Sonida Senior Living has “substantial doubt about our ability to continue as a going concern,” the Dallas-based company reported Thursday in a filing with the Securities and Exchange Commission. The firm cited the inflationary environment, elevated interest rates and continued financial effects of the COVID-19 pandemic, as well as upcoming debt maturities, as reasons for the uncertainty.

Accounting standards required the disclosure.

In a fourth-quarter and full-year 2022 earnings call on Thursday, however, executives expressed optimism about the company’s future.

Brandon Ribar

“We feel very confident about the way we’re running the company today and the investments that we’ve made in our portfolio over the last year and a half. And we believe those investments in the ongoing operations are continuing to improve,” President and CEO Brandon Ribar said.

“We do feel strongly that we are going to be able to move past this, and when we do, which we hope will be in short order, we feel like all of our operational indicators and trends are pointing in the right direction,” Chief Financial Officer Kevin Detz said.

Some of those operational indicators are rate, occupancy and staffing, the executives said.

“Significant rate growth in early 2023, coupled with ongoing occupancy improvement and a differentiated approach to managing labor costs, are expected to be the drivers for accelerated margin and cash flow improvement,” Ribar said. “Our primary goal as a leadership team in 2023 is to accelerate the timeline for producing positive cash flow net of all recurring capital expenditures and debt service. …We are intensely focused on several balance sheet initiatives that, when combined with our ongoing operational improvement, will allow us to achieve that goal.”

Sonida reported a net loss of $16.6 million for the quarter. Adjusted earnings before interest, taxes, depreciation and amortization were $4.6 million, an increase of 71.3% year over year and 3.7% over the previous quarter.

Rate increases 3.6% year over year

Revenue increases exceeded 10% for the full year 2022, with resident rates increasing 3.6% year over year and additional rate initiatives underway, the CEO said.

“We have accelerated our commitment to pricing our units based on the value our services support,” he said, noting that “overall, rate improvement efforts in the first quarter are materially ahead of the 2022 average on both lease renewals and re-leasing spreads.”

In-place resident rate increases and re-leasing spreads exceeded 8% in December, January and February and “support margin improvement expectations in the early part of the year,” Ribar said.

Revenue per occupied room was up 3.6% year over year and 1.1% from the third quarter, and revenue per available room was up 7.2% year over year and 1.7% from the third quarter.

7 quarters of occupancy growth

Sonida realized a seventh consecutive quarter of occupancy and revenue growth in the fourth quarter, Setz said.

Same-store occupancy, at 84.2%, returned to pre-pandemic levels in the quarter and remained stable in January and February, Ribar said. Capital investments have delivered “significant occupancy and margin recovery,” and such projects represent a “key component of 2023 growth,” he said.

Oversight at lower-occupancy communities was “intensified” in the quarter, resulting in “consistent improvement” in the first quarter for many of the communities, with further improvement expected, Ribar said.

“Lead and tour volume throughout the winter months remain strong, with year-over-year growth in leads exceeding 40% from December to February,” he said.

Across the portfolio, almost half of Sonida’s 62 owned communities had occupancy rates at or above 90% in February, and half of those communities had occupancy rates of 95% or more, he said, reporting that occupancy was stable in the first two months of the year. 

Additionally, Ribar said, the rollout of Sonida’s Magnolia Trails memory care programming across 31 communities contributed to 13% memory care revenue growth year-over-year, driven by occupancy improvement of almost 700 basis points. “The rate increase is exceeding 5% in these communities,” Ribar added.

Culture retains leaders

Leadership retention remains strong at Sonida, Ribar said. Only 17 positions across more than 330 local and regional leadership roles were available at the end of 2022, and six currently are open, he said Thursday. “We believe this key metric reflects our commitment to maintaining an open, transparent and supportive organizational culture across all of Sonida,” Ribar said.

The company “aggressively” reduced its use of contract labor and reduced the quarter-over-quarter growth in total labor costs, the CEO said.

Detz said that contract labor decreased $525,000, or approximately $175,000 per month on a run rate basis. “In comparison, our direct labor increased $474,000 for the quarter, which is nearly a one-for-one swap of temporary labor for permanent hires,” he said.

If December — which has the highest payroll of any month and this year was affected by Winter Storm Elliott — is excluded from the calculation, however, Detz said, then the monthly run rate increase quarter-over-quarter was $125,000.

“Again, this compares to a comparable decrease in contract labor of $175,000,” he said. “What this analysis indicates is that both permanent staffing levels and wage composition have largely stabilized out of a hyperinflationary period, with opportunities to further reduce contract labor to frame more normalized wage increases in 2023.”

Default on loans for 4 communities

The company also reported that it had defaulted on loans related to mortgages covering four of the company’s properties after electing not to make principal and interest payments in February and March. Outstanding debt related to those loans was $70 million as of Dec. 31, Sonida said.

“We believe that we’re having productive conversations with the lending group to address this and the broader debt composition profile overall,” Detz said.

In addition to the loans on which Sonida has defaulted, the company said it is speaking with lender Protective Life about loans related to six other communities, to obtain more favorable terms.

Beyond those loans, Detz said, the next significant loan maturity date for the company will be July 1, 2024, when 12 loans will be due under Fannie Mae.

Positive cash flow top goal for 2023

The leadership team’s main goal this year, Ribar said, “is to accelerate the timeline for producing positive cash flow net of all recurring capital expenditures and debt service.” Members of the team, he added, “are intensely focused on several balance sheet initiatives that, when combined with our ongoing operational improvement, will allow us to achieve that goal.”

This isn’t the first time Sonida has issued a “going concern” notice. Most recently, the company, when it was known as Capital Senior Living, expressed uncertainty about its future viability in May 2020, August 2020 and November 2020. In April 2022, former CEO Kimberly Lody said that the concern no longer existed, calling 2021 a “transformational” year for Sonida.

Read more about Sonida’s recent performance in a press release and presentation issued by the company in conjunction with the earnings call.