Sonida Senior Living, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Sonida owned and operated senior housing communities and managed communities for third parties. At quarter-end it operated 76 communities in 18 states, with approximately 9,500 resident capacity.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $58.5 million | $61.6 million |
| Operating expenses | $41.9 million | $36.8 million |
| Net income (loss) | $(16.7) million | $38.8 million |
| Net income (loss) attributable to common stockholders | $(17.8) million | $38.8 million |
| Operating cash flow | $0.4 million | $3.3 million |
| Cash and cash equivalents at quarter-end | $48.6 million | $78.7 million at Dec. 31, 2021 |
| Notes payable, net of financing costs | $671.0 million | $683.1 million at Dec. 31, 2021 |
Resident revenue increased 12% to $50.8 million, principally from higher occupancy and rental rates and the acquisition of two communities. Total revenue declined about 5%, mainly because community reimbursement revenue fell to $7.0 million from $15.3 million after communities transitioned away from Sonida. Reimbursement revenue is reported with matching expense.
The quarterly loss included $7.6 million of interest expense, $9.6 million of depreciation and amortization, and a $0.6 million refinancing loss. The prior-year period included a $47.0 million debt-extinguishment gain and $8.7 million of other income, largely Provider Relief Fund proceeds. These unusual prior-year items make the earnings comparison materially non-recurring. No explicit margin or EBITDA measure is provided in the filing.
For 60 communities owned in both periods, weighted-average occupancy was 82.3%, versus 75.5%. The filing reports the average monthly rental rate was higher by 320 basis points year over year. Operating costs rose, including a $3.2 million increase in labor and employee-related expenses; management cited overtime, shift bonuses and contract labor pressures.
Cash, debt and liquidity
Operating activities generated $0.4 million; investing activities used $17.9 million, including $12.3 million for two Indiana communities and $5.6 million of capital expenditures. Financing activities used $13.4 million, reflecting debt repayments and refinancing costs, partly offset by $80.0 million of new borrowing. Cash, cash equivalents and restricted cash totaled $52.6 million at March 31, down from $83.6 million at year-end.
In March, Sonida refinanced mortgage debt on ten communities with an $80.0 million initial term loan. The facility also provides up to $10.0 million in delayed borrowing subject to covenants and up to $40.0 million of additional uncommitted financing. It matures in four years, with a possible one-year extension subject to conditions. The company must maintain at least $13.0 million of liquid assets, including a $1.5 million debt-service reserve, and specified company and property-level covenants. First property-level covenant testing was scheduled for June 30, 2022; management expected compliance then but cautioned that future compliance was not assured.
Scheduled principal payments include $42.4 million in 2022, $14.5 million in 2023, $152.2 million in 2024 and $194.3 million in 2025. Sonida said it expected to meet maturities using cash, operations and refinancing, but noted there is no assurance that refinancing will be available on acceptable terms. Two properties associated with Fannie Mae remain in default/transition proceedings; $32.0 million of related debt was classified as current, with $3.4 million of accrued interest at quarter-end. The company reported compliance with other outstanding debt at March 31.
Series A preferred stock carries an 11% annual dividend on the original $41.3 million investment. A $1.1 million dividend was declared for Q1 and paid in April. Sonida also had $5.8 million of contractual renovation and technology commitments expected to be substantially spent during 2022.
Outlook, risks and other notable items
- No quantitative earnings or revenue guidance was provided. Management said operations remained below 2019 pre-pandemic levels and expected near-term cash flow to remain affected.
- Sonida received $9.1 million of Provider Relief Fund Phase 4 proceeds in April 2022, after quarter-end. The company expects to satisfy the grant conditions but must use the funds for eligible COVID-19-related expenses or lost revenue; the proceeds were to be recorded in Q2.
- COVID-19, staffing shortages and wage pressure, inflation, higher interest rates, debt refinancing needs, covenant compliance and access to capital were identified as important risks. All communities were open to new move-ins as of March 31.
- Disclosure controls and procedures were deemed ineffective because a previously identified material weakness in internal control over financial reporting remained unremediated, with staffing challenges cited. Sonida expected to implement its remediation process by the end of Q4 2022.
- Management stated ordinary-course claims were not expected to have a material financial effect. No long-lived asset impairment was recorded in Q1.
Important facts for investors to verify
- Progress on the material-weakness remediation and the effectiveness of controls in subsequent filings.
- Compliance with the refinancing facility’s liquidity and financial covenants, beginning with the June 30, 2022 measurement date.
- Resolution and accounting treatment of the two remaining Fannie Mae properties and their $32.0 million of current debt.
- Whether occupancy, rental-rate growth and labor costs translate into stronger operating cash flow.
- Use and eligibility of the $9.1 million Phase 4 grant, and Sonida’s capacity to fund debt maturities, preferred dividends and planned capital spending.