New strategic pillars and an “aggressive” focus on margins will help guide Sonida Senior Living’s (NYSE: SNDA) operations in 2023, executives said during the operator’s third quarter earnings call Monday.
Specifically, Sonida Senior Living CEO and President Brandon Ribar said the company will focus on three main areas in the coming year: Developing strong local leaders; striving for operational excellence and delivering value to residents and families.
To achieve those goals, the company expects it will see “significant” revenue per occupied room (RevPOR) and margin improvement driven by “consistent operational excellence,” Ribar said. The company’s leaders also will complete “offensive capital investment projects” within the Sonida portfolio.
“We have set aggressive margin recovery expectations for 2023,” Ribar said during the call.
Sonida executed its sixth consecutive quarter of sequential revenue and occupancy growth in the quarter, landing at 83.7%. That is faster than the company initially expected, according to management.
Dallas, Texas-based Sonida Senior Living manages 76 communities across 18 states. The operator’s share price fell 1.65% on Monday, ending the day at $15.74 per share.
Offensive capital planned
Adjusted net operating income (NOI) decreased approximately $100,000 during the quarter ($10.15 million) representing a slightly less than 1% decrease compared to $10.5 million in 3Q21. That was “below our expectations,” Ribar said on the call.
Resident revenue was $52.5 million in the quarter compared to $49 million in 3Q21, an increase of 7.2% while revenue per available room (RevPAR) increased 6.3% in the quarter.
Already, the company has pulled some levers to increase margins, including shifting focus towards improving resident programming and sustained capital investments.
The company reinvested a total of $9 million into 18 communities in the portfolio for “market defensive and revenue generating projects,” the company’s 3Q22 investor presentation shows. Another $4 million was used to upgrade resident rooms.
Sonida during the quarter also expanded its proprietary Magnolia Trails memory care program in 31 communities. Memory care revenue grew 13.5% in the third quarter, coupled with a rate increase of 5.2% compared to 3Q22.
“Those investments in strengthening our balance sheet, completing offensive capital investment projects in our existing portfolio, and investing in our people and resident programming will be complete in the near term,” Ribar said.
If all goes according to plan, those capital investments should help the operator improve its average occupancy and rate in the year ahead. Ribar also said Sonida would continue as an “active buyer” of senior living assets, particularly in markets where it can gain scale.
Sonida is also increasing resident rents in 2023. Following Ribar’s transition to CEO in September, the company implemented “significant changes” to its approach on resident rates.
The operator grew resident rates between 5% and 6% at the end of the third quarter at communities in its portfolio, up from 4% in the 1Q22.
Rate increases have become a common theme as operators face inflationary and expense pressures, and Ribar noted that he expects rate increases to be higher in 2023 than they were in 2022 due to those headwinds.
On the expense side, Sonida reported a $7.5 million labor cost. In the third quarter, agency labor increased $400,000 compared to the second quarter of this year. That increase was largely driven by 10 communities which have struggled as a result of local community factors, including a nursing shortage and in a few cases local wage wars over workers, Ribar said.
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