Sonida Senior Living (NYSE: SNDA) is on track to reach pre-pandemic occupancy levels in 2022 — but the company’s net operating margin is still lagging behind.
With occupancy rates rising and other sales metrics trending positive and a major rebranding effort behind the company, Sonida CEO Kimberly Lody said 2021 was a transformational year.
After raising $154.8 million in transactions with Conversant Capital, Dallas-based Sonida is also on firmer financial footing than in previous quarters, giving the company’s executives confidence “that there is no longer substantial doubt about the company’s ability to continue as a going concern.”
Now, they are focused on three main priorities for the year ahead: keeping residents and workers healthy and well, fully recovering occupancy lost during the pandemic and expanding NOI.
Sonida Senior Living’s share price grew nearly 1%, landing at $32.97 by the time the markets closed Monday.
Occupancy up, execs ‘not happy’ with margin
A bright spot in Sonida’s fourth-quarter report was the company’s average occupancy rate, which is now just 140 basis point away from its 1Q20 rate of 83.7%.
In particular, short-term incentives helped push occupancy at or above 80% in more than three quarters of the company’s 77 communities, with an overall average rate of 82.6% as of the end of March.
Looking ahead for the rest of the year, Lody and the rest of the company’s executives are confident that pre-pandemic occupancy is within reach.
“Our goal is to be at pre-pandemic occupancy at or before the end of 2022, and we feel really good about the momentum that we have to get there,” Lody said Monday during a call with investors and analysts.
What hasn’t increased to pre-pandemic levels is the company’s net operating margin for the 60 communities it owns. In 4Q21, Sonida’s average net operating income margin shrunk to 18.2%, down from 23.6% during the same period last year, mostly due to the effect that ballooning staffing budgets have had on the company’s bottom line.
“We are not happy at all with this operating margin and are focused on improving it as quickly as possible,” Lody said.
Compared with the fourth quarter of 2020, total labor costs for Sonida increased $2.6 million, primarily due to a $1.7 million increase in contract labor costs, COO Brandon Ribar said. But Sonida has also seen positive net hires in the last two quarters, and contract labor usage and costs have dropped between January and March of this year.
“Throughout 2021, we introduced staffing and scheduling technology to support a more flexible and employee-friendly work environment,” Ribar said, who also touted the company’s expanded recruitment efforts and wage increases to alleviate labor issues.
Lody said Sonida intends to drastically reduce or eliminate contract labor — something the company had already accomplished at the end of 2019 before the pandemic hit.
“We can do it again,” she added.
With occupancy on the upswing, Sonida’s leaders in 2022 are turning their attention to margin growth. Through “responsible increases” in rates, the company was able to grow revenue per available unit (REVPAR) by 5.3% in 4Q21.
And although margins are not where management wants them to be, the company’s leaders are optimistic about the year ahead, given the positive trends in census and its efforts slashing agency staffing costs.
“While plenty of work remains to continue occupancy and margin recovery across all of our communities, many of our local teams have already exceeded their pre-pandemic operating metrics,” Ribar noted.
The company is also putting that positive momentum to work in growing its portfolio with its major real estate investment trust (REIT) partners. Last December, Sonida expanded its relationship with Chicago-based Ventas (NYSE: VTR) by taking on three senior living communities in Arkansas.
Beyond that, the company also acquired two senior living communities in Indiana in February. Sonida will look for future opportunities to acquire communities and execute their operating model to turn them around, according to Lody.
The company’s capital raise of $154.8 million last November allowed it to refinance all of its 2022 and 2023 debt maturities, giving it more flexibility in the coming quarters.
“The operational performance of the company has improved significantly as we’ve seen RevPAR improve and RevPOR, occupancy growth — all of those things contribute to feeling good about the trajectory that the company is on and the momentum that’s behind us,” Lody said.
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