Sonida Senior Living, Inc.: Form 10-Q for the period ended Mar 31, 2025

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of our business and results of operations. This MD&A should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the risks, uncertainties and other factors described under “Cautionary Note Regarding Forward-Looking Statements” above in this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 17, 2025, as well as “Item. 1A. Risk Factors” in this Quarterly Report on Form 10-Q. Actual results may differ materially from those projected in such statements as a result of such risks, uncertainties and other factors. Unless otherwise specified or where the context otherwise requires, references in this Quarterly Report on Form 10-Q to “our,” “we,” “us,” “Sonida”, the “Company” and “our business” refer to Sonida Senior Living, Inc., together with its consolidated subsidiaries.

Overview

The following discussion and analysis addresses (i) the Company’s results of operations for the three months ended March 31, 2025 and 2024, and (ii) liquidity and capital resources of the Company.

The Company is a leading owner, operator and investor in independent living, assisted living and memory care communities and services for senior adults in the United States in terms of resident capacity. The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company primarily provides senior living services to the 75+ population, including independent living, assisted living, and memory care services at reasonable prices. Many of the Company’s communities offer a continuum of care to meet each of their resident’s needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care that may be bridged by home care through independent home care agencies, sustains our residents’ autonomy and independence based on their physical and mental abilities.

As of March 31, 2025, the Company owned, managed, or invested in 94 senior housing communities in 20 states with an aggregate capacity of approximately 10,000 residents, including 81 owned senior housing communities (including four through joint venture investments in consolidated entities, four owned through a joint venture investment in an unconsolidated entity, and one unoccupied) and 13 communities that the Company manages on behalf of a third party.

Significant Financial and Operational Highlights

Operations

During the three months ended March 31, 2025, the Company generated resident revenue of $79.3 million compared to resident revenue of $60.7 million in the three months ended March 31, 2024, representing an increase of 30.6%. The increase in revenue was primarily due to increased occupancy, increased average rent rates, and additional communities acquired in 2024.

Weighted average occupancy for the three months ended March 31, 2025 and 2024 for the communities owned by the Company, excluding 2024 acquisitions and repositioning projects, was 86.8% and 85.8%, respectively, reflecting continued occupancy growth. The average monthly rental rate for these owned communities for the three months ended March 31, 2025 increased 5.5% when compared to the three months ended March 31, 2024.

Management Services

The Company has property management agreements with third parties and its joint ventures pursuant to which the Company manages certain communities on their behalf for a management fee based on gross revenues of the applicable communities, as well as, in some cases, an incentive management fee and other customary terms and conditions. The Company managed 13 and ten communities on behalf of a third party for the three months ended March 31, 2025 and 2024, respectively. The Company also managed four communities on behalf of an unconsolidated joint venture and four communities in consolidated joint ventures for the three months ended March 31, 2025. No such joint ventures in the prior period.

Investment in Consolidated VIE

In July 2024, the Company entered into two joint ventures (collectively, the “Palatine JVs”) with affiliates of Palatine Capital Partners, which acquired four senior living communities located in Texas (3) and Georgia (1). The Company is a 51% owner in the joint ventures. The noncontrolling interest of the Palatine JVs is reported on the noncontrolling interest line items in the Company's condensed consolidated financial statements.

Investment in Stone Unconsolidated Entities

In May 2024, Stone JV LLC (“Stone JV”) purchased four communities in the Midwest. KZ Stone Investor LLC is the controlling managing member of the Stone JV and owned 67.29% of the entity as of March 31, 2025. Sonida owned a 32.71% noncontrolling interest in the Stone JV as of March 31, 2025. Sonida operates the four communities for a management fee based on the gross revenues of the applicable communities, as well as an incentive management fee based on earnings before interest, taxes, depreciation, amortization, rent, and management fees, and other customary terms and conditions.

The Company has evaluated its investment in the Stone JV under ASC 810 and determined that it does not have the power to direct the activities of the VIE that most significantly impact its economic performance and is not the primary beneficiary of the VIE. The Company's interests in the VIE are, therefore, accounted for under the equity method of accounting. The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the Stone JV was $10.2 million as of March 31, 2025, which is included in investment in unconsolidated entity on the accompanying condensed consolidated balance sheet. For the three months ended March 31, 2025, the Company received a return of investment of $0.4 million in its unconsolidated entity.

The Company evaluates the realization of its investment in unconsolidated entities accounted for using the equity method if circumstances indicate the Company's investment is other than temporarily impaired. For the three months ended March 31, 2025, there were no impairments.

2024 Fannie Mae Loan Modifications

In December 2024, the Company and certain of its subsidiaries entered into an Omnibus Amendment to Multifamily Loan and Security Agreements (the “Omnibus Amendment”) with Federal National Mortgage Association (“Fannie Mae”). The Omnibus Amendment amends the terms of each of the loan agreements (each, a “2024 Loan Agreement” and collectively, the “2024 Loan Agreements”) relating to 18 of the Company’s 37 senior living communities encumbered by mortgage agreements with Fannie Mae to, among other things, extend the maturity dates of each 2024 Loan Agreements from December 1, 2026 to January 1, 2029 in exchange for $10.0 million of scheduled principal paydowns on the 2024 Loan Agreements, which included a $2.0 million paydown made at closing and a series of $2.0 million, $3.0 million and $3.0 million due in November 2025, 2026 and 2027, respectively.

Senior Secured Revolving Credit Facility

During 2024, the Company entered into a credit agreement with BMO Bank, N.A. and Royal Bank of Canada for a senior secured revolving credit facility (the “Credit Facility”). The Credit Facility has a borrowing capacity of up to $150.0 million, a term of three years, a leverage-based pricing matrix between SOFR plus 2.10% margin and SOFR plus 2.60% margin and is fully recourse to Sonida Senior Living, Inc. and its applicable subsidiaries. The borrowing base by which borrowing availability under the Credit Facility is determined is generally based upon the value of the senior living communities that secure the Company’s obligations under the Credit Facility. As of March 31, 2025, $60.0 million of borrowings were outstanding under the Credit Facility at a weighted average interest rate of 6.9%, which was secured by 13 of the Company’s senior living communities. As of March 31, 2025, we had an additional borrowing capacity of up to $43.2 million under our Credit Facility. See “Note 17–Subsequent Events” in the Notes to Condensed Consolidated Financial Statements.

2024 Loan Repurchase Agreement and Ally Term Loan Expansion

We entered into an agreement with one of our previous lenders whereby the Company agreed to purchase the outstanding indebtedness it owed to such lender for a purchase price of $40.2 million (plus the reimbursement of certain amounts advanced to the Company by such lender). On February 2, 2024, the Company completed the purchase of the total outstanding principal balance of $74.4 million from the lender that was secured by seven of the Company’s senior living communities (such transaction, the “2024 Loan Purchase”). The 2024 Loan Purchase was funded by expanding the Company’s existing loan facility with Ally Bank (“Ally”) by $24.8 million (“Ally Third Amendment”) and the remainder was funded by proceeds from the issuance of common stock. The 2024 Loan Purchase and Ally financing closed in February 2024, reduced notes payable by $49.6 million, and resulted in a gain on debt extinguishment, net totaling $38.1 million for the three months ended March 31, 2024. The Company incurred deferred loan costs of $0.5 million as part of the Ally financing that are amortized over the loan term. As part of the Ally Third Amendment, the Company expanded its current interest rate cap to include the additional borrowing at a cost of $0.6 million and increased the monthly interest rate cap reserve (“IRC Reserve”) held by Ally to match the notional amount required under the increased obligation. The expanded Ally debt facility is secured by six of the Company’s senior living communities involved in the transaction.

2024 Ally Loan Amendment

On May 22, 2024, the Company executed an amendment (“Ally Fourth Amendment”) to the Ally term loan agreement. Ally Bank successfully syndicated a portion of its total term loan commitment to Cross River Bank. Following the syndication, Ally Bank and Cross River Bank owned 67.5% and 32.5%, respectively, of the outstanding principal balance. As each lender loans a specific amount to the debtor and has the right to repayment from the debtor this transaction is considered a loan syndication and the guidance in ASC 470-50 was applied to the modified loans on a creditor-by-creditor basis. As Ally Bank was the sole lender prior to the syndication, there is no change in the allocation of deferred loan costs, and they will continue to be amortized over the loan term. As part of the syndication, the IRC reserve spread moved from 2.3% to 3.0%, capping the total interest at 6.0% on the Ally term loan. The Ally Fourth Amendment allows the Company the option to extend the Ally debt maturity by 12 months from March 2026 to March 2027. The Company intends and has the ability to exercise this option.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related notes. Actual results could differ from those estimates. For a discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes to our critical accounting policies since December 31, 2024.

Recent Accounting Guidance Adopted

See “Note 2–Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements and our assessment of any expected impact of these pronouncements, if known.

Results of Operations

Three months ended March 31, 2025 as compared to three months ended March 31, 2024

Revenues

Resident revenue for the three months ended March 31, 2025 was $79.3 million as compared to $60.7 million for the three months ended March 31, 2024, representing an increase of $18.6 million, or 30.6%. The increase in revenue was primarily due to increased occupancy, increased average rent rates, and 16 additional operating communities acquired during 2024 (including one unoccupied community).

Management fee revenue for the three months ended March 31, 2025 increased by $0.5 million as compared to the three months ended March 31, 2024, primarily as a result of managing three more third-party and four unconsolidated joint venture communities as compared to prior period.

Managed community reimbursement revenue for the three months ended March 31, 2025 was $11.6 million as compared to $6.1 million for the three months ended March 31, 2024, representing an increase of $5.5 million, or 90.2%. The increase was primarily a result of managing more communities.

Expenses

Operating expenses for the three months ended March 31, 2025 were $60.4 million as compared to $46.3 million for the three months ended March 31, 2024, representing an increase of $14.1 million, or 30.5%. The increase was attributable to $11.5 million in operating expenses related to the 16 additional communities acquired during 2024 (including one unoccupied community acquired on December 31, 2024), and an increase of $2.6 million in operating expenses related to the remaining owned communities, driven by $1.4 million increases in labor and $1.2 million increases in other operating expenses.

General and administrative expenses for the three months ended March 31, 2025 were $8.5 million as compared to $6.8 million for the three months ended March 31, 2024, representing an increase of $1.7 million. The increase was primarily a result of an increase in labor and employee related expenses of $1.5 million to support the Company’s 2024 acquisitions and growth initiatives, and a $0.4 million increase in stock-based compensation expense, partially offset by a net decrease in other expenses of $0.2 million.

Transaction, transition and restructuring costs were $0.6 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively. The costs include legal, audit, banking and other costs to support the Company’s recent debt, restructuring, as well as investments by the Company.

Managed community reimbursement expense for the three months ended March 31, 2025 was $11.6 million as compared to $6.1 million for the three months ended March 31, 2024, representing an increase of $5.5 million or 90.2%. The increase was primarily a result of managing more communities for the three months ended March 31, 2025 as compared to the prior period.

Interest expense for the three months ended March 31, 2025 was $9.4 million as compared to $8.6 million for the three months ended March 31, 2024, representing an increase of $0.8 million primarily due to the incremental borrowings associated with the Company's 2024 community acquisitions, partially offset by a decrease in the Company’s SOFR-based variable rate debt.

Gain on extinguishment of debt, net for the three months ended March 31, 2024 was $38.1 million related to the derecognition of notes payable and liabilities as a result of the 2024 Loan Purchase.

Liquidity and Capital Resources

In addition to $14.0 million of unrestricted cash as of March 31, 2025, our future liquidity will depend in part upon our operating performance, which will be affected by prevailing economic conditions, and financial, business and other factors, some of which are beyond our control. Principal sources of liquidity are expected to be cash flows from operations, proceeds from our secured Credit Facility, proceeds from equity offerings, including sales of common stock under our ATM sales agreement, proceeds from debt, proceeds from debt refinancings or loan modifications, and proceeds from the sale of owned assets. On April 1, 2024, the Company entered into the At-the-Market Issuance Sales Agreement (the “ATM Sales Agreement”), whereby the Company may sell, at its option, shares of its common stock up to an aggregate offering price of $75,000,000. During August 2024, the Company entered into its Credit Facility in which borrowing availability is determined based upon the value of the senior living communities securing the Credit Facility. As of March 31, 2025, the Company had outstanding borrowings under its Credit Facility of $60.0 million and availability of $43.2 million. These transactions are expected to provide additional financial flexibility for the Company and increase our liquidity position. See “Note 7–Debt” in the Notes to Condensed Consolidated Financial Statements.

As of March 31, 2025, the majority of our outstanding variable-rate debt obligations were covered by our interest rate caps to better manage our exposure to market risks associated with the fluctuations in variable interest rates associated with our debt.

The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio, including debt financings and refinancings, purchases and sales of assets, equity offerings and other transactions. There can be no assurance that the Company will continue to generate cash flows at or above current levels, or that the Company will be able to obtain the capital necessary to meet the Company’s short- and long-term capital requirements.

Recent changes in the current economic environment, and other future changes, could result in decreases in the fair value of assets, slowing of transactions, and the tightening of liquidity and credit markets. These impacts could make securing debt or refinancings for the Company or buyers of the Company’s properties more difficult or on terms not acceptable to the Company. The Company’s actual liquidity and capital funding requirements depend on numerous factors, including its operating results, its capital expenditures for community investment, and general economic conditions, as well as other factors described in “Item 1A. Risk Factors” of our 2024 Annual Report on Form 10-K filed with the SEC on March 17, 2025.

In summary, the Company’s cash flows were as follows (in thousands):

29

Operating activities

Net cash provided by operating activities for the three months ended March 31, 2025 was $3.8 million as compared to net cash used in operating activities of $4.1 million for the three months ended March 31, 2024. The change of $7.9 million is primarily due to the change in accounts receivable and the improvement in net income inclusive of the non-cash adjustments to earnings during the three months ended March 31, 2025 compared to the prior year period.

Investing activities

Net cash used in investing activities for the three months ended March 31, 2025 was $7.9 million primarily due to $8.3 million in ongoing capital improvements combined with select refurbishment projects, as well as refurbishment projects associated with the 2024 acquired communities, partially offset by a return of investment of $0.4 million in our unconsolidated entity. Net cash used in investing activities of $5.1 million for the three months ended March 31, 2024 was primarily resulted from ongoing capital improvements and refurbishments at the Company’s senior housing communities of $5.8 million, partially offset by $0.6 million from the proceeds from the sale of an unencumbered land parcel in January 2024.

Financing activities

Net cash used by financing activities for the three months ended March 31, 2025 was $2.5 million primarily due to dividends paid of $1.4 million and repayments of notes payable of $0.9 million. The net cash provided by financing activities for the three months ended March 31, 2024 was $29.1 million primarily due to net proceeds received from the issuance of common stock of $47.6 million and proceeds of $24.8 million from the Ally financing, partially offset by repayments of notes payable of $42.0 million.

Effectiveness of Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

Based upon the controls evaluation, procedures evaluation and the material weakness described below and in our Annual Report on Form 10-K, which was filed with the SEC on March 17, 2025, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures are ineffective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The Company’s system user access controls for certain financial systems, including provisioning and user access review, were not operating effectively. Moreover, the lack of effective user access controls caused insufficient restriction of user and privileged access to our payroll system and data, resulting in a lack of segregation of duties for certain user roles. These control deficiencies could result in a material misstatement of our accounts or disclosures that would not be prevented or detected on a timely basis, and accordingly, we determined that these control deficiencies in aggregate constitute a material weakness.

Other than the changes outlined below, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fiscal quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Remediation Plan

As disclosed in our 2024 Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 17, 2025, we identified a material weakness in our internal control over financial reporting, which has not been remediated as of March 31, 2025. We have developed the following plan for remediation of the material weakness. Control weaknesses are not considered remediated until enhanced internal controls have been operational for a period of time, are tested and management concludes that these controls are operating effectively. We will continue to monitor the effectiveness of our remediation measures in connection with our future assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures. We will make any changes to the design of our plan and take such other actions that we deem appropriate given the circumstances. We expect to complete the remediation process in 2025.

• Established a project team to review, evaluate and remediate the material weakness.
• Restrict user and privileged access to our payroll system to ensure appropriate segregation of duties.
• Further implement single sign-on user access for key financial systems.
• Enhance key financial system user access reviews to ensure the completeness and accuracy of users.
• Further review our system user access controls and implement additional review controls as deemed necessary.

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024.