, SHC completed an issuance through the Public Finance Authority (Wisconsin) of $166.3 million of Series 2021 PABs. The Series 2021 PABs are comprised of three maturities: $21.1 million bearing interest at 4.00%, due July 1, 2036; $30.4 million bearing interest at 4.00%, due July 1, 2041; and $114.8 million bearing interest at 4.25%, due July 1, 2054. The Series 2021 PAB that has a maturity date of July 1, 2036 was issued at a premium, and Sky received bond proceeds that were $0.2 million above its face value. The net proceeds from the issuance of the Series PABs proceeds are being used to (a) finance or refinance the construction of various aviation facilities consisting of general aviation aircraft hangars and storage facilities located and to be located on the SGR site, the OPF site, the BNA site, the APA site, the DVT site, and following our March 2023 election to reallocate a portion of the net proceeds, the ADS site; (b) fund debt service and other operating expenses such as ground lease expense during the initial construction period; (c) fund deposits to the Debt Service Reserve Fund; and (d) pay certain costs of issuance related to the Series PABs.   40 Table of Contents   Debt Covenants   The Series 2021 PABs contain financial and non-financial covenants, including a debt service coverage ratio, a restricted payments test and limitations on the sale, lease, or distribution of assets. To the extent that SHC does not comply with these covenants, an event of default or cross-default may occur under one or more agreements, and we or our subsidiaries may be restricted in our ability to pay dividends, issue new debt or access our leased facilities. The Series 2021 PABs are collateralized on a joint and several basis with the property and revenues of all SHC subsidiaries and their assets financed or to be financed from the proceeds of the Series 2021 PABs.   Covenants in the Series 2021 PABs require SHC to maintain a debt service coverage ratio (as defined in the relevant documents) of at least 1.25 for each applicable test period, commencing with the quarter ending December 31, 2024. The Series 2021 PABs are subject to a Continuing Disclosure Agreement whereby SHC is obligated to provide electronic copies of (i) monthly construction reports, (ii) quarterly reports containing quarterly financial information of SHC and (iii) annual reports containing audited consolidated financial statements of SHC to the Municipal Securities Rulemaking Board. As of December 31, 2022, we were in compliance with all debt covenants.   Lease Commitments   The table below sets forth certain information with respect to our future minimum lease payments required under operating leases as of December 31, 2022 (in thousands):       Amount Due   2023   $ 2,027   2024     2,210   2025     2,268   2026     2,280   2027     2,343   Thereafter     196,639   Total lease payments     207,767   Less imputed interest     (154,236 ) Total   $ 53,531     Contractual Obligations   The following table sets forth our contractual obligations as of December 31, 2022 (in thousands):       2023     2024-2025     2026-2027     Thereafter     Total   Principal Payments of Long-Term Indebtedness (1)   $ -     $ -     $ -     $ 166,340     $ 166,340   Interest Payments on Long-Term Indebtedness (2)     6,940       13,881       13,881       126,010       160,712   Lease Commitments (3)     2,027       4,478       4,623       196,639       207,767                                             Total   $ 8,967     $ 18,359     $ 18,504     $ 488,989     $ 534,819      (1)  Consists of contractual principal payments on our Series 2021 PABs. See “ Note 8 — Bonds payable, Loans payable and interest ” in the Notes to Consolidated Financial Statements for additional information regarding the Series 2021 PABs.  (2)  Following the issuance of the Series 2021 PABs, all of our indebtedness is now fixed rate debt. Interest payments for the first three years on the Series 2021 PABs are held in reserve as restricted cash and restricted investments. See “ Note 8 — Bonds payable, Loans payable and interest ” in the Notes to Consolidated Financial Statements for additional information regarding the Series 2021 PABs.   (3)  The Company’s ground leases expire between 2049 and 2097, which include all lease extension options available to the Company. See “ Note 7 — Leases ” in the Notes to Consolidated Financial Statements for additional information regarding our lease commitments.   Off-Balance Sheet Arrangements   We do not maintain any off-balance sheet arrangements.   41 Table of Contents   Cash Flows   Historical Cash Flows   The following table summarizes our sources and uses of cash for the Year ended December 31, 2022 and 2021 (in thousands):       Year ended       December 31, 2022     December 31, 2021   Cash and restricted cash at beginning of period   $ 203,935     $ 72   Net cash used in operating activities     (27,491 )     (6,615 ) Cash used in investing activities     (187,838 )     (15,994 ) Net cash provided by financing activities     52,790       226,472   Cash and restricted cash at end of period   $ 41,396     $ 203,935     Operating Activities   Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Included in net cash provided by operations are certain non-recurring legal, accounting, and consulting costs incurred for up to four quarters as a result of becoming a public company and a one-time outflow associated with the purchase of a leasehold interest at OPF. Our working capital consists primarily of cash, receivables from tenants, prepaid expenses, accounts payable, accrued compensation, accrued other expenses, and lease liabilities. The timing of collection of our tenant receivables, and the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.   Net cash used in operating activities was $27.5 million for the year ended December 31, 2022, compared to $6.6 million for the same period in 2021. The $20.9 million increase in cash used in operating activities was primarily attributable to the $9.6 million of initial direct costs associated with the purchase of our former landlord's leasehold interest at OPF. The increase was also partially attributable to a $5.0 million increase in net loss, net of non-cash adjustments, and a $6.2 decrease in working capital. The increase in net loss and changes in working capital were primarily driven by general and administrative expenses incurred in the expansion of our business, including transaction-related expenses and other expenses related to corporate governance.   Investing Activities   Our primary investing activities have consisted of payments related to the cost of construction at our various HBS hangar campus development projects and investment in U.S. Treasury Securities. As our business expands, we expect to continue to invest in our current and anticipated future portfolio of HBS development projects.   Cash used in investing activities was $187.9 million for the year ended December 31, 2022, compared to $16.0 million for the same period in 2021. The increase of $171.9 million in cash used in investing activities was driven primarily by $193.8 million of purchases of held-to-maturity U.S. Treasury securities during the first and third quarters of 2022, the $30.0 million purchase of available-for-sale U.S. Treasury securities during the second quarter, and a $29.1 million increase in payments for costs of construction due to the Company’s ongoing construction projects at BNA, OPF, APA, and DVT. These increases were offset by proceeds of $79.1 million received at maturity of certain of the Company’s restricted investments.   Financing Activities   Our primary financing activities have consisted of capital raised to fund the growth of our business and proceeds from debt obligations incurred to finance our HBS hangar campus development projects. We expect to raise additional equity capital and issue additional indebtedness as our business grows.   Net cash provided by financing activities was $52.8 million for the year ended December 31, 2022, compared to $226.4 million for the same period in 2021. The $173.6 million decrease in net cash provided by financing activities was primarily driven by $166.5 million of bond proceeds received during the third quarter of 2021 due to the issuance of the Series 2021 PABs, and $55.0 million of proceeds received from the issuance of the Sky Series B Preferred Units during the third quarter of 2021, and $30.0 million of proceeds from the issuance of Series A Preferred Units in the first quarter of 2021. These decreases were offset by $45.0 million of proceeds received from the issuance of the BOC PIPE and $15.7 million of gross proceeds from the Yellowstone trust account, both occurring in the first quarter of 2022.