Sonida Senior Living CFO: We’re Centralizing Operations to Grow Margins

With occupancy on the rise, Sonida Senior Living (NYSE: SNDA) is turning its focus to improving margins, an effort led by its new CFO.

Currently, the company’s operations are “cash flow neutral,” according to CFO Kevin Detz, who joined Sonida in May. But he sees a runway to achieving margins closer to 20%, with a goal to return to “optimal” margins of 30% in part by mitigating expenses and growing rates.

To achieve that, Detz is leading the charge in centralizing Sonida’s operations. Specifically, he believes the company can lean on its existing Dallas-based support center to gain operating scale by automating and improving some functions to boost efficiency.

“That’s going to relieve the burden somewhat on the folks out in the community,” Detz told Senior Housing News. “If we can win there, … we can get folks back to doing what they should be doing, which is taking care of our residents.”

He added that “job number one” is creating a scalable operations model that sets up the company’s communities for success.

“We’re keenly focused on the drivers of margin: occupancy rate, labor, and ultimately, sustainability and scalability with the Dallas support center,” he said. “It all starts with a foundation.”

Detz arrived at Sonida with a background in operations. His previous employer was Aimbridge Hospitality where he held a variety of roles over eight years, including executive vice president and operational CFO. He sees some big similarities between the two industries that made his transition easy.

“The core of the business are the residents and … a hospitality company’s business are their guests,” said Detz. “To make the residents happy, you’ve got to support the community team, and to support the community team, you’ve got to have the right infrastructure in place.”

Dallas-based Sonida Senior Living owns 62 communities and manages 14 others, with an average occupancy rate of 82% as of this March. The company, formerly called Capital Senior Living, rebranded as Sonida last November, setting it up for “not just the next chapter, but the next book,” CEO Kim Lody said at the time.

Building the foundation

As Detz gets deeper into his new role, he is reflecting on the pain hospitality companies felt with staffing in the early days of the pandemic, much like what is occurring now in the senior living industry.

In both hospitality and senior living, labor accounts for up to about 50% to 60% of operating costs at a particular location, according to Detz.

“Just like in the hospitality market, the labor crisis has ultimately resulted in people at the property level wearing multiple hats,” he said.

The move to further centralize the company’s operations is aimed at helping workers cut down on the number of tasks they have to perform on a day-to-day basis. While the pandemic has resulted in a more multi-talented workforce, it has also made some workers less effective, given all they must do on top of their duties.

At the same time, leaders at Sonida have seen more willingness among line staff to have more control over their schedules — something that is hard to do if you’re already working overtime.

Detz said Sonida has made progress adapting a “gig-shift” model that gives workers the flexibility to have more control over when they work and for how long they work. The support center in Dallas gives Sonida the “density” in its operations to achieve that, he added.

“I think it plays nicely into what the millennial mindset is,” said Detz.

In fact, he thinks a more flexible model will eventually replace the need for using contract labor, which is a financial quagmire for many operators.

Detz sees another benefit in further centralizing the company’s operations: Growth. Specifically, he believes it will help “open the doors on the management side of the business.” While Detz is focused on centralization, he is at the same time aiming to maintain the company’s “scrappy” culture.

“That’s just going to make these acquisition opportunities that much more appealing, knowing we can unlock that much more value,” he added. “With the opportunity to make those even better deals by increasing our infrastructure and how we scale, I think that those are going to be really attractive to us.”

On the topic of a possible recession down the road and its impact on senior living, Detz cautioned that t “nobody has a crystal ball.”

But he sees that outcome as a potential opportunity to get a better handle on labor expenses, as a recession would shift the job market in favor of employers.

“it’s been an employees’ market the last year-and-a-half to two years,” he said. “And not that anybody is rooting for a recession, but I think we’re insulated a little bit relative to the composition of the labor workforce.”

Detz said he is bullish on market conditions for the next six or seven quarters, and he is heartened by Sonida’s consistent occupancy growth. That view is bolstered by tailwinds such as limited construction and growing demographics.

Ups and downs weathered by the industry over the past six or seven years worked to take “some of the tourists out of the business,” Detz said. But at the same time, “it pushed up players that are adaptable and scrappy which I think Sonida is.”

“Whoever’s left in this space really has an incredible opportunity with the aging demographic, and the supply reduction,” he said. “I think it is the perfect economic tailwind.”

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