It has taken a while, and a lot had to be done to strengthen the balance sheet over the past two years, but Sonida Senior Living is now on a path of growth, and recent announcements have shown it.
On May 9, the company closed on its first acquisition of the year with the purchase of a 100-unit assisted living and memory care community in Macedonia, Ohio. Built in 2015, the community has still not recovered from the challenges of the pandemic and changes in operators. The purchase price was $10.7 million, or $107,000 per unit, which seems quite cheap relative to what it would cost to replace, not to mention the original construction cost. They also bought it at a 43% discount to the in-place mortgage loan, but the existing lender will be financing the acquisition for Sonida. The community is operating at breakeven, but Sonida expects NOI to grow so that the effective cap rate would be double-digit.
Next up, the company is finalizing two joint ventures that will purchase eight communities with more than 750 units in strategic markets in Texas and the Midwest for their growth plan. These have independent living, assisted living and memory care units. These have been built or renovated in the past 10 years. The average purchase price is below $120,000 per unit, which seems attractive given the age. At stabilization, they are expected to deliver double-digit NOI yields.
Finally, they are scheduled to transition three new management contracts with third-party owners effective June 1. While we believe cash flow growth will be greater from acquisitions and joint ventures, the management fee income will help cover G&A expenses.
In other news, Max Levy, a principal at controlling shareholder Conversant Capital, has been appointed to the newly created role of Chief Investment Officer, effective June 1. He has been on the Board of Directors since 2021, but will step down from that position when he becomes the CIO. This seems to be good timing now that they are growing and pursuing acquisitions.
In other personnel news, Lilly Donohue is joining the Sonida Board of Directors. She is currently the President and CEO of Everstory Partners, but most recently was the CEO of Holiday Retirement Communities, which operated more than 300 independent living communities in 46 states at the time. Prior to that, Lilly was President of Fortress Investment Group’s China office and built up a leading senior living company and home care business in Shanghai.
If all of this was not enough news, Sonida also reported first quarter earnings results. Like a few others, they were able to avoid the usual first quarter sequential census drop, keeping it at 85.9%. However, on a year-over-year basis, occupancy increased by 200 basis points. RevPOR continues to increase, and now stands at $4,140. Excluding government grant revenue in 2023, consolidated community net operating margin increased by 380 basis points to 24.6% year over year, although it did decline by 80 basis points sequentially. All in all, good progress for the company. But the share price did drop by 1% on the usual light volume.
