Sonida Senior Living made its first acquisition in almost five years in the first quarter, when the company also experienced “a lot of good news” regarding occupancy and revenue growth, executives said Monday during a first-quarter earnings call.
Sonida bought two independent living communities in the Indianapolis area on Feb. 1 for $12.3 million in an all-cash transaction. The communities have a total of 157 units.
“We are encouraged by early results from our sales and marketing efforts, as the communities were able to improve nine percentage points of occupancy in the first two months as part of the Sonida team,” Chief Operating Officer Brandon Ribar said. “Our goal is to continue to identify similar acquisition opportunities in markets where we operate today or markets where we don’t currently operate that have similar characteristics to our current portfolio.”
The Dallas-based company owns 62 communities and manages another 14.
President and CEO Kimberly S. Lody said that for future acquisitions, Sonida has “pretty specific criteria in terms of what we’re looking for.”
“We want to make sure that if we do acquire another community or communities that the fundamentals are there, that we can layer on our platform that we’ve developed here over the last couple of years and really see that improvement in the operations,” she said.
Noting that Sonida began managing three more senior living communities for real estate investment trust Ventas effective Dec. 1, Lody said that the company is interested in expanding its portfolio of managed communities, too.
“But our primary focus is on looking for good acquisition candidates,” she said, adding that Sonida is seeking middle-market communities that will help reduce the average age of the communities in the portfolio of owned communities over time as well as reduce debt over time.
4 quarters of growth
Among the “good news” that occurred in the first quarter, Lody said, was that Sonida now has experienced four consecutive quarters of occupancy and revenue growth.
Same-store weighted average occupancy for the quarter was 82.3%, a 680 basis point (6.8%) improvement compared with 75.5% during the same quarter of 2021 and a 100 basis point (1%) change from the previous quarter.
Thirty of the 76 communities Sonida owns or manages achieved or exceeded the 90% occupancy mark in May, Ribar said. By comparison, 16 of the communities were at or above this level of occupancy at the end of the first quarter of 2021.
Additionally, Lody said that same-store resident revenue increased 12% compared with the same quarter last year. Revenue per occupied unit, at $3,644 in the first quarter, increased 3.2% compared with the first quarter of 2021.
“Our in-place rent increases are pacing at about 5% through the first quarter,” she said. “In addition, market rates for new move-ins during the same period are also about 5% higher than the corresponding rate for the exact same apartment recently vacated.”
Same-store net operating income increased 13% sequentially from the fourth quarter, and NOI margin increased 200 basis points (2%) from a low point of 18.2% in the fourth quarter, to 20.2% in the first quarter, she said.
“Our COVID recovery strategy was to focus heavily on occupancy and revenue growth, knowing that NOI would follow. …We believe that our performance in the first quarter of 2022 marks the beginning of incremental NOI expansion as we continue to grow occupancy and revenue while also managing costs, especially contract labor costs that have been very elevated in recent months,” Lody said.
Year-over-year for first-quarter total labor costs increased $3.2 million, and more than 65% of the increase was related to contract labor, Ribar said.
“After another difficult quarter on the labor front, we are cautiously optimistic that Q2 is showing signs of overall improvement,” he said. “Net hires remain positive, and third-party contract agency dollars are expected to decrease sequentially throughout the year.”
Internal strategies also have improved employee retention in early 2022, Ribar said. “Early trends for Q2 show a favorable reduction in year-over-year employee turnover,” he added.
3 priorities
Lody said that the company plans to focus on three major priorities to provide short- and long-term incremental value for investors, employees and residents:
- The health, wellness and engagement of residents and employees.
- Occupancy recovery to pre-pandemic levels by the end of 2022.
- NOI expansion.
“We expect to improve our net operating income sequentially throughout the year by growing occupancy, increasing rates responsibly, deploying innovative staffing solutions and diligently managing expenses,” she said.
Ribar said that one of the company’s 2022 goals is to invest capital in several communities. “These projects began in late 2021, and we now have nearly $8 million in revenue-enhancing capital projects either completed or underway with completion dates in Q2 and Q3,” he said.
Additional information is available via a press release and company presentation filed Monday with the Securities and Exchange Commission.
