Q4 2021 Sonida Senior Living Inc Earnings Call

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Good day and welcome to the Bonita senior living fourth quarter and full year 2021 earnings conference call.

Today's conference is being recorded.

All statements today, which are not historical facts may be deemed to be forward looking statements within the meaning of the federal Securities Law. These statements are made as of today's date and the company expressly disclaims any obligation to update these statements in the future actual results and performance may differ materially from forward looking statements.

Third of these factors that could cause actual results to differ are detailed in the earnings release. The company issued earlier today as the old and the reports the company filed with the STC from time to time, including the risk factors contained in the annual report on Form 10-K , and quarterly reports on Form 10-Q .

Please see today's press release for the full Safe Harbor statement, which may be found at www dot. So neither senior living dotcom forward Slash Investor Relations and was furnished in an 8-K filing this morning.

Also please note that during this call the company will present non-GAAP financial measures for a reconciliation of each non-GAAP measure from the most comparable GAAP measure. Please also see today's press release.

At this time I would like to turn the call over to Tony that senior living President and CEO Ms Kimberly loading.

Thank you Paul Good afternoon, everyone and welcome to our fourth quarter and full year 2021 earnings call. Joining me today is Brandon Ribar, our chief operating officer twenties.

<unk> 2021 with transformational first Anita senior living in many ways. Most importantly, with our success early in the year and quickly and efficiently facilitating multiple COVID-19, vaccination clinics and all of our communities, which resulted in an almost immediate drop in resin increases to nearly zero as long as the drop in severity of key.

He says when they did occur our high standards of infection control in all areas of our communities continue to help protect our residents and team members on the personal health impact of the terrible infectious diseases at variance.

Despite the emergence of multiple new barium and a difficult operating environment throughout 2021 P.

That make recovery strategy to immediately and quickly drive the occupancy improvement by utilizing short term incentives to encourage move ins was successful we increased occupancy from the low point of 75, 3% in February of 2021 to 81, 6% in December .

The work we did prior to the pandemic to strengthen our sales marketing clinical and operating processes quickly delivered significant occupancy growth. We were also able to maintain the integrity of our rates and grow revenue five 3% in the fourth quarter of 2021 as compared to the same quarter in 2020, our focus continues to be.

Irresponsible increases in market rates and in place rents well managing the current circumstances have elevated operating expenses.

In November we closed on a strategic investment from conversion capital and raised along with the shareholder rights offering $154 $8 million for the company. The proceeds from these transactions significantly strengthened the company's liquidity and positions us to further fund our growth strategy to invest in our assets to enhance our.

Yet at a position and to address all of our 2022 and 'twenty 'twenty three mortgage debt maturity with flexibility and strength.

The company also rebranded itself and so neatest senior living a new branding and especially our new tagline find your joy here has strongly resonated with our residents families team members vendors and others. We are excited about how well our new branding describes our company our communities and the engaging caring.

Joyful environment, we provide throughout.

In December we fully repaid $31.5 million in partial recourse mortgage debt maturing on December 31st in early March of 2022, we repaid our $45 million all recourse bridge loan and secured an $80 million loan secured by 10 properties and also include.

Opportunities for an additional $50 million in financing.

Along with effectively addressing all mortgage debt maturities through mid 'twenty 'twenty four we reduced our debt by $38 $5 million reduced the blended interest rate on the 10 refinance communities by 63 basis points and reduced our corporate guarantee by approximately $20 million.

Building on our positive business momentum the recovering industry, an attractive macro demographics, we continue to thoughtfully build our community portfolio.

In early December we expanded our relationship with been taught by adding three Arkansas being spent as owned assets to our managed portfolio and in February of 'twenty 'twenty. Two we acquired two assets in Indiana for approximately $12 $3 million further increasing our offering in the important Indiana market the acquisition.

Represents an early step in our efforts to identify investment opportunities in strategic markets to complement the ongoing organic growth of our core portfolio.

The cumulative effect of these strategic action along with the business performance driven by our talented and dedicated teams has been to improve our liquidity reduce our debt invest in our business and eliminate the going concern issue that we've been managing since early 2020.

Turning specifically to our fourth quarter results occupancy increased 390 basis points to 81, 6% as compared to fourth quarter 2020 occupancy of 77, 4% sequentially.

Sequentially occupancy increased 30 basis points from Q3 'twenty. One we're pleased that our business continues to demonstrate good momentum into <unk> 2022 with January occupancy of 82% February occupancy of 82.2% and March occupancy of 82, 6% in <unk>.

Increase of 730 basis points from the pandemic low average monthly occupancy at 75, 3% in February of 2020.

Today, 77% of our communities have occupancy of 80% or greater and we are within approximately 140 basis points of our Q1, 'twenty 'twenty pre pandemic occupancy of 83, 7% comp.

Comparing so nieto's performance to industry data recently released by Nic map vision. It is clear that our strategic and operational initiatives are working as the industry's Q1, 2022 occupancy remains 670 basis points.

Behind Q1 of 2020.

Combining our occupancy growth with rate improvement.

Solid dated resident revenue for the first quarter increased five 3% as compared to the fourth quarter of 2020 and increased 90 basis points sequentially from Q3, 2021 .

Revenue per occupied unit increased 50 basis points sequentially from Q3, 2021, and was 20 basis points higher than the Revpar in the fourth quarter of 2020.

With respect to operating expenses, the labor market continue to be intensely competitive in the fourth quarter and into the early months of 2022.

This required the use of expensive agency labor and overtime and some of our communities.

The good news is that high utilization of agency labor was concentrated in just a few of our communities and we're now seeing it some side across the board random will talk more about the labor trends shortly.

Operating margin for our 61 communities was 18, 3% in the fourth quarter compared to 21% in the third quarter of 2021, mostly due to the impact of agency staffing and overtime that I. Just described of course, we are not happy at all with this operating margin and are focused on improving it as quickly as possible.

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In conclusion, we remain steadfast in executing on three major priorities number one the health and wellness of our residents and team members. This priority is and always will be paramount to our success.

Two occupancy recovery to pre pandemic levels and beyond our goal is to return to pre pandemic occupancy on a run rate basis by the end of 2022 as I mentioned earlier based on preliminary Q1 occupancy numbers were about 140 basis points away from that goal and we're confident that we're on.

Track to achieve it.

And then three as NOI expansion, we expect the NOI to improve sequentially throughout the year due to our continued focus on increasing rates responsibly deploying innovative staffing solutions and diligently managing expenses.

Lastly, we are thrilled that I've made first Kevin deeds will join our organization as Chief Financial Officer, Kevin will bring deep accounting and finance leadership to our team and we expect his technical expertise along with his strong real estate and hospitality background will enable him to add value to the company immediately we continued to believe in the <unk>.

Missing future of this industry and more specifically in the future growth prospect for Sydney to senior living I'll now turn the call over to Brandon for some more insight into our operations.

Thank you Tim and good afternoon.

As you mentioned the fourth quarter of 2021 brought to conclusion in operational and financial transformation nearly three years in the making we are so proud of the achievements in each of our communities throughout the most challenging operating period in recent memory.

A positive energy and tireless dedication to our residents and staff that each one of our leadership teams bring to bear on a daily basis drives the optimism across the need for continued improvements in operating results in 2022.

Plenty of work remains to continue occupancy and margin recovery across all of our communities. Many of our local teams have already exceeded their pre pandemic operating metrics on a portfolio level increased pressure in the operating environment related to cost and availability of labor and general inflation prevented margin expansion in Q4. However, the continue.

Occupancy and revenue growth position, our communities well for 2020 to recovery.

Further development of Labor management, and staffing capabilities throughout 2021 in combination with adjustments to our local wage scale have shown promising results in the early months of 2022 with positive net hires of 259 team members in Q4 2021 in Q1 2022 combined.

Revenue growth continued by driven by continued occupancy improvement and ongoing revpar increase coupled with gains on the labor front remain the priority for delivering margin improvement in 2022.

Early stages of significant capital investment across many of our key communities has already provided an occupancy boost in a traditionally challenging quarter for senior living.

As Tim mentioned occupancy gains in each of the first three months of 2022, coupled with achievement of continued rate improvement support our NOI growth expectations.

In our previous discussions we referenced the opportunity to improve margin by maintaining existing labor levels, while increasing occupancy the labor market remained extremely challenging in late 2021, and the early months of 2022 use of contract labor increased rapidly across the industry in November and December with the Spike in Covid cases.

Related to the omicron barrier.

Compared with Q4 of 2020 total labor costs increased by approximately $2 $6 million, primarily due to a $1 7 million increase in contract labor.

We remain confident the requirement for contract Labor was limited to markets most significantly impacted by Covid cases, and market wide labor pressures, which have begun to ease here at the end of Q1.

As previously mentioned the positive net higher figures over the last two quarters continue to drive down use of premium labor as March contract labor utilization declined from January and February .

Throughout 2021, we introduced staffing and scheduling technology to support a more flexible and employee friendly work environment.

<unk> of our labor model in 2022, moving forward has been influenced by a number of key factors are internal recruiting and retention strategies have successfully accelerated candidate flow and increased retention of existing employees in early 2020 to adopt.

Adoption of our staffing and scheduling technology continues to increase each month and has reduced the number of open shifts requiring higher cost overtime or agency labor.

Finally wage increases and wage scale adjustments, coupled with an increase in qualified candidates returning to the workforce continues to reduce the number of open positions across our portfolio.

Turning to revenue and specifically right, we delivered sequential improvement from $3578 to $3594 rent concessions for new residents decreased for the third quarter in a row further strengthening opportunity for near term rate improvement.

For 2022, we believe that residents and families understand the increase in costs of providing great service will mean higher rate growth.

Specific to Sunita the investments we have made and will continue to make in resident programming inexperience community technology infrastructure and wages for our community teams provide direct support for the rent increases at or above the 5% we referenced previously for 2022.

Despite the increase in National Covid cases in Q4 due to the omicron variant or leading indicators related to occupancy remains strong lead and tour volume for Q4 increased 57% over the same period in 2020, and 15% versus 2019 pre pandemic numbers, thanks to the ongoing outreach and digital marketing.

Efforts conducted by our local and regional leadership.

Occupancy opportunity in 2022 remains focused on accelerated recovery of those communities with occupancy under 80%.

Highlighting the ongoing recovery in key states and markets two of our largest states by unit Count, Indiana, and Wisconsin are currently operating at an average occupancy of 90% with many of the communities exceeding pre pandemic occupancy.

Further detailing the positive impact of our Q4 2021 capital infusion capital projects of approximately $10 million are underway or completed in 15 of our owned communities and for the first time in five years Sunita completed the acquisition of two communities in Q1 within our Indianapolis market and also added three <unk>.

Also in communities to our management portfolio, while still early we are pleased with the integration timeline and early operating trends in these five communities.

Finally, non labor related expenses, consisting primarily of food marketing facility maintenance and supply related items decreased 1% sequentially with a 4% increase in food costs offset by a significant reduction in third party referral fees are more than $300000 in Q4.

In early 2022, we completed implementation of an updated menu management and meal costing technology to further advance our resident experience platform and expense management processes.

While pressure on net operating income continued in the fourth quarter due to the challenging labor environment and significant increase in COVID-19 cases across the country.

Improvement in rate occupancy and the success of many so needed communities and returning to pre pandemic margins all provide support for our optimism in 2020 too.

Early results from Q1 this year show further improvement in occupancy in place rent increases occurring across the portfolio and positive movement in key hiring and retention metrics.

Our operations leadership team remains confident that more than three years of investment in developing and retaining strong local and regional leadership and advancing resident focused programming will deliver consistent improvement in operating results moving forward.

We will now move to the question and answer portion of the call. Operator. Please open the line for questions at this time.

Thank you we will now be conducting a question and answer session. If you'd like to ask your question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Yeah.

Yeah.

Thank you. Our first question comes from Steven Valiquette with Barclays. Please proceed with your question.

Hi, Thanks, good afternoon everybody.

Good afternoon.

So a couple of questions here first.

I guess, it's good to see that you're doing some acquisition activity kind of in the middle of the you know the balance sheet clean up I guess for lack of a better phrase maybe just spend a minute talking about the strategic rationale for.

Acquiring the two properties in Indiana, and I got a couple of follow ups after that.

Sure.

You know one of the one of the core components of our strategy with respect to the development of the portfolio.

Is to tuck in.

Acquisition into our footprint in markets that we would consider a strategic so where we already have a high level of density, but maybe have additional opportunity to add more communities helped support and just sort of elaborate today.

That form of the organization or possibly even going into additional new markets, where we don't have quite as much density.

In all cases, what we're looking for in those acquisition is the opportunity to take a a community that may be underperforming maybe had some difficulty during the pandemic and is struggling to recover from that.

And be able to layer into that community. The operating platform that we've worked to develop here over the last three years and doing that really see improvement in that in those operating metrics for those acquired communities.

Pretty quickly.

Okay.

Okay. That's helpful.

I just might add quickly just specific to those to Indiana, the Indiana opportunity.

Just the attractive.

Kind of purchase metrics.

Also aligned with where we're looking going forward just on a cost per unit basis.

And then also as we think about looking at a stabilized yield on cost of the investment.

The near term benefit on our free cash flow basis, those are some of the other <unk>.

Key components of that acquisition that were attractive to us.

Okay got it.

And then just jumping around here a little bit.

It's encouraging to see the.

Going concern risk language removed I guess I was curious whether there was a specific quantitative threshold that was reached.

How is the company to remove that language or is it more of just a broad qualitative and quantitative assessment instead of those rigid benchmarks just kind of more of a question of curiosity I guess.

Yeah, it's really both.

Quantitative and qualitative on the quantitative side and certainly.

Certainly the cash infusion and the capital raise helps boost our liquidity the ability for us to refinance them.

And all of the near term maturities through all of 2022 and 2023 maturities. So we don't have any.

Mortgage debt maturities coming due until the middle of 2020 for.

That helped quite a bit we also received $91 million in phase four terrorist fun.

And of course, the environment itself is becoming.

How much I don't think it's an easy environment to operate in but it is becoming easier as time goes on and we put more distance.

The worst part of the pandemic and the current operating environment. So all of those things together really allowed us to remove that a going concern.

Okay, and actually I'll add one more.

Actually I will add one more thing to that Steve.

Not only that those words sort of the financial metrics, but also the operational performance of the company has improved significantly as we've seen revpar improve and rep or the occupancy growth in all of those things really contribute to it.

Feeling good about the trajectory that the company is on and the momentum that's behind us.

Okay, great Okay.

Okay, and then final question for me I.

I think at one point do you expressed previously that you would start giving some.

For detailed guidance in 2022.

Like you, obviously gave a few metrics here around some occupancy goals by the end of the year and you also talked about the NOI and NOI margin progression throughout the year.

And you also talked about some of those strategic priorities on page seven of the slide deck.

I guess, I'm curious whether or not.

You might give additional details on guidance or just kind of what you're providing today is what we should just generally expect for you know for.

For this year as far as just targets and things to help us kind of just model things out et cetera.

Yeah for the time being I would say utilized the all the indicators are there framework that we provided around the goal.

So just to reiterate though you know our goal is to be at pre pandemic occupancy.

At or before the end of 2021 2022 sorry, and we feel really good about the momentum that we have to get there.

Our you know.

Healthy growth expectations based on a.

Right.

And being able to achieve the rates that we are putting out there in the marketplace. Both in place rent increases as well as market rates, but being responsible with that.

To make sure that we continue to hold on to our residents.

And then as Brandon mentioned.

Big part of our focus this year is around the labor piece, just like I think everyone in our industry.

And making sure that we eliminate contract labor or get it as close to being eliminated as we possibly can we did that back in 2019 were at zero contract labor at the end of 2019. So we know we can do it again.

Managing wage increases.

And so that when you think about all of those things and the knee out so contract labor coming down over time coming down.

Managing wage increases to ensure that we've got the staff and then deploying some of the labor technology that we've put in place here in.

In recent months to help us manage labor hours.

We feel like we should begin to see NOI improve here over the course of the year.

Again, you know sort of the trajectory of that not quite ready to put that out there yet.

But we do think that it will improve incrementally throughout the year.

Got it Okay, alright, that's it for me thanks.

Alright, Thanks, Steve.

Thank you there are no further questions at this time I'd like to turn the floor back over to Kimberley loaded for any closing comments.

Alright, very good well. This concludes today's conference I want to thank everyone for attending and have a great day.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Yeah.

Okay.

Well that was the latter.

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