It is nice to see that the rising tide of the post-pandemic recovery is lifting all ships, including Sonida Senior Living. As you will recall, they issued a “going concern” opinion last quarter, with cash balances declining every month and a debt load that will be difficult to ever pay off. While they are not out of the ICU yet, perhaps the respirator can be turned off, at least for a few quarters.
The company is small, with 62 owned communities, which they should be able to use to their advantage and laser focus on operations, marketing and census. Occupancy has not been the problem, as at about 84% they are beating some of the larger companies as well as the SHOP portfolios of REITs. Year over year, the 62 owned communities posted a 220 basis-point increase in occupancy and escaped the usual first quarter census doldrums with no change from the fourth quarter last year. Phew.
Revenues increased by more than 7% year over year, and EBITDA increased as well, although their reported numbers include a massive gain on extinguishment of debt, which we do not include. Our calculation of EBITDA comes to $6.24 million for the quarter, but interest expense was $8.867 million, so a real shortfall. The good news is that Sonida’s cash burn rate is down to about $4 million a quarter; the bad news is that there was only $13 million of cash on the balance sheet as of March 31.
So here is the problem. Average monthly rent is low at $3,996 in the first quarter. If census was to increase tomorrow to 90% (miracles do happen), and the incremental margin on that census increase was 75% (less of a miracle), the additional $12 million of annual NOI would take the company to a total of just under $40 million. That would more than cover interest expense and leave something for capex. But it would not be enough from a value perspective to cover the total debt of $637 million.
The last month of the first quarter was a good one, with food costs per occupied unit and all other operating costs at near-term lows. In addition, contract labor is way down and sequential quarterly labor costs also decreased. If they can keep improving all of this, there may be hope. They are also in discussions with at least one lender, presumably Protective Life, since they have stopped making payments since February on one of their loans covering four properties. The capital structure has been a problem.
The few outside shareholders liked the news, with the share price up 8% early in the morning, but settling down by the afternoon to a 2.5% increase.
