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Sonida Stock Craters After Going-Concern Warning, But CEO Sees Recovery Underway

Sonida Senior Living (NYSE: SNDA) shed more than one-third of its share value on Thursday after the company warned it may not have enough cash to continue normal operations — but top executives are optimistic the company can rebound.

Sonida issued the “going concern” notice due to challenges related to upcoming debt maturities, cost inflation, elevated interest rates and the continued impact of the Covid-19 pandemic on the company’s financial position. Specifically, the Addison, Texas-based senior living operator may not “be able to obtain the capital necessary” to meet short-and long-term capital obligations.

Executives for Sonida said during Thursday’s fourth quarter earnings call the company was as of the end of 2022 in compliance with all of its outstanding debt save for Fannie Mae mortgages for two properties transitioned to the lender in January, and certain mortgage loan agreements with Protective Life.

Still, despite those challenges Sonida CEO Brandon Ribar told Senior Housing News on Thursday he expects the company to get through the challenging time. He is heartened by revenue gains made at Sonida communities in challenged Midwest markets, portfolio-wide improvement on occupancy and easing of certain labor expenses. 

Ribar noted the operator’s current situation differs from a previous going concern notice issued in 2020 when then-Capital Senior Living began having troubles related to the new Covid-19 pandemic.

He added he is “pleased with the underlying operations of the company right now.”

“We believe based on the results we referenced today and the early trends that the company is growing, it’s recovering,” Ribar said in an interview with Senior Housing News.

To combat the company’s run-rate and cash concerns, Sonida leadership have implemented a new operational playbook, along with the implementation of a new enterprise resource planning (ERP) software to manage recurring capital allocations and resulting in an overall spending reduction.

Sonida’s stock fell 35.4% on Thursday as of market close to sit at $6.93. The company manages 75 communities across the U.S.

Weathering the storm

Much of the company’s going-concern warning stemmed from recent developments related to its Fannie Mae and Protective Life debt.

The company has outstanding debt with Fannie Mae of $31.8 million. But given the recent transition this year, Sonida plans to “derecognize all of the debt and accrued interest related to the two properties,” which the company expects will result in an offset gain of about $36 million in the first quarter of 2023.

Sonida also elected not to make principal and interest payments in February and March of this year related to mortgage loan agreements with Protective Life for four properties. The company noted that its outstanding debt for the agreements totaled approximately $70 million as of the end of 2022.

“The company is currently engaged in active negotiations with the lender for these loans as well as the additional Protective Life loans relating to six communities to resolve this matter and obtain more favorable terms,” Sonida management noted.

Ribar said he and his management team feel “very competent” about the company’s operations amid the going concern notice.

Sonida CFO Kevin Detz said Sonida is taking measures to maximize its liquidity over the next year to meet its debt obligations, and that The company’s leadership is engaged with lenders to modify its debt with short- and long-term value in mind, Detz said.

As it stands, Detz said the company had received a reservation of rights letter from Protective Life, but noted the company is not yet in the formal stages of default, with conversations being held with lenders to address the broader debt composition profile of Sonida.

Detz noted that the going concern notice was something the company’s leadership anticipated having to issue due to having to continue its debt restructuring.He added that the conversations with creditors had been “positive” thus far.

The next significant debt maturity will be in July, when a dozen Fannie Mae loans mature and come due, Detz said.

In the fourth quarter of last year, Sonida saw a loss of approximately $17.7 million and ended 2022 with cash equivalents of $16.9 million, a decrease of 79% since the end of 2021.

Operational update

Adding to Ribar’s optimism was the fact that the company has posted growth

Weighted average occupancy for Sonida’s senior living portfolio of 62 communities jumped to 84.2%, representing a gain of 310 basis points in the fourth quarter of 2022 compared with 4Q21

Resident rate revenue increased 8% in the quarter compared to 4Q21 and revenue per available room (RevPAR) increased 7.2% in the quarter compared to 4Q21 and revenue per occupied room (RevPOR) increased 3.6% in that same time period while net operating income increased $1.7 million compared to 4Q21.

That increase is primarily the result of a recent organizational realignment and refocus on resident rates, which includes greater communication and transparency with community leaders and inform individual rate conversations with residents. In the fourth quarter, Sonida invested in an internal resident rate queue that incorporates multiple attributes into overall resident rate assessments.

One source of strength for the company in 2022 was the expansion of its Magnolia Trails memory care brand, which was rolled out at 31 communities and helped contribute to a 13% increase in memory care revenue growth in 2022 compared to 2021. The brand also helped drive occupancy and rate increases of 5% higher across those 31 communities, Ribar noted.

Ribar said the company had seen “significant rate growth” in 2023. That, coupled with ongoing occupancy improvement and labor pressures easing, the company expects those areas to be drivers for accelerated margin and cash flow improvement.

Across the company’s portfolio, Sonida has six open leadership positions of 330, Ribar noted, highlighting the company’s success in filling leadership positions and fostering employee retention.

“Our primary goal as a leadership team in 2023 is to accelerate the timeline for producing positive cash flow net of all recurring capital expenditures and debt service,” Ribar said.

In terms of acquisitions, Sonida acquired two IL communities in Indiana during the fourth quarter of 2022.

Going forward, Ribar said Sonida would continue to focus on delivering value to residents for a higher-priced product. On the expenses side, Sonida reported workforce labor costs were also decreasing.

“I’d say that we are very focused on continuing with the plans that we have in place to deliver incremental and accelerated improvement on the margin front,” Ribar said.

The post Sonida Stock Craters After Going-Concern Warning, But CEO Sees Recovery Underway appeared first on Senior Housing News.

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