Last month, we raised issues about Sonida Senior Living and its ability to survive through next year without additional capital. Its market cap is low ($86 million), its share price is falling as are its cash balances. G&A expenses have been way too high, but they are beginning to address that.
Another company, AlerisLife, is facing similar problems, such as a small market cap ($25 million), a falling share price and G&A expense out of line with its operations ($17 million in the third quarter alone). One good thing going for the company is that it has $79.1 million of cash and just $67 million of long-term debt. And, quarter-end occupancy in the third quarter increased sequentially by 160 basis points to 77.0%. But even though that is relatively low, the company should be making more money.
EBITDA in the third quarter was negative, meaning even with 77% occupancy they did not cover operating costs. Worse, the operating margin on their 20 owned communities was (15.9%). We believe part of the problem is that the rates at their communities are not only low, but are not keeping up with the recent inflationary cost increases.
The company did hire consulting firm Alvarez & Marsal to do an operational review to determine what to change to improve the financial performance. In August, the company announced a restructuring plan that they expect to complete by the middle of 2023. But will it be enough? Obviously, some overhead will be cut, but in the same sentence they said they appointed a CFO, a COO and hired a VP of Marketing. This seems to be adding to overhead.
We are not afraid of AlerisLife going out of business, since it is practically a wholly-owned subsidiary of its sister REIT that owns the communities it manages, and that REIT has a vested interest in the company staying in business and returning to profitability. And let’s not forget the significant cash position.
But is there really a reason for it to still be publicly traded, with a market cap of $25 million? While we like to see as many details as we can about how the industry is performing, and publicly traded companies are a great place to find it, without a growth plan we just don’t see what the point is with AlerisLife being public, especially since there is not even much market intelligence to glean from their operating and financial performance.
The share price has dropped by 74% since the beginning of the year, and 30% since September 1, currently languishing at 78 cents a share. What is the point?
