The last to report 2024 earnings in our sector, Sonida Senior Living turned in a decent fourth quarter, but maybe not as good as they were hoping for. They are looking to the future, however, and not past performance, and are gearing up for growth.
While the same-community occupancy of 86.6% in the fourth quarter is certainly above average for the industry, the year-over-year increase of just 70 basis points was below average. Many providers are still putting out census growth numbers that will not be sustainable as communities begin to stabilize, so increasing by 70 basis points in the future will look pretty good. But we are not there yet, especially with new development still way below what it should be, or needs to be.
Same-community revenue increased by 6.0%, or $3.6 million, year over year, and RevPOR increased by 5.1% to $4,248 per unit. On an adjusted basis, the NOI margin increased a bit to 25.5%, but that needs to move higher to push the value of the company higher.
During 2024 the company completed the purchase of 20 good quality communities with upside potential. This expanded Sonida’s portfolio to 94 communities in 20 states, of which 81 are owned (some in joint ventures), and 13 communities are managed on behalf of a third party. The aggregate capacity is for approximately 10,000 residents. To enable them to continue buying, the company increased its secured revolving credit facility by $75 million to a total of $150 million. The term is three years at rates between SOFR plus 210 basis points and SOFR plus 260 basis points. After its acquisition activity last year, about $90 million remains for future growth. But full access will come when the recent acquisitions stabilize.
The current same-community occupancy of 86.6% is still pretty good in this market, but that is not what management is thinking about. They are looking at improving the census of the recent acquisitions that are in the 60% to 70% range, and that will drive margins, cash flow and value. Our estimate is that when the overall census hits 90%, which may happen by the end of 2026, the net operating margin will reach close to 30%.
If our math is right, that could add up to $20 million in additional annual cash flow, and up to $250 million in increased value. Wouldn’t that be nice. Now, everything would have to go according to plan, and even though management has delivered on what they had promised they were going to do, it is still an uphill battle. But we believe this is what management must be looking at. And…this does not even include the contribution from new acquisitions in the next two years, whether they are stabilized at the time of purchase or need some TLC. Management indicated they are still seeing some good opportunities out there, and they seem to have the team in place to ramp up.
Sonida’s share price jumped by 6.5% on the earnings news but settled at a 4.4% increase on the day.
