Q4 2024 Sonida Senior Living Inc Earnings Call
Speaker Change: Hello and welcome to Sonida Senior Living 4th quarter and full year 2024 earnings call. Please note that this call is being recorded.
Speaker Change: After the speaker's prepared remarks, there will be a question and answer session.
Speaker Change: If you'd like to ask a question during that time, please press star followed by number one on your telephone keypad.
Speaker Change: Thank you. I'd now like to hand the call over to Jason Finkelstein in Vester Relations. You may now begin.
Speaker Change: Thank you, Operator. All statements made today, more 17 2025, which are not historical facts, may be deemed to be forward-looking statements within the meeting of federal security laws.
Speaker Change: The company expressly disclaims any obligation to update these statements in the future. After all results, the performance may differ materially from forward-looking statements.
Speaker Change: Please see today's press release for the Full Safe Harbor Statement, which may be found in the 8K filing from this morning at the company's Investor Relations page found at bonita senior living dot com.
Speaker Change: Also, please note that during this call, the company will present non-GAT financial measures. The reconciliation is of these non-GAT measures to the most compatible GAT measure, we see today's earnings release.
Speaker Change: at this time, I'd like to turn the call over to Sonida Senior Living President CEO , Brandon Ribar, for OPA Remark.
Brandon Ribar: Thanks Jason. Hello and welcome to our 2024 fourth quarter and full-year earnings call. I'm joined today by Kevin Detz, our Chief Financial Officer
Brandon Ribar: Earlier today, we released our Q4 and full-year 2024 earnings and investor presentation, which will be referenced throughout this call as we discuss our strategic priorities and operating results in addition to our view on the year ahead in 2025.
Brandon Ribar: You can find our latest presentation at sonida seniorliving.com in the Investor Relations section if you would like to follow along. In addition, we have included supplemental earnings information within our investor presentation consistent with the prior quarter release.
Brandon Ribar: We ended 2024 with a number of significant achievements, all positioning the company for accelerated growth in 2025 and beyond.
Brandon Ribar: Highlights for the Year include 19% and 27% year-over-year growth from 2023 in same store adjusted community N.O.I. and adjusted EBITDA respectively.
Brandon Ribar: 2024 saw a same storm improvement of 180 basis points in occupancy and nearly 6% growth in Rev4 year over year.
Brandon Ribar: I'm extremely grateful to our team who maintained focus on achieving top and bottom line expansion in our same-store portfolio while balancing the complex integration of 20 owned and three managed communities, representing a near 30% increase in total units to the portfolio.
Brandon Ribar: These results continue the value creation trajectory we committed to two and a half years ago, as we launched the next chapter of the company's evolution.
Brandon Ribar: Clyde Seven in our investor deck provides an overview of this repositioning journey with the next phase aimed squarely at further value creation in what we believe is an extended period of growth for both the industry and the company.
Brandon Ribar: From a capital allocation perspective, we executed on six distinct transactions totaling more than $250 million in gross asset value and continue to prudently invest capital across our existing portfolio.
Brandon Ribar: Importantly, we close three transactions in the fourth quarter, totaling 11 communities in 817 units, which drove 11 percent sequential total NOI at share growth quarter
Brandon Ribar: Lastly, over the course of the year we established foundational tools and processes to support the company's acquisition capabilities and operational integrations.
Brandon Ribar: Looking ahead, early Q1 trends point to continued year-over-year growth in occupancy and strong rate improvement.
Brandon Ribar: Our goal in 2025 is to achieve same-store NOI growth in the high end of our peer group as we did in 2024, benefiting from higher incremental flow through associated with more communities reaching stabilized operating levels.
Brandon Ribar: We believe that the Sonida story is both simple and attractive to investors seeking a true differentiated operating platform to benefit from the demographic tailwinds and increasing supply demand imbalance projected for senior living.
Brandon Ribar: We are 100% senior housing exposure, owning the vast majority of our real estate and with no leases.
Brandon Ribar: Investors benefit from continued performance improvement of our same store portfolio combined with elevated growth from our 2024 acquisition communities that as of Q4 had a weighted average occupancy of 76% and NOI margin of 21.7%.
Brandon Ribar: Lastly, our unique position as an Integrated Owner Operator allows us to confidently invest in high returning value at opportunities, benefiting from the full value creation of the real estate, while also creating further operating company value.
Brandon Ribar: In terms of the investment landscape, market dynamics remained favorable for Sonida's continued acquisition growth.
Brandon Ribar: More deals are hitting the market early in 2025, and the combination of motivated sellers and special situation opportunities with lenders and acid owners as debt maturities increase are yielding a significant pipeline similar to the acquisitions closed in 2024.
Brandon Ribar: With an increasing recognition of our operational capabilities and growing track record as a counterparty, we will continue to aggressively pursue high quality, underperforming or mispriced assets that can generate a creative return.
Brandon Ribar: Achievement of these growth expectations depends on focused execution around our key operating pillars in 2025.
Brandon Ribar: Employee turnover continues to decline with the increased investment in the employee experience from success-based wages and benefits to a more robust employee recognition and development program.
Brandon Ribar: Overall, company turnover decreased nearly 10% in 2024 for the second year in a row.
Brandon Ribar: Our goals in 2025 also include realizing further benefit from density in our key markets. Our regional operating strength allows for more efficient use of marketing dollars, rate optimization across product types, and shared resources on the expense front to deliver stronger clinical and financial results.
Brandon Ribar: The combination of strong stable leadership, thoughtful and committed service and care providers and technology to enhance resident programming and safety will continue to drive strong year-over-year rate growth as we deliver the value our residents and families expect.
Brandon Ribar: We have consistently delivered strong operating results when communities deliver highly valued services including our signature activity programming personalized care plans and elevated meal and dining services.
Brandon Ribar: The final pillar driving 2025 operating success remains our approach to operational excellence.
Brandon Ribar: The consistent application of our business intelligence tools and third-party technology platforms allows our leadership at the community and regional level to quickly identify and address outlier performance trends.
Brandon Ribar: Rate optimization, tailored sales and marketing plans, and the impact of our clinical programming highlight key points of differentiation consistent across the NEDA communities.
Brandon Ribar: Related to sales and marketing, continued emphasis on development, incubation, and implementation of technology to drive down resident acquisition costs and improve conversion metrics has led to a higher percentage of organically generated leads and movements.
Brandon Ribar: Lead Volume in Q4 2024, increased 15% year over year, with 2% or volume of 11% in our same store-owned portfolio, leading to positive net movements during the traditionally slower months of January and February in 2025.
Brandon Ribar: We are especially pleased that Movin's driven by digital marketing enhancements.
including website architecture changes.
Brandon Ribar: Update paid search strategy and greater scrutiny over third-party listings have significantly outpaced the change in paid move-ins from third-party aggregators, leading to a reduction in referral fees year-over-year.
Speaker Change: Thanks, Brandon. My comments today will aim to provide a summary of the key financial accomplishments from the quarter and full year 2024 as well as to provide some visibility into the company's focus for 2025.
Speaker Change: One year ago, the tenor of our comments surrounded the significant restructuring of the company's debt, swift pace of our occupancy and NOI recovery, and transition from defense to offense.
Speaker Change: With this foundational pivot behind us today marks the beginning of a new chapter in the company's story of ascension.
Speaker Change: 2024 saw the company raise $200 million dollars of equity to increase its senior living real estate units by 30%, while steadily pushing up the performance of its same store portfolio and investing an upgraded talent to unlock the value on its recent and future acquisitions.
Speaker Change: Before we discuss our operating results, I want to highlight two significant debt transactions that were executed in the fourth quarter.
Speaker Change: First, in connection with the third quarter loan modification with one of its lenders on two cross communities in Texas, the company made a discounted pay off of $18.3 million on a $28.4 million loan balance.
Speaker Change: The DPO represented a 36% discount on the lone principal balance.
Speaker Change: Second, as part of its collaborative relationship with Fannie Mae, the company extended the absurdities of 18 of its individually mortgage communities, with a total debt balance of $220 million by two years.
Speaker Change: The result of this loan amendment provides for a January 20, 29 maturity date for all 37 communities under Fannie Mae Financing.
Speaker Change: In exchange for the extended loan term, the company was required to make a series of principal paydowns totaling $10 million over the revised term of the loan, with the first payment having been made in December 2024.
Speaker Change: Following these two transactions, Sonida has just one year-term debt maturity for $13 million dollars occurring in September of this year, for which the company expects to be able to finance.
Speaker Change: The company's next significant debt maturity is March 20, 27, when our $113 million term loan
Speaker Change: Starting on slide 11 with the comparison of year-over-year quarters, the company was able to increase its annualized same-store revenues by over $14 million. Primarily attributable to an all-in-rate increase of 5.1% over the same period, as well as 70 basis points of occupancy growth.
Speaker Change: As referenced in last year's earnings call, Q4 2023 and OI included non-recurring credits of $1.7 million for one-time real estate tax settlements and workers' comp troupes.
Speaker Change: Excluding these Q4 2023 non-recurring credits, Q4 2024 Pro Forma NOI grew 9.6% and Pro Forma NOI margin grew 90 basis points on Q4 2023's Pro Forma margin of 24.6%.
Speaker Change: At this point, the company does not anticipate significant one-time real estate tax credits at as largely canvassed and addressed its reassessment population.
Speaker Change: Furthermore, changes in workers' cough accruals are generally now more refined and captured over the course of the year in the applicable quarter.
Speaker Change: Moving on to Slide 12, where we will review the company's annual same store performance.
Speaker Change: The company was able to increase its revenues by 7.5% from the combination of an occupancy gain of 180 basis points and a nearly 6% rev for increase.
Speaker Change: Removing the one-time real estate tax credits of $1 million from 2023 are pro forma annual year-over-year adjusted community NOI, which excludes non-recurring state grants of $2.9 million received in 2023, increased 21% or $11.4 million.
Speaker Change: Later in the presentation we will expand on the components of NOI Martian Improvement.
Speaker Change: As occupancy continues to increase in 2025, we believe this improving and a wide flow through profile will continue to benefit the company's same-store portfolio and ultimately its recent acquisitions once stabilized. I head to slide 13.
Speaker Change: Q4 2024 was the first quarter since the pandemic that the company did not realize occupancy growth from the previous quarter. With a weighted average occupancy of 86.6% falling 40 basis points from its Q3 average of 87%.
Speaker Change: We believe this is largely a function of our portfolio experience more normalized seasonality patterns as our occupancy has reached the high 80s. Based on current lead and tour volumes and overall increasing occupancies across the industry, we are optimistic that our occupancy will continue to grow in 2025.
Speaker Change: As seen on slide 14, the company successfully migrated to a resident-wide March 1st Rape Renewal Anniversary in 2024.
Speaker Change: The head of its March 1, 2025 annual rate renewal, which we are anticipating to be directly consistent with 2024's increase, the company experienced an overall stabilization of its same-store rate during the last two quarters of the year.
Speaker Change: Attributable to a shift in occupancy towards this independent living units.
Speaker Change: The company continues to expand its capture of level of care revenues.
Speaker Change: with a year-rear increase of $1.1 million or 8.3% on its same store portfolio. This capture was driven by strong and wide adoption of a recently introduced software system that helps us track resident usage of clinical staff resources to better price our services.
Speaker Change: Additionally, in 2024, the company modified its memory care pricing structure to introduce a level of care surcharge to more accurately charge residents for the degree of care being provided by our staff.
Speaker Change: And finally, discounts and concessions as an absolute dollar and percentage of revenue bases continue to decline year-over-year, a testament to our success in providing value to our residents.
Speaker Change: Driving into more of the margin drivers, we will move ahead to slide 15 to discuss your over your same store labor trends.
Speaker Change: for the fourth quarter and full year 2024, we continue to see further stabilization of our workforce.
Speaker Change: Increases and average wages have now been generally limited to CPI-based inflationary increases and our average annual total employee count for the same store portfolio increased only 2.1 percent, which includes the conversion of premium labor to a more stable direct labor
Speaker Change: With contract labor being limited to a handful of communities where market-specific labor constraints arise periodically, the company is focused on further optimizing labor mix by reducing its premium labor.
Speaker Change: Perry is such a ship bonuses and overtime are gradually being phased out as a more stable core full-time employees emerges.
Moving ahead to all other expenses on slide 16.
Speaker Change: As a percentage of revenue are non-labor expenses, including 2023's one-time real estate tax credits and workers' comp troupes, have decreased 60 basis points, from 27.5% to 23 to 26.9% and 24.
Speaker Change: This margin accretion comes despite a temporary deterioration of Medicaid related aging, which accounts for approximately $700,000 of the increase to bad debt expense versus 2023.
Speaker Change: Specifically, Medicaid eligible communities in Indiana are working through structural changes in the state plans, resulting in residents needing to reapply for Medicaid coverage and pushing out the rent collection cycle, or in some cases losing coverage altogether.
Speaker Change: To address this, the team will be working with case managers to regain resident eligibility and more importantly, proactively prevent lapses going forward. They will also be meeting with key state and plain leaders to pursue one-time exemptions for reimbursements that may have been lost due to timely filing preclusions.
Speaker Change: And finally, we will be revising our Medicaid, resident policies and procedures to better line with evolving shift in payer dynamics in Indiana.
Speaker Change: For the remaining non-labor expenses, we believe that the quarterly expense profile will continue to track at or around inflationary rates based on the company's thorough and strategic review of its larger programs such as food, utilities, and real estate taxes.
Speaker Change: Additionally, as the company continues to evolve the sophistication of its sales approach and leverage of wider digital marketing funnels, our reliance on third-party sales or referral partners should continue to win.
Speaker Change: Jumping ahead to slide 24, where we will revisit some of our case studies on capital deployment.
Speaker Change: As a result of the company's 2023 and 2024 dead and inequity transactions, we were able to earmark capital to communities where we believe targeted and scope investments were needed to elevate community performance.
Speaker Change: Our Levis Commons and Plymouth Communities are two instances where the 2024 Completed Projects have pushed NOI margins to nearly 30 percent, with expectations to drive even higher in 2025 and beyond.
Speaker Change: Our capital investment into our existing North Bend crossing community was equally successful, driving occupancy up to 98% and generating a 400 basis point increase in margin in 2024.
Speaker Change: Moreover, the success of this asset repositioning situated the company to acquire the neighboring newly developed community, creating a large two-villain campus.
Moving to the balance sheet on slide 17.
Speaker Change: Inclusive of the 2024 acquisitions and related debt transactions, our total debt at share is comprised of 61% fixed rate debt.
Speaker Change: Without inclusion of the company's recently secured credit facility, the weighted average rate is 4.7% with the variable rate debt nearly fully hedged.
Speaker Change: Currently, the company has $90 million of capacity remaining under its facility with approximately $35 million immediately available as of the end of the year. The company anticipates an increase in availability as the underlying borrowing base assets securing the facility continued to expand their NOI profile.
Speaker Change: The company continues to execute on its long-term strategy of delivering the balance sheet with a target of seven times based on acquisition, analyze stabilization, continued same-store growth, and responsible debt management.
Speaker Change: As of today, the company is in compliance with all financial covenants required under its mortgages and credit facility.
Speaker Change: And finally, last quarter, we introduced a bridge to approximately $100 million of NLI based on stabilization of our same-store portfolio and recent acquisitions.
Speaker Change: The timing of our capital deployment combined with the profile of what we acquired resulted in the majority of the 2024 NOI contribution being limited to the fourth quarter.
Speaker Change: As you can see on slide 19, annualizing the fourth quarter acquired NOI contribution yields an additional $9 million of NOI.
Speaker Change: or 13% growth beyond our total 2024 NOI. Following the same administrative exercise use last quarter, that is moving occupancy to 90% and NOI margins to 30% at current rent levels.
Speaker Change: who creates an additional $22 million of NLI. This exercise does not include any assumption on future rate growth.
Speaker Change: As we continue to find that we have pricing power to pass through renewal and market rate increases, we believe that this $100 million of NOI is an achievable near term target with meaningful upside thereafter.
Brandon Ribar: Thanks, Kevin. As I mentioned earlier, the path to achieving accelerated growth in our existing portfolio is built on execution of our individual community business plans by talented local and regional leadership with the support of our Sonida centralized support team and systems.
Brandon Ribar: We are poised to deliver further NOI growth and margin expansion as we push the ongoing improvement in our same store portfolio and accelerated revenue and margin stabilization in our recently acquired communities.
Brandon Ribar: We see an opportunity to compound our growth by capitalizing on our robust pipeline of additional acquisition opportunities leveraging our operating capabilities and capital availability.
Brandon Ribar: Through a combination of occupancy expansion, ongoing rate improvement, and effective expense management, our 2024 investments are targeted to stabilize at double digit cap rates, delivering significant earnings accretion.
Brandon Ribar: We've included a summary of our Q4 2024 investments in the investor deck on slides 26 through 31 and have been pleased with the financial uplift across each of these investments in the early stages of integration and repositioning.
Brandon Ribar: The application of our staffing technology, purchasing capabilities, and focused expense management processes continue to drive early improvement in operating results in the acquired communities.
Brandon Ribar: Substantially-limited new supply remains a significant tailwind for our portfolio, and we do not see any near-term changes to this dynamic.
Brandon Ribar: Even as banks look to deploy more capital in 2025, equity capital for new construction is difficult to obtain as most developments don't settle.
Brandon Ribar: Given a long lead time for new construction, this supply dynamic looks poised to support the industry for some time.
Brandon Ribar: In the meantime, with approximately 2,000 units starts per quarter, the industry is not building sufficient capacity to house the 4 million net additional 80 plus population projected through 2030.
In summary, Sonida's focus on results driven operational strategies, operational excellence.
Brandon Ribar: and Capital Allocation yielded another quarter of strong performance and portfolio expansion. Our team is highly energized by the transformation of the company in 2024 and committed to continue excellence and value creation in 2025 and beyond.
Speaker Change: This concludes our prepared remarks. Operator, please open the line for any questions.
Speaker Change: Hey, just two quick ones for me. Just number one, just starting a little bit on the fundamentals. I know you have the hundred million dollar target out there and so forth. It's just where it's sort of pricing going out.
Speaker Change: Today, how does that compare to sort of what it was last year? And, you know, I know you mentioned about sort of the labor cost or getting better, just a little bit more color there as well and what you're anticipating as immigration sort of gets to then go on. Thanks.
Speaker Change: Thank you, Ron. Good morning and good to catch up with you. So...
Speaker Change: A couple of things just on the deal overall landscape and the trajectory of the recovery.
Speaker Change: I'd say that from a first off pricing perspective, we do feel like 2025 is going to be another strong year in line with the types of gains that we saw.
Speaker Change: in 2024. So we we feel like with the occupancy levels where they're at, especially in the same store that we can continue to push forward on pricing. So again, I think good story there. And then on the
Speaker Change: The communities that we've acquired, we've seen really good initial performance, especially on the expense management side.
Speaker Change: Our focus for 2025 is accelerating the recovery really top line on those new communities that we that we brought on more because they do have and we're going to be able to do this in the future.
Unknown Executive, Brandon Ribar
Speaker Change: Just from a rate perspective is higher than our same store as well. So we feel like with that good occupancy opportunity, you know there's also the chance for a margin expansion going into 2025. So
Speaker Change: I think really focused on strong acceleration of occupancy recovery for newly acquired communities.
Speaker Change: Good continued growth in the same store profile in mind with the top end of our peers.
Speaker Change: and then on the labor front, just really diligently managing those labor expenses for 2025.
Speaker Change: I haven't seen any major shifts in the market related to any impacts around any changes in immigration. I think we have some comfort in that the majority of our employees are certified.
Speaker Change: that we have not seen any immediate or material impact on the labor front. So really kind of controlling those, you know, right around the same levels we have, you know, in the past year or so, should allow us the opportunity to really grow the business from a margin perspective and get those dollars.
Speaker Change: You know, closer to, you know, as you mentioned, that kind of $100 million run rate as quickly as we can.
Thank you so much.
Thank you so much.
Speaker Change: This note concludes our questioning and answer session. I'd now like to hand back over to
to Mr. Brandon Ribar.
Speaker Change: Thank you all for participating and this concludes today's conference call.
Thank you for attending today's call. You may now disconnect.
Jason Finkelstein, Brandon Ribar, Unknown Executive