The last company in our sector, Sonida Senior Living, finally reported fourth quarter and full-year 2023 earnings, and while pretty good, that was not even the story. The story started four weeks ago.
In February, the company announced a series of capital transactions which reduced their debt, raised some equity, and provided liquidity to take the company on to the next stage. It must have taken a few weeks to sink in, or at least to get investors thinking about the future of the company instead of thinking about survivability. And a year ago, there was a question as to how long the company would stay afloat.
In January, the share price averaged between $8 and $9, increasing to a range of $9 to $12 in February. In March, however, it shot up to more than $34 per share. This is what management, and its controlling shareholders, had been waiting for. The company was no longer being looked at as a struggling “penny” stock but one with a future. Now, management can focus on the future and not spend its time negotiating with lenders.
Operationally, the company keeps chugging along in the right direction. In the fourth quarter, its weighted average occupancy increased 200 basis points year over year, and 100 basis points from the third quarter to 85.9%. Even better, its community net operating margin increased by 810 basis points year over year to 27.4%, and by a whopping 260 basis points sequentially.
The company plans to grow with acquisitions, joint ventures and management contracts, and has 400 units that are expected to close in the second quarter, plus another 300 units under new management contracts. With average RevPOR of $4,042 in the fourth quarter of 2023, up 10% year over year, with each 100 basis points of increased occupancy the company should net more than $2.0 million of annual cash flow, not including the extra cash flow from converting units to memory care. In theory, that should add another $25 million or so of value.
Speaking of value, even though there was not any negative news, the share price immediately dropped by 16% and ended the day with a 10% decline. We are not sure what startling news investors were expecting, but the drop may be more related to the unusual price run up in March. If you are expecting big breakthroughs, steady as you go in these turbulent times may not get investors excited, especially when that may already be priced in.
With the new market cap of $383 million, plus the existing debt, the value of the company on a per-unit basis is close to $160,000 per unit. Until cap rates come down, that is not too far off where the company is valued annualizing the fourth quarter EBITDA, which is nearly double last year’s fourth quarter EBITDA. Success is coming.
