Sonida Senior Living, Inc. (formerly Capital Senior Living Corporation) — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The filing was made under the company’s former name; the name change to Sonida Senior Living, Inc. and ticker change to SNDA were effective November 15, 2021. Unless noted, amounts below are in millions.
Business context and operating performance
The company owned and operated senior housing communities and managed properties for third parties. At quarter-end, it operated 72 communities across 18 states, with capacity for approximately 7,000 residents: 60 owned and 12 managed. Five properties were no longer operated by the company and were in the process of transferring legal ownership to Fannie Mae.
Average financial occupancy rose to 81.0% in Q3 2021 from 76.1% in Q3 2020. Management said average monthly rental rates were higher, partly due to fewer promotional concessions. The company also reported significant workforce challenges and increased contract labor costs.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $57.9 | $96.1 | $177.1 | $303.7 |
| Net income (loss) | $36.5 | ($215.0) | $124.4 | ($274.9) |
| Operating cash flow | Not separately provided | Not separately provided | ($5.8) | ($5.4) |
| Capital expenditures | Not separately provided | Not separately provided | $7.1 | $11.2 |
- Q3 resident revenue was $49.0 million, down 43% year over year; nine-month resident revenue was $140.8 million, down 52%. Management attributed much of the decline to 2020 property dispositions, lease exits and transfers to Fannie Mae; lower occupancy and rents also contributed to the nine-month decline.
- Q3 total expenses were $65.6 million, or 113.2% of revenue, versus $108.0 million, or 112.4%, a year earlier. The nine-month totals were $200.3 million, or 113.1% of revenue, versus $356.3 million, or 117.3%. Comparability reflects the smaller property portfolio and the absence of prior-year lease and impairment costs.
- Reported earnings were substantially affected by non-operating items: debt-extinguishment gains were $54.1 million in Q3 and $168.3 million for nine months, as Fannie Mae completed transfers of four and thirteen properties, respectively. The nine-month result also included $8.7 million of Provider Relief Fund income. These items are not a measure of recurring operating performance.
- Interest expense was $9.7 million in Q3 and $28.6 million for nine months, versus $11.1 million and $34.0 million in the prior-year periods. No long-lived-asset impairments were recorded in 2021; 2020 included $3.2 million for Q3 and $39.2 million for nine months.
Balance sheet, debt and liquidity
- At September 30, 2021, cash and cash equivalents were $10.7 million and restricted cash was $5.9 million. Current assets were $35.4 million versus current liabilities of $221.9 million, a working-capital deficit of approximately $186.5 million.
- Total notes payable, net of deferred financing costs, were $761.8 million, including $160.0 million classified as current. Total liabilities were approximately $827.7 million, exceeding total assets of $674.2 million; shareholders’ deficit was $153.6 million.
- Cash and restricted cash declined by $6.3 million in the first nine months to $16.6 million. Operating cash use was $5.8 million; investing cash use was $7.1 million; financing provided $6.6 million.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing COVID-19 uncertainty, a working-capital deficit, upcoming debt and debt-service obligations totaling $99.3 million over the next 12 months, and repeated covenant noncompliance on Fifth Third Bank debt. Management concluded its remediation plan was probable of addressing the doubt.
- After quarter-end, the Conversant-led investment and rights offering closed on November 3, 2021, raising $154.8 million gross and $128.5 million net after repayment of a $16.0 million promissory note and transaction costs. The company also gave Fifth Third Bank notice of its intention to repay a $31.5 million bridge loan. These subsequent events were not reflected in September 30 cash and debt balances.
Outlook, risks and unusual items
- No numerical operating or earnings guidance was provided. Management expected near- and medium-term liquidity to depend on the post-quarter-end capital raise and debt refinancing or extensions.
- COVID-19 continued to threaten occupancy, admissions, costs and operations; all communities were open to new move-ins at quarter-end. Direct COVID-related costs were $0.4 million in Q3 and $1.7 million for nine months, versus $1.4 million and $4.6 million in 2020.
- The company had a $31.5 million Fifth Third loan in default after failing a debt-service-coverage covenant; the lender had issued a notice of default, and the loan was callable. The company reported 25% corporate recourse if accelerated. It was otherwise in compliance with its indebtedness at quarter-end.
- Management cited labor availability and wage pressure, refinancing and covenant risks, access to capital, pandemic-related uncertainty, and potential dilution from equity financing. The completed transaction also included investor governance rights and employee retention awards.
- Disclosure controls and procedures were reported as ineffective due to a previously identified material weakness. Management expected remediation by the end of Q4 2021; no material change in internal control over financial reporting was reported during the quarter.
Most important facts for investors to verify
- Whether the $128.5 million net capital proceeds and planned repayment of the Fifth Third loan resolve near-term liquidity needs and covenant issues.
- Debt maturities, refinancing progress, remaining Fannie Mae property transfers and any further extinguishment gains or obligations.
- Underlying operating trends excluding debt-extinguishment gains and relief-fund income, especially occupancy, resident revenue, labor costs and cash burn.
- Progress and evidence of remediation of the material weakness in disclosure controls.
- Terms and potential dilution from the equity and preferred-stock transaction, warrants, rights offering and related awards.