Sonida Senior Living, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results. Sonida owned and operated or managed 76 senior housing communities in 18 states, with capacity of approximately 9,500 residents.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $59.6 million | $57.5 million | $118.1 million | $119.2 million |
| Net income (loss) | $(7.4) million | $49.1 million | $(24.1) million | $87.9 million |
| Net income (loss) attributable to common stockholders | $(8.5) million | $49.1 million | $(26.4) million | $87.9 million |
| Interest expense | $7.9 million | $9.5 million | $15.5 million | $18.9 million |
- Q2 resident revenue rose 11.6% to $52.0 million; the six-month increase was 11.9% to $102.8 million, driven mainly by occupancy, rent increases, and the two-community acquisition. Total revenue was lower year over year for the first half, primarily because fewer managed communities generated lower reimbursement and management-fee revenue.
- Owned-community occupancy averaged 83.2% in Q2 versus 78.1% a year earlier, and 82.7% for the first half versus 76.8%. Average monthly rental rates increased 4.4% in Q2 and 3.7% for the first half year over year.
- Operating expenses increased 10.5% in Q2, chiefly due to labor and employee-related costs, including premium labor. First-half operating expenses increased $9.1 million, including higher labor costs and other operating expenses. Q2 total expenses were $67.7 million; the implied loss from operations before other income and expense was $8.0 million.
- Prior-year earnings comparisons are unusually affected by debt-extinguishment gains: $67.2 million in Q2 2021 and $114.2 million for the first half of 2021. Q2 2022 included $8.5 million of other income, principally a $9.1 million Provider Relief Fund grant received in April; the first half included $8.7 million of other income and a $0.6 million debt-refinancing loss.
Cash, debt, and liquidity
- At June 30, 2022, cash and cash equivalents were $32.7 million, restricted cash was $13.7 million, and total cash including restricted cash was $46.4 million. Cash and cash equivalents had been $78.7 million at year-end 2021.
- For the first half, operating cash flow was negative $2.1 million, investing cash flow was negative $24.5 million, and financing cash flow was negative $19.9 million. Investing outflows included $12.3 million for two Indiana communities and $12.1 million in capital expenditures.
- Notes payable totaled $675.4 million before deferred financing costs ($669.5 million net); $48.4 million net was classified as current. The filing lists $152.2 million of principal due in 2024, $114.3 million in 2025, and $155.9 million in 2026. Debt fair value was estimated at $630.1 million.
- A March 2022 refinancing provided an $80 million initial term loan, with $10 million of delayed-draw capacity subject to covenants and up to $40 million of additional uncommitted financing. The company reported compliance with the refinancing covenants at June 30, but cautioned it may not remain compliant. The facility requires at least $13 million of liquid assets, including a $1.5 million restricted debt-service reserve.
- Two properties subject to Fannie Mae proceedings remained in transition; $32.0 million of related debt and $3.4 million of accrued interest remained recorded. The company disclosed non-compliance with those mortgages, while reporting compliance with other outstanding indebtedness.
- Series A preferred stock carried a $41.3 million redemption value and an 11% annual dividend. $3.0 million of preferred dividends were paid during the first half.
Outlook, risks, and notable developments
- No specific financial guidance was provided. Management expected operating cash flow to remain affected in the near term by the continuing recovery from COVID-19 and said future debt maturities were expected to be met through cash, operations, and refinancing; these expectations are not assured.
- Management cited staffing shortages and wage pressures, use of overtime and contract labor, inflation, interest-rate exposure, COVID-19 impacts, access to capital, refinancing and covenant risks, and the ability to fund capital improvements as significant risks.
- COVID-related direct costs declined to $0.1 million in Q2 and $0.3 million for the first half. The company stated that future relief funding is uncertain.
- Disclosure controls and procedures were deemed ineffective as of June 30 due to an unremediated material weakness associated with accounting staffing challenges. Management expected to implement its remediation process by year-end 2022; remediation was not yet complete.
- After quarter-end, the company announced that CEO Kimberly Lody would step down effective September 2, 2022, with COO Brandon Ribar appointed as successor. Welltower also gave notice that it intended to transition four properties managed by Sonida to another operator, expected in Q4 2022.
- The company had $7.0 million in contractual commitments for renovations and technology enhancements, expected to be substantially spent in 2023. Management said ordinary-course claims were not expected to materially affect the financial statements.
Investor verification priorities
- Track occupancy, rent growth, labor costs, and cash generation to assess whether operating recovery is translating into sustainable cash flow.
- Review debt maturities, refinancing availability, variable-rate exposure, covenant compliance, and liquidity against the $13 million minimum.
- Monitor the resolution of the two Fannie Mae property proceedings and the associated $32.0 million debt and accrued interest.
- Confirm the use and conditions attached to the $9.1 million Provider Relief Fund grant, and avoid treating relief funding as recurring income.
- Follow remediation and testing of the material weakness, the CEO transition, and the planned Welltower management transition.