SONIDA SENIOR LIVING, INC. quarterly report, Q3 FY2023

Sonida Senior Living, Inc. — Q3 2023 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2023. Sonida owned and operated 61 senior housing communities and managed 10 others across 18 states, with capacity for approximately 8,000 residents. Financial statements are unaudited.

Financial results and position

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Total revenue	$64.7 million	$60.8 million	$189.6 million	$178.9 million
Net loss	$18.4 million	$13.7 million	$6.5 million	$37.8 million
Net loss attributable to common stockholders	$19.7 million	$14.9 million	$10.2 million	$41.2 million
Basic and diluted loss per share	$2.79	$2.34	$1.54	$6.49

Q3 resident revenue grew 12.6% to $59.1 million; nine-month resident revenue rose 11.2% to $172.7 million. Management attributed growth mainly to higher occupancy and rental rates. Owned-community occupancy was 84.9% in Q3 versus 83.4%; average monthly rental rates were 11.7% higher year over year.
Q3 operating expenses were $44.5 million, general and administrative expense $8.6 million, and depreciation and amortization $9.9 million. Total expenses exceeded revenue by $9.3 million before other income and expense. Results included a $6.0 million non-cash impairment charge on one owned community.
Nine-month operating cash flow was $10.6 million, versus $2.9 million in 2022. Investing used $12.8 million, including $14.2 million of capital expenditures; financing used $7.4 million. Cash and restricted cash declined by $9.6 million to $21.2 million, including only $3.6 million of unrestricted cash.
At September 30, total notes payable, net of deferred loan costs, were $629.5 million. Current notes payable were $64.3 million, including $55.8 million of principal on Protective Life loans in default. Total current liabilities of $120.4 million exceeded current assets of $33.6 million.
Accrued Series A preferred dividends were $3.7 million for the first nine months and were added to the preferred stock liquidation preference rather than paid. Redeemable preferred stock was carried at $47.2 million.

Material changes and significant items

Revenue increased, supported by occupancy recovery and rate increases. Labor and employee-related expenses rose by $2.2 million in Q3 and $5.8 million over nine months, reflecting workforce constraints and use of overtime, bonuses, and contract labor.
Q3 general and administrative expense increased $2.7 million year over year, including loan-modification transaction costs and higher stock-based compensation versus prior-year forfeiture credits. Nine-month interest expense increased $2.7 million to $26.4 million, primarily from higher rates on variable-rate debt and additional debt financing.
Nine-month results included a $36.3 million gain from extinguishment of debt after two properties’ foreclosure transfers to Fannie Mae were completed. This non-cash gain materially reduced the reported nine-month net loss; it did not represent recurring operating performance.
In August, Sonida sold its Shaker Heights, Ohio community for $1.0 million and recorded a $55,000 loss. The filing also reports $1.4 million of proceeds from asset sales for the nine-month period.

Liquidity, debt, outlook, and risks

Going concern: Management identified substantial doubt about the company’s ability to continue as a going concern for the 12 months after the financial statements were issued, citing recurring operating losses, a working-capital deficit, debt-service obligations, inflation, and mortgage-agreement noncompliance. Management’s mitigation plans include cost and cash-preservation measures, debt modifications, and equity funding; management could not conclude that these plans were probable of alleviating the substantial doubt.
Fannie Mae modifications: Agreements signed October 2, 2023 extended maturities on 18 mortgages to December 2026, suspended scheduled principal payments under specified terms, and reduced and deferred interest for 12 months. They also require a $5.0 million principal payment by June 1, 2024, include $5.0 million and $10.0 million company guaranties, and require escrow of a portion of excess cash flow for capital expenditures.
Ally amendment: A temporary liquidity-covenant waiver established a $6.0 million minimum threshold, with an excess-cash-flow sweep if breached. The company also had to fund an interest-rate-cap reserve; a covenant breach or certain Fannie defaults could trigger cash sweeps and cross-default consequences.
Equity funding: Sonida had a $13.5 million Conversant equity commitment. It drew $6.0 million in July 2023 and a further $4.0 million after quarter-end, received November 1, issuing shares in each case. Conversant and affiliates beneficially owned approximately 59% of common stock, including shares issuable on conversion of preferred stock and warrants.
Sonida elected not to make required principal and interest payments on three Protective Life non-recourse mortgages; $55.8 million was outstanding and in default at September 30. The filing states that Ally financial covenants were met at quarter-end, but provides no assurance of future compliance.
The company did not provide numerical earnings or operating guidance. Management’s stated priorities include improving margins, managing working capital, controlling spending, and pursuing debt and equity financing. Availability and terms of financing, refinancing, asset sales, grants, and other planned liquidity sources are uncertain.
Other risks include labor shortages and wage pressure, inflation, higher interest rates, occupancy and competitive conditions, possible future impairments, and dependence on state relief funding. Sonida received $2.9 million in state relief funds during the first nine months of 2023 and filed for an employee retention credit after quarter-end; future funding is not assured.
Disclosure controls and procedures were deemed ineffective at September 30, 2023 because a previously identified material weakness in internal control over financial reporting remained unremediated. Management expected to implement remediation by the end of Q4 2023, but controls are not considered remediated until tested and found effective.

Important facts for investors to verify

Unrestricted cash, near-term cash requirements, and whether management’s liquidity measures can meet obligations over the next 12 months.
Compliance with Fannie Mae and Ally terms, including required payments, reserve funding, liquidity thresholds, cash sweeps, and cross-default provisions.
Status and terms of the $55.8 million Protective Life debt default, and any lender remedies or potential effects on other debt.
Whether operating performance improves after excluding the $36.3 million debt-extinguishment gain, and whether occupancy gains can offset labor and other cost pressures.
Progress in remediating the material weakness and the reliability of financial reporting controls.