Q1 2025 Sonida Senior Living Inc Earnings Call
Michael Jackson, Michael Jackson, Brandon Ribar, Kevin Detz, Sonida Senior
Carly: Thank you for standing by. My name is Carly and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonida Senior Living Q1 2025 Earning
Carly: All lines have been placed on mute to prevent any background noise.
Carly: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Speaker Change: Thank you. I would now like to turn the call over to Jason Finkelstein, Investor Relations. Please go ahead.
Jason Finkelstein: Thank you, operator. All statements made today, May 12, 2025, which are not historical facts may be deemed to be forward-looking statements within the meeting of federal securities laws.
Speaker Change: The company expressly disclaimed any obligations to update these statements in the future.
Actual results of performance made differ materially from forward looking standards.
Speaker Change: Third Factor, a second call of actual results to differ are detailed in the earnings release that the company issued earlier today, as well as in the reports of the company files with the SEC from time to time, including the risk factors contained in the annual report on Form 10K and quarterly report on Form 10Q.
Speaker Change: Lee, CTA's press release for this full safe harbor statement, which may be found in the AK Filing from this morning at the company's Investor Relations page, found at investors.sonida senior living.com.
Speaker Change: Please note that during this call, the company will present non-GAAP financial measures. For the recommendations of these non-GAAP measures , the most comparable gap measure, please see today's earnings release.
Speaker Change: If you'd like to follow along during today's call, you can find Sonida's first quarter to the M25 Ernie's presentation at sonida seniorliving.com in the Investor Relations section. In addition, we have included supplemental earnings information within our presentation consistent with the prior quarter release.
Speaker Change: At today's call, I am joined by President CEO Brandon Ribar and Chief Financial Officer Kevin Detz. At this time, I'd like to turn the call over to Brandon for opening remarks.
Brandon Ribar: Thanks Jason. Good morning and thank you all for joining us on our first quarter earnings call.
Brandon Ribar: 2025 is off to a strong start with encouraging momentum across each of our strategic objectives. Our top priority remains driving community performance through tailored operating plans and detailed execution.
Brandon Ribar: Growth in our same-store portfolio continued along a strong trajectory fueled by operational discipline that drove improvements in occupancy, resident rates, and margin.
Brandon Ribar: Additionally, accelerated operating performance in the acquisition portfolio further demonstrates the benefit of our owner-operator investor platform.
Brandon Ribar: Finally, our strategic and organic growth plan remains on track, and we are excited to announce two new acquisitions expected to close in the second quarter, both reflecting our focus on deploying capital creatively and strategically.
Brandon Ribar: Entering the year we outlined a plan to deliver year-over-year net operating income growth in line with the high end of our peers.
Brandon Ribar: Slide 5 in the investor presentation summarizes our first quarter performance highlights.
Brandon Ribar: Our same-store portfolio NLI grew by 19.3% year-over-year, and the acquisition portfolio NLI increased 31.3% sequentially from Q4 2020-24.
Brandon Ribar: Together, this generated a total portfolio NOI growth of 37.6% year-over-year. Our Q1 annualized NOI for the acquisition portfolio implies a 9.1% yield on cost, excluding the one unopened asset acquired at UREP.
Brandon Ribar: Additionally, we achieved a portfolio-wide 6.6% average renewal rate increase on March 1, impacting nearly 70% of our resident base.
Brandon Ribar: and directly supported by our excellent resident satisfaction and our team's ability to offer a high value experience to our residents.
Brandon Ribar: These rate increases are consistent with the levels we achieved in 2024 and position the business for further NOI growth during the course of the year.
Brandon Ribar: Occupancy improved 100 basis points year over year in our same store portfolio and 70 basis points sequentially from Q4 in our acquisition portfolio.
Brandon Ribar: including the communities purchased in 2024, many of which required significant operational turnarounds. Our total company occupancy of 84.7% provides substantial margin and revenue upside as we continue to stabilize the portfolio.
Brandon Ribar: Lead volume increased across our same-store portfolio by 7% in the first quarter, and we remain highly focused on conversion tactics to support higher move-in volume.
These efforts are supported by a highly engaged resident base.
Brandon Ribar: Programming and Access to Health and Wellness Services across each of our product types.
Brandon Ribar: Our average length of stay, a key metric for understanding velocity of resident turnover has remained stable over the last year, allowing leadership to plan labor needs more effectively and tailor sales and marketing strategies to backfill vacancies.
Investments in our clinical health information system.
Brandon Ribar: Resident Fall Detection, Nurse Call, and Employee Scheduling will be fully implemented by Q3 this year. Further enhancing our clinical and operating infrastructure, benefiting both resident services and our business intelligence and reporting capabilities.
Brandon Ribar: Lastly, over the past two years we have invested in our employees and introduced leadership and incentive plans focused on aggressively reducing employee turnover.
Brandon Ribar: These investments resulted in our lowest total company turnover percentage for a quarter since we began tracking this metric, and we are seeing further reduction in the second quarter.
Speaker Change: I'll now turn the call over to Kevin for detailed discussion of our Q1 financial performance.
Kevin Detz: Thanks, Brandon. Before I discuss our first quarter operating results, I wanted to identify a change in the composition of our portfolio categories as seen on slide 11.
Kevin Detz: Beyond the same store and acquisition portfolios that we previously reported on, we will now add a repositioning portfolio for assets that are undergoing significant renovations and or business model changes.
Kevin Detz: As more fully described later in the presentation, we have identified five such assets for strategic repositioning to capture a higher rate, private pay customer base. This repositioning will require tailored operating platform changes and medium range capital reinvestment plans.
Kevin Detz: These communities will be excluded from our same store until the strategic plans have been fully executed.
Kevin Detz: Starting on slide 12 with the same-store comparison of your-of-your-quarters, the company drove up occupancy 100 basis points to 86.8%.
Kevin Detz: Coupled with a 5.5% red-poor increase over the same period, annualized same-store revenues increased $16 million or 7.4%.
Kevin Detz: With 65% of the increased revenues flowing through to NOI, the company grew same-store NOI by 19.3% and realized a 27.6% margin, a 280 basis point increase of the 24.8% posted in the first quarter of last year.
Moving on to slide 13 [inaudible]
Our 2024 acquisition communities continue to deliver strong sequential growth.
Kevin Detz: Note that these figures contemplate the at-share results of our two joint venture investments and exclude the December 31st acquisition of our ARI Hills community, which is scheduled to open later this year.
Kevin Detz: According to the 4th quarter of 2024, occupancy gained 70 basis points and rev poor increased by 2.3%.
Kevin Detz: The full impact of the rate profile is temporarily muted by the disparate timing of when the previous operators push through their last resident rate increases.
Kevin Detz: We expect the rate increase profile to align more with our same-store rate trajectory once all committees are in a full annual renewal cycle.
Kevin Detz: Again, using sequential quarters to the acquisition communities that share, resident revenue grew $5.2 million on an annualized basis with nearly 80% of this growth flowing through to N.O.I.
Kevin Detz: As we move through the year the operating team will be focused on continue integration of Sydney. These operating platform to unlock additional value from these acquisitions on slide 14, we've laid out similar metrics on the total portfolio, which rolls up the same store portfolio the acquisition portfolio and the repositioning portfolio.
Brandon Ribar: That Brandon will touch on in more depth shortly.
Brandon Ribar: Note that the overall decrease in year over year occupancy is simply attributed to the addition of acquisition communities at lower average occupancy and that were not included in the first quarter 2024 results.
Brandon Ribar: With another successful annual rate renewal completed in March the total portfolio's NOI margin of 25, 7%.
Brandon Ribar: Would expand further with a full quarter's impact from these elevated rental rates.
Brandon Ribar: Moving ahead to slide 16.
Brandon Ribar: On a same store basis, the average annual rent renewal on March one was six 9%, which was applicable to 71% of the total residents.
Brandon Ribar: When comparing to the previous quarter last year, the blended private pay a Medicaid rate increased four 9%.
Brandon Ribar: We believe another strong year of resident rate increases combined with the 100 basis point occupancy expansion is continued testament to the values to data provides to our residents and their loved ones.
The company continues to expand its level of care revenues with an annualized year over year increase of $1 8 million or 13, 6% on a same store portfolio.
Brandon Ribar: This was driven by strong and wide adoption of our recently introduced software system that helps us track resident usage of clinical staff resources to better price our services. Additionally in 2024, the company modified its memory care pricing structure to introduce a level of care surcharge that appropriately differentiates the degree of care.
Brandon Ribar: <unk> being provided by our staff.
Brandon Ribar: The utilization of our clinical software and new pricing structure led to immediate value creation across the recently on boarded acquisition communities.
Brandon Ribar: Diving into more of the margin drivers, we will move ahead to slide 17 to discuss operating expense trends.
As a percentage of revenue total labor excluding benefits for the first quarter decreased 110 basis points as compared to the same quarter in 2024.
Brandon Ribar: This relative decrease in labor yielded 71% an incremental flow through on the additional revenue for the same period and is reflective of continued stabilization of total hours worked and average hourly wage profile.
Brandon Ribar: This flow through profile is anchored by a strong employee base with increasing year over year retention as Brendan referenced in his earlier comments.
Brandon Ribar: On the non labor expense front absolute cost increased only $200000 from Q1 2024 to Q1 2025.
Brandon Ribar: This is largely the result of our ability to hold fixed cost increases to inflationary levels in areas, such as insurance and real estate taxes. While also utilizing the total portfolio of scale to drive down our per unit cost profile in areas, such as food and service contracts.
Brandon Ribar: Closing out the P&L for this quarter's earnings our G&A has shown stabilization. Following the one time build out of our business development and operational excellence functions in 2024 to support the overall growth initiatives of the company.
Brandon Ribar: This quarter's strong operating results from our acquisition portfolio were tied directly to our team's ability to swiftly integrate these communities into the Sunita operating model.
Brandon Ribar: G&A, excluding noncash stock compensation expense, and one time transaction and severance costs decreased $200000 from $7 $7 million recognized during the fourth quarter.
Brandon Ribar: Notwithstanding material acquisitions. The company's goal is to continue to maintain its current G&A composition.
Brandon Ribar: Moving to the balance sheet on slide 18.
Brandon Ribar: Our total debt at share is comprised of 61% fixed rate debt.
Brandon Ribar: Without the inclusion of the company's secured credit facility. The weighted average rate is five 2% with the variable rate debt nearly fully hedged with the inclusion of the credit facility. The weighted average interest rate is five 4% for the portfolio.
Brandon Ribar: Currently the company has $90 million of capacity remaining under its facility with approximately $43 million immediately available as of the end of the quarter.
Brandon Ribar: The company anticipates, an increase in availability as the underlying borrowing base asset securing the facility continued to expand our NOI profile.
Brandon Ribar: The company continues to execute on its long term strategy of Delevering the balance sheet with a target of seven times based on acquisition NOI stabilization.
Brandon Ribar: <unk> same store growth and responsible debt management.
Brandon Ribar: Finally as of today the company is in compliance with all financial covenants required under its mortgages and credit facility.
Brandon Ribar: And finally on slide 19 last year, we introduced a bridge to $100 million of NOI based on 2020 force pro forma in place NOI of $7 million to $8 million and an.
Brandon Ribar: <unk> driven placeholder for growth through community stabilization of $22 million.
Brandon Ribar: We were able to share only limited visibility into attainment during our year end earnings report due to acquiring 10 of the 19 operating acquisition communities in the final quarter of the year.
Brandon Ribar: Today, we are excited to report that with our first full quarter of total portfolio stabilization behind US we were able to realize $12 million in annualized NOI growth attributed to incremental actual portfolio NOI recognized in Q1 2025 as well as the run rate impact to NOI from another successful annual rate.
Brandon Ribar: <unk> campaign.
Brandon Ribar: As we continue to drive occupancy expansion and leverage pricing power to pass through renewal and market rate increases while driving our unit cost economics down we continue to believe that this $100 million of NOI is an achievable near term target with meaningful upside thereafter.
Brandon Ribar: <unk> Brandon.
Brandon Ribar: Thanks, Kevin.
Speaker Change: Starting on slide 21, with capital allocation and our existing portfolio I will expand on the repositioning communities Kevin referenced in his comments.
Speaker Change: Within this repositioning category, we identified an opportunity to design and offering consistent with the private pay landscape in these markets, while reducing our exposure to government reimbursement.
Speaker Change: In late 2020 for the Indiana Medicaid program converted to a managed Medicaid model, creating significant disruption by limiting both the timing and authorization for residents to access the benefit for assisted living and memory care services.
Speaker Change: As a result, we intentionally reduced the number of medicated missions, thereby decreasing overall occupancy in these communities.
We are now removing units from service converting the product type to a different unit mix and investing capital to upgrade the physical plant, where the demographic income profile supports a private pay model.
Speaker Change: We are projecting capital spend of $4 million to $5 million in total across the five communities.
Speaker Change: Completion of these projects will meaningfully reduce the company's Medicaid percentage of total revenue currently at 9% and we expect the return on investment to exceed 30%.
Shifting gears capital markets today continue to be shaped by liquidity seeking and that motivated sellers. This backdrop is generating a steady pipeline of investment opportunities with attractive risk adjusted returns for <unk>.
Speaker Change: We remain focused on acquiring high quality assets at a discount to replacement cost, where we can unlock value through operational improvement.
Speaker Change: In these situations, we benefit from owning well located real estate at a favorable basis with upside from market improvement combined with the unique alpha generated by our operating platform and leadership.
Speaker Change: On page 24 of our Investor presentation, we highlight one of our initial 2020 for investments the stone joint venture which closed in May.
Speaker Change: We acquired four recent vintage high quality assets for $64 million or approximately $140000 per unit.
Speaker Change: At acquisition the portfolio was generating just $1 5 million of NOI, reflecting low occupancy and elevated expenses.
Speaker Change: Upon assuming management Cindy to stabilize two leadership through targeted personnel transitions and robust training and Mentorship.
Speaker Change: We also equipped community teams with our business intelligence tools expense and revenue management processes and regional support structure to rebuild each community's operating model.
Speaker Change: As a result of our focus on people and process NOI has grown fourfold, all while improving the quality of services delivered to residents even as occupancy remains below stabilized potential.
Speaker Change: Turning to page 25, as we shifted to offense early last year, we identified a strategic opportunity to expand in the southeast targeting high growth markets, where we have deep operating expertise and strong regional support.
Speaker Change: We ultimately acquired two portfolios totaling 10 assets for approximately $135 million or $180000 per unit.
Speaker Change: These assets served as the cornerstone of our successful equity and debt raise last summer and closed in Q4 2024.
Speaker Change: Since acquisition, we've focused on operational integration and made targeted capital investments of approximately $2 million across the portfolio.
Speaker Change: Addressing deferred maintenance needs and selectively upgrading furniture and finishes.
Speaker Change: Early results are encouraging with margin improvement driven by both disciplined expense management and active revenue strategies, including level of care assessments.
Speaker Change: 10 assets delivered a combined NOI yield in excess of 10% in Q1 with significant upside remaining as we continued to grow occupancy and drive healthy rate growth.
Speaker Change: In addition, we are under contract to acquire two more communities in major southeastern markets for a combined $22 million with closings expected in Q2.
Speaker Change: These off market deals reflect the same profile as many of our other recent investments quality assets in attractive markets with operational upside and we look forward to providing additional details soon.
Speaker Change: Looking ahead to the broader 2025 investment landscape, we are not simply pursuing growth for growth's sake, we remain disciplined deploying capital, where we see accretive opportunities that offer compelling risk adjusted returns and clear strategic value.
Speaker Change: The current environment is presenting a wealth of these opportunities and as we continue to refine our operational integration playbook. We believe we are uniquely positioned to capitalize on this opportunity set.
Speaker Change: So need his focus on results driven operational strategies operational excellence and capital allocation yielded another quarter of strong performance and accelerating growth in the newly acquired communities.
Speaker Change: A combination of in place revenue and NOI growth responsible and attractive investment activity and broader application of our owner operator platform uniquely positions <unk> as a leader within the senior living and real estate landscape.
Speaker Change: Our team is highly focused on operational execution and committed to continued excellence and value creation for the remainder of 2025 and beyond.
Speaker Change: This concludes our prepared remarks operator, please open the line for any questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from Ronald Camden with Morgan Stanley.
Hey, just to two quick ones.
Speaker Change: First is on the repositioning portfolio.
Speaker Change: So the five assets are removed out of the pool into the portfolio.
Speaker Change: It sounded like from your opening comments there was a you know.
It sounds like a Medicaid change in.
Speaker Change: And then in Indiana, if I heard correctly, just just a little bit more color there.
Speaker Change: You talked about the dollar spend.
Speaker Change: For those assets, but just what kind of timeline any occupancy targets that you're thinking through.
Speaker Change: Just would love to hear a little bit more about sort of the repositioning assets.
Speaker Change: Thanks, Ron and good morning, good to speak with you.
Ron: So I think the repositioning portfolio for us as a story around opportunity within our portfolio to invest some dollars.
Ron: To fully align those communities with our long term business model. So.
We are.
Ron: As you know heavily private pay and the opportunity to continue to reduce our exposure to the Medicaid program presented itself.
Ron: When there was a change in the program that ultimately.
Ron: Made it a little bit more difficult for people to access the Medicaid benefits in the state of Indiana and in order to get ahead of any kind of long term detriment to it.
Ron: Look at these five communities, which have the heaviest exposure to the Medicaid program.
Ron: And they are in good markets, where they do support a private pay model, but we felt the assets needed to be positioned with capital investment to make sure that we could.
Ron: Really appeal to the private pay individuals and so that meant in order to get the investments completed and to make sure that we were appropriately managing the margin in those in those communities that we were taking units out of service continue to take units out of service.
Ron: In the first and second quarter here, so that we can get that capital invested and ultimately shift the business model in those communities to a far more heavily focused private pay reimbursement model that matches with the long term vision for our company as a whole so.
Ron: We thought it was a really good opportunity to use some of our dry powder to deliver what we think is going to be a strong return profile for those internal capital investments.
Ron: Great and then my second question would just be what about the remaining private pay any other sort of assets that could potentially beyond that repositioning bucket.
Ron: And then if you could also talk about just the two acquisitions.
Ron: That you guys have tied up in and sort of any any color on those in the pipeline.
Ron: Yes happy to do so I think that within our portfolio that repositioning bucket.
Ron: These five are the most immediate opportunities there we have done quite a bit of investment over the last couple of years across the portfolio. So I wouldn't say that there is an expectation around a large scale kind of transition of communities into that repositioning bucket or need there. So I think we'll continue to evaluate.
Ron: <unk> that just as our portfolio grows.
Ron: Just shy of 100 assets now there may be opportunities down the road, where we want to use that same concept, where the business model does need an adjustment or we're going to make a major capital investment that would that would change that.
Ron: The trajectory of the business, but would create near term disruption. So we will continue to monitor monitor that but nothing on the immediate.
Speaker Change: Immediate horizon within the portfolio.
Speaker Change: We will continue to show the results of this repositioning effort.
Speaker Change: Confident that.
Speaker Change: The results will really show the benefit from our capital investment and repositioning of these assets.
Speaker Change: And then just on the two additional acquisitions that that we mentioned these are strong southern markets.
In Florida and Georgia.
Speaker Change: We have a couple of individuals.
Speaker Change: Acquisitions that are very very consistent with what we purchased.
Speaker Change: Kind of the latter part of 2024, where.
Speaker Change: These are communities that will benefit from our operational overhaul.
Speaker Change: They are very nice kind of new vintage communities.
Speaker Change: And again kind of the return expectations are consistent with what we bought towards the end of last year, where we feel like these can stabilize.
Speaker Change: With low double digit yields and so we think this is representative of an ongoing opportunity.
Speaker Change: To use our platform to <unk>.
Speaker Change: <unk> strong very high quality assets that just need some operational.
Speaker Change: Kind of capabilities and transitions.
Speaker Change: And then can stabilize with with really.
Speaker Change: Solid operating metrics in the very near future.
Speaker Change: Great. That's it for me thank you.
Speaker Change: Keith.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
There are no further questions at this time I will now turn the call back over to Mr. Brendan Rebar for closing remarks.
Speaker Change: Thank you all for participating this morning, and this concludes today's conference call.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
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