Sonida Senior Living, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Sonida owned 62 and managed 10 senior housing communities across 18 states, with capacity for approximately 8,000 residents.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $62.9 million | $59.6 million | $124.9 million | $118.1 million |
| Net income (loss) | $(12.2) million | $(7.4) million | $11.9 million | $(24.1) million |
| Net income (loss) attributable to common stockholders | $(13.4) million | $(8.5) million | $8.1 million | $(26.4) million |
| Operating cash flow | Not presented quarterly | $5.5 million | $(2.1) million |
Q2 expenses totaled $66.5 million, exceeding revenue by $3.7 million before other income and expenses. For the six-month period, the reported profit included a $36.3 million gain on extinguishment of debt related to completion of the transfer of two foreclosed properties to Fannie Mae; it does not indicate equivalent recurring operating profitability. Interest expense was $8.6 million in Q2 and $17.4 million for six months, up from $7.9 million and $15.5 million, respectively.
At June 30, cash and cash equivalents were $7.2 million and restricted cash was $13.4 million, compared with $16.9 million and $13.8 million at year-end. Current assets were $34.8 million versus current liabilities of $139.4 million. Notes payable, net of deferred loan costs, totaled $636.0 million, including $88.6 million classified as current. Shareholders’ deficit was $90.7 million; Series A redeemable preferred stock was carried at $46.0 million.
Changes versus the prior comparable period
- Q2 resident revenue increased 9.5% to $57.0 million; six-month resident revenue increased 10.5% to $113.6 million. Management attributed the increase to improved occupancy, higher rental rates, and two communities acquired in early 2022.
- Owned-community weighted average occupancy was 83.9% for both Q2 and the first half, versus 82.7% and 82.3%, respectively, in 2022. Average monthly rental rates rose 8.3% for Q2 and 8.2% for the first half.
- Operating expenses rose 7.7% in Q2 and 6% for the first half, primarily reflecting labor and employee-related costs. Management cited workforce shortages and use of overtime, bonuses, and contract labor.
- General and administrative expense declined $2.8 million in Q2 and $4.1 million for six months, largely due to lower stock-based compensation and corporate costs. Managed-community reimbursement revenue and expense both declined as Sonida managed fewer communities.
- Six-month operating cash flow improved by $7.6 million year over year. Cash, cash equivalents, and restricted cash combined fell $10.1 million during the first half.
Liquidity, debt, outlook, and risks
- Going concern: Management stated that recurring operating losses, a working-capital deficit, scheduled debt service, inflation and elevated interest rates, and mortgage-agreement noncompliance raise substantial doubt about Sonida’s ability to continue as a going concern for the 12 months following issuance. Management’s liquidity plans did not meet the accounting threshold to conclude that substantial doubt was alleviated.
- Fannie Mae: A June 2023 forbearance covering 37 encumbered communities runs through October 1, 2023, pending a proposed loan modification. Proposed terms include maturity extensions, suspension of scheduled principal payments, and a 1.5% weighted-average interest reduction for 12 months with interest deferred. Sonida paid a $5.0 million principal payment in July 2023; another $5.0 million is due June 1, 2024. The definitive modification remained conditional and was not assured.
- Ally Bank: A June amendment temporarily reduced the minimum-liquidity requirement, but establishes a $6.0 million weekly threshold; a breach may trigger a cash sweep. Sonida also must fund and replenish an interest-rate-cap reserve. Cross-default provisions link certain Fannie Mae defaults to the Ally facility.
- Other debt defaults: Sonida had stopped required payments on $69.8 million of Protective Life non-recourse mortgages covering four communities and classified the principal as current. After quarter-end, it paid past-due amounts on one property on August 4, 2023; the filing does not state that the other loans were cured.
- Equity and cash actions: Sonida secured an optional $13.5 million equity commitment from Conversant for 18 months. On July 3 it drew $6.0 million and issued 600,000 shares, using $5.0 million for Fannie Mae principal payments. The commitment fee was paid in 67,500 shares. In July, Sonida also funded $2.3 million to Ally’s interest-rate-cap reserve.
- Management described resident-rate reviews, purchasing initiatives, cash optimization, spending reductions, selective capital spending, state relief grants, and potential financing or asset-sale proceeds as liquidity measures. The filing gives no numerical earnings or revenue guidance and cautions that these measures may not be available or sufficient.
- Other risks include labor cost and staffing pressures, interest rates, refinancing and covenant compliance, COVID-19 effects, competition, and the ability to obtain capital. Disclosure controls were deemed ineffective due to an unremediated material weakness associated with accounting staffing; management expected to implement its remediation process by Q4 2023. The statements are unaudited.
Important facts for investors to verify
- Whether the definitive Fannie Mae loan modifications were completed by the October 1, 2023 deadline, and whether all conditions and payments were met.
- Current status of all Protective Life mortgage defaults, including the remaining past-due loans, and any resulting cross-default or foreclosure exposure.
- Updated unrestricted liquidity and cash-sweep status under the Ally facility, including required interest-rate-cap reserve funding.
- Subsequent use and remaining availability of the Conversant equity commitment, and resulting share dilution.
- Operating cash generation, occupancy and rental-rate trends, labor costs, and the extent to which reported earnings depend on one-time debt-extinguishment gains or relief funds.
- Progress in remediating the material weakness and whether management later concluded disclosure controls were effective.