# Sonida Senior Living, Inc.: Form 10-Q for the period ended Jun 30, 2024 - Company: [Sonida Senior Living, Inc.](/companies/snda.md) (CIK 1043000) - Form: 10-Q - Filed: 2024-08-12 - Accepted by EDGAR: Aug 12, 2024, 20:04 ET - Period: 2024-06-30 - Accession: 0001628280-24-036747 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1043000/000162828024036747/snda-20240630.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1043000/000162828024036747/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-06-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2024-04-01 to 2024-06-30 | $70.2m | us-gaap:Revenues | | Revenue | 6 months, 2024-01-01 to 2024-06-30 | $137.6m | us-gaap:Revenues | | Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $9.0m | us-gaap:InterestExpenseNonoperating | | Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $17.6m | us-gaap:InterestExpenseNonoperating | | Income tax | 3 months, 2024-04-01 to 2024-06-30 | $59.0k | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 6 months, 2024-01-01 to 2024-06-30 | $125.0k | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-04-01 to 2024-06-30 | −$9.8m | us-gaap:NetIncomeLoss | | Net income | 6 months, 2024-01-01 to 2024-06-30 | $17.2m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.86 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | $1.08 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.86 | us-gaap:EarningsPerShareBasic | | Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $1.14 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 13,014,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 12,143,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$1.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $9.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2024-06-30 | $9.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2024-06-30 | $40.2m | us-gaap:AssetsCurrent | | Total assets | at 2024-06-30 | $652.2m | us-gaap:Assets | | Current liabilities | at 2024-06-30 | $53.6m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2024-06-30 | $635.1m | us-gaap:Liabilities | | Long-term debt | at 2024-06-30 | $581.5m | us-gaap:LongTermDebtNoncurrent | | Current portion of debt | at 2024-06-30 | $2.2m | us-gaap:LongTermDebtCurrent | | Shareholders' equity | at 2024-06-30 | −$34.1m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 36,200 characters. 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, 2023 filed with the SEC on March 27, 2024, 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 Report 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 and six months ended June 30, 2024 and 2023, and (ii) liquidity and capital resources of the Company. The Company is a leading owner, operator and investor of senior housing communities in the United States. 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 generally 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 June 30, 2024, the Company operated 78 senior housing communities in 19 states with an aggregate capacity of approximately 8,700 residents, including 66 owned senior housing communities (4 through a joint venture) and 12 communities that the Company third-party manages. ### Significant Financial and Operational Highlights ### Operations The Company derives its revenue primarily by providing senior living and healthcare services to seniors. During the three months ended June 30, 2024, the Company generated resident revenue of $63.1 million compared to resident revenue of $57.0 million in the three months ended June 30, 2023, representing an increase of 10.7%. The increase in revenue was primarily due to increased occupancy and to a lesser extent, increased average rent rates, and one additional owned community that was acquired in May 2024. During the six months ended June 30, 2024, the Company generated resident revenue of $123.8 million compared to $113.6 million during the six months ended June 30, 2023, representing an increase of 9.0%. The increase in revenue was primarily due to increased occupancy and to a lesser extent, increased average rent rates and one additional owned community that was acquired in May 2024. Weighted average occupancy for the three months ended June 30, 2024 and 2023 for the 61 same-store communities owned by the Company was 86.2% and 83.9%, respectively, reflecting continued occupancy growth. The average monthly rental rate for these communities for the three months ended June 30, 2024 was 8.4% higher as compared to the three months ended June 30, 2023. Weighted average occupancy for the six months ended June 30, 2024 and 2023 for the 61 same-store communities owned by the Company was 86.0% and 83.9%, respectively, reflecting continued occupancy growth. The average monthly rental rate for the six months ended June 30, 2024 was 7.1% higher as compared to the six months ended June 30, 2023. ### Management Services The Company has property management agreements with a third-party owner and a joint venture 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 an incentive management fee, and other customary terms and conditions. The Company managed twelve communities on behalf of the third-party owner during the six months ending June 30, 2024 and ten communities during the six months ending June 30, 2023. The Company managed four communities on behalf of a joint venture during the six months ending June 30, 2024 and none during the prior period. ### Increase in Authorized Shares of Common Stock In March 2024, following receipt of stockholder approval at the Special Meeting of the Company’s stockholders, the Company filed an amendment to its Amended and Restated Certificate of Incorporation, with the Delaware Secretary of State to increase the number of authorized shares of the Company’s common stock from 15,000,000 shares to 30,000,000 shares (the “Stockholder Approval”). The charter amendment became effective upon filing. ### 2024 Private Placement Transaction On February 1, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Conversant Dallas Parkway (A) LP, Conversant Dallas Parkway (B) LP and several other shareholders (together, the “Investors”), pursuant to which the Investors agreed to purchase from the Company, and the Company agreed to sell to the Investors, in a private placement transaction (the “2024 Private Placement”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), an aggregate of 5,026,318 shares of the Company’s common stock at a price of $9.50 per share. The 2024 Private Placement occurred in two tranches. The first tranche occurred on February 1, 2024, at which time 3,350,878 shares of common stock were issued and sold to the Investors for a total of $31.8 million. The second tranche occurred on March 22, 2024, at which time 1,675,440 shares of common stock were issued and sold to the Investors for a total of $15.9 million. The second tranche occurred following receipt of the Stockholder Approval. The Company used a portion of the proceeds from the first tranche to fund a portion of the cash purchase price for the 2024 Loan Purchase. The Company used the remaining proceeds for ongoing working capital, continued investments in community improvements, acquisitions of new communities, broader community programming and general corporate purposes. As of June 30, 2024, the majority of our common stock is held by Conversant Dallas Parkway (A) LP, Conversant Dallas Parkway (B) LP, and Conversant Dallas Parkway (D) LP (together, “Conversant” or the “Conversant Investors”). ### Macedonia Acquisition In April 2024, the Company entered into an asset purchase agreement to acquire a community located in Macedonia, Ohio for a purchase price of $10.7 million plus transaction costs of $0.4 million. In May 2024, the Company closed on the acquisition and entered into a mortgage loan totaling $9.4 million. The Company purchased a Secured Overnight Financing Rate- (“SOFR”) based interest rate cap (“IRC”) to reduce exposure to the variable interest rate fluctuations associated with the new mortgage. The total cost of the IRC was $0.2 million and has an aggregate notional amount of $9.4 million. The IRC has a 24-month term and caps SOFR at 6.00%. See “Note 6–Notes Payable” and “Note 13–Fair Value Measurements” in the Notes to Condensed Consolidated Financial Statements. The asset acquisition was recorded at relative fair value. We recorded $10.0 million in “Property and equipment, net” for tangible assets purchased; $1.2 million in “Other assets, net” for in-place leases; and $54 thousand in “Other liabilities” for below market leases for this acquisition in our condensed consolidated balance sheet. ### Investment in Stone Unconsolidated Entities In April 2024, the Company and KZ Stone Investor LLC (“KZ Investor”) formed a new joint venture, Stone JV LLC (“Stone”) for the purpose of acquiring, owning, and operating four senior housing communities located in the Midwest. In May 2024, Stone purchased the four communities for a purchase price of $64.0 million. KZ Investor is the controlling managing member of the newly formed venture and owns 66.67% of the entity as of June 30, 2024. Sonida owns a 33.33% noncontrolling interest of the new venture as of June 30, 2024, which was acquired through cash contributions in conjunction with the closing. Sonida operates the four communities for a management fee based on gross revenues of the applicable communities, as well as an incentive management fee, and other customary terms and conditions. Sonida’s investment in the venture is accounted for under the equity method of accounting. The Company has evaluated its investment in the Stone joint venture under ASC 810. The Company has 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 in accordance with ASC 810. 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 joint venture was $22.3 million, which is included in equity method investments on the accompanying condensed consolidated balance sheet as of June 30, 2024. 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. During the three and six months ended June 30, 2024, there were no impairments. ### 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 and the remainder was funded by proceeds from the 2024 Private Placement, see “Note 7–Securities Financing” in the Notes to Condensed Consolidated Financial Statements. The 2024 Loan Purchase and Ally financing closed on February 2, 2024, reduced notes payable by $49.6 million, and resulted in a gain on debt extinguishment totaling $38.1 million. 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 agreement with Ally, the Company expanded its current interest rate cap to include the additional borrowing at a cost of $0.6 million. The expanded Ally debt facility is secured by six of the Company’s senior living communities involved in the transaction. ### Other Significant Transactions ### Fannie Mae Loan Modification On June 29, 2023, the Company entered into the Fannie Forbearance with Federal National Mortgage Association (“Fannie Mae”) for all 37 of its encumbered communities, effective as of June 1, 2023 (“Fannie Forbearance Effective Date”). Under the Fannie Forbearance, Fannie Mae agreed to forbear on its remedies otherwise available under the community mortgages and Master Credit Facility (“MCF”) in connection with reduced debt service payments made by the Company during the forbearance period. In connection with the Fannie Forbearance, the Company made a $5.0 million principal payment in July 2023. The Fannie Forbearance was the first of a two-step process to modify all existing mortgage loan agreements with Fannie Mae by October 2023 under proposed loan modification agreements, as defined in the Fannie Forbearance (“Loan Modification Agreements”). Terms outlined in an agreed upon term sheet accompanying the Fannie Forbearance were included in the Loan Modification Agreements as the final step to modify the various 37 Fannie Mae community mortgages and MCF prior to the expiration of the Fannie Forbearance, which was subsequently extended to October 6, 2023. The Company entered into Loan Modification Agreements with Fannie Mae on October 2, 2023. The material terms of the Loan Modification Agreements were as follows: - Maturities on 18 community mortgages, ranging from July 2024 to December 2026, were extended to December 2026. The remaining 19 communities under the MCF have existing maturities in January 2029. - The Company is not required to make scheduled principal payments due under the 18 community mortgages and 19 communities under the MCF through the revised maturity date of December 2026 or 36 months from the Fannie Forbearance Effective Date, respectively. - The monthly interest rate was reduced by a 1.5% weighted average on all 37 communities for 12 months from the Fannie Forbearance Effective Date and deferred (the “Fannie Interest Abatement Period”). The reduced interest rates expired on June 1, 2024. - A second and final principal payment of $5.0 million was due in June 2024, the one-year anniversary of the Fannie Forbearance Effective Date, which the Company made on June 3, 2024. - In the first twelve months following the effective date of the Loan Modification Agreements, the Company was required to escrow 50% of Net Cash Flow less Debt Service (as defined in the Fannie mortgages and MCF) on an aggregate basis over all 37 Fannie Mae communities. The excess cash flow was deposited into a lender-controlled capital expenditure reserve on a monthly basis to support the re-investment into certain communities, as mutually determined by the Company and Fannie Mae. The Company was able to draw down such amounts on qualifying projects as the capital expenditures were incurred. The Company determined that the Fannie loan modification was a troubled debt restructuring where the total cash outflows exceed the current carrying value of the debt. Restructuring costs related to the Loan Modification Agreements are included in deferred loan costs and are being amortized over the lives of the Fannie Mae loans. ### Transactions Involving Certain Fannie Mae Loans During 2020, the Company initiated a process to transfer the operations and ownership of 18 properties to Fannie Mae. In January 2023, the Company received notice that the foreclosure sales conducted by Fannie Mae had successfully transitioned the remaining two properties to new owners. This event relieved the Company of the existing Fannie Mae debt relating to the two properties. Accordingly, the Company recognized a total of $36.3 million for the gain on debt extinguishments for the six months ended June 30, 2023. With the transition of these two remaining properties, the 18 total Fannie Mae properties’ foreclosure was complete. ### 2024 Ally Loan Amendments On February 2, 2024, the Company expanded the existing loan facility with Ally by $24.8 million (“Ally Third Amendment”) to partially fund the 2024 Loan Purchase. The Company incurred deferred loan costs of $0.5 million as part of the Ally financing that will be amortized over the loan term. As part of the Ally Third Amendment, the Company expanded its current interest rate cap to include the additional loan obligation at a cost of $0.6 million. The expanded Ally debt facility is secured by six of the Company’s senior living communities involved in the 2024 Loan Purchase. 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. The Ally Fourth Amendment avails the Company to a $10 million delayed draw upon the achievement of certain financial covenants. Ally Bank retained $76.2 million of the initial term loan and $6.7 million of the delayed draw for a total of $82.9 million while Cross River Bank obtained $36.7 million of the initial term loan and $3.3 million of the delayed draw loan for a total of $40 million. Following the syndication, Ally Bank and Cross River Bank owned 67.5% and 32.5% of the outstanding principal balance, respectively. 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 should be 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. ### 2023 Ally Loan Amendment On June 29, 2023, and concurrent with the Fannie Forbearance, we executed an amendment (“2023 Ally Amendment”) to the Ally term loan agreement (“Ally Term Loan” or “Ally Term Loan Agreement”) and an amended guaranty (“Second Amended Ally Guaranty”) with Ally Bank with terms as follows: - With respect to the Second Amended Ally Guaranty, Ally granted the Company, as Guarantor, a waiver (“Limited Payment Guaranty Waiver” or “Waiver”) of the liquid assets minimum requirement of $13.0 million for a 12-month period. On July 1, 2024, a new liquid assets threshold of $7.0 million became effective, with such threshold increasing $1.0 million per month through the earlier of the release of the Waiver period or December 31, 2024. - During the Waiver period, a new and temporary liquid assets minimum threshold (“Limited Payment Guaranty Waiver Minimum Threshold”) was established. The Limited Payment Guaranty Waiver Minimum Threshold is $6.0 million and is measured weekly. If breached, the “Excess Cash Flow Sweep” is triggered and all excess cash from the communities collateralizing the Ally Term Loan will be swept into an “Equity Cure Fund”, as defined in the Ally Term Loan Agreement. As provided for in the 2023 Ally Amendment, the Excess Cash Flow Sweep, if triggered, will cease upon the achievement of meeting or exceeding the Limited Payment Guaranty Waiver Minimum Threshold for four consecutive weeks. Consistent with the Ally Term Loan, all amounts held in escrow (i.e., Debt Service Escrow and IRC Reserve) will be included and combined with the Company’s unrestricted cash for purposes of measurement against the Limited Payment Guaranty Waiver Minimum Threshold. - During the Waiver period, Ally will collect the equivalent of the monthly Ally Term Loan principal payment (as provided for in the Ally Term Loan Agreement) of approximately $117,000 through an Ally controlled escrow (“Waiver Principal Reserve Account”). Per the Fourth Ally Amendment and the expansion of our loan by $24.8 million, this escrow has increased by an average of $36,000 a month. - Upon meeting the Ally Term Loan’s Liquid Assets Threshold of $13.0 million, the Company may elect to remove the Waiver, with initial terms in the Ally Term Loan applicable again, except as described further below. - In July 2023, we were required to fund $2.3 million to an interest rate cap reserve (“IRC Reserve”) held by Ally, which represented the quoted cost of a one-year interest rate cap on the full $88.1 million notional value of the Ally Term Loan at a 2.25% SOFR strike rate. On December 1, 2023, the Company entered into a new SOFR-based interest rate cap transaction for an aggregate notional amount of $88.1 million at a cost of $2.4 million. The interest rate cap agreement has a 12-month term and caps the floating interest rate portion of our indebtedness with Ally Bank at 2.25%. Until the terms of the Limited Payment Guaranty Waiver have expired or have been met and elected at the Company’s discretion, the IRC Reserve is required to be replenished to its replacement cost. - Subsequent to the Waiver period, all funds in the Waiver Principal Reserve Account as well as any funds swept into the Equity Cure Fund will be released to the Company. The foregoing description of the Fannie Forbearance, the 2023 Ally Amendment, Second Amended Ally Guaranty, and the Loan Modification Agreements and the transactions contemplated thereby do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Fannie Forbearance, the 2023 Ally Amendment and Second Amended Ally Guaranty which are filed as Exhibits 10.21, 10.22 and 10.23, respectively, and the Loan Modification Agreements, which are filed as Exhibits 10.24 and 10.25 to the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2024. ### Macedonia Loan In connection with the Macedonia community acquisition in May 2024, the Company entered into a $9.4 million mortgage with a new lender. The mortgage has a 60-month term and a variable interest rate equal to 1-month term SOFR + 2.00%. The Company is not required to make scheduled principal payments for the first 36 months. The Company also entered into a SOFR-based IRC to reduce exposure to the variable interest rate fluctuations associated with the new mortgage. The total cost of the IRC was $0.2 million and has an aggregate notional amount of $9.4 million. The IRC has a 24-month term and caps SOFR at 6.00% from May 9, 2024 through May 1, 2026 with respect to such variable rate indebtedness. ### Loan Modification On August 5, 2024, the Company entered into loan modification agreements (“Texas Loan Modification”) with one of its lenders on two owned communities in Texas. The original loan terms included maturities of April 2025 and October 2031, as well as cross-default provisions with each other. The Texas Loan Modification includes revised loan maturities of December 2025 on both communities, with the Company’s option to make a discounted payoff (“Texas DPO”) of the outstanding loan principal on or prior to November 1, 2024. As part of the consideration, the Company is required to pay a total restructure fee of $250,000 at the time of the Texas DPO. The Texas DPO amount of $18.5 million represents a discount of 36% on the total principal outstanding of $28.7 million on these two loans (as of July 31, 2024). ### Conversant Equity Commitment In connection with the Fannie Forbearance and 2023 Ally Amendment signed on June 29, 2023, the Company entered into a $13.5 million equity commitment agreement (“Equity Commitment”) with Conversant for a term of 18 months. Sonida has the right, but not the obligation, to utilize Conversant’s equity commitment and may draw on the commitment in whole or in part, subject to the terms and conditions therein and applicable laws and regulations. As of June 30, 2024, the Company had $3.5 million remaining under its Equity Commitment with Conversant, and the Equity Commitment is in effect through December 31, 2024. ### Application of Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying 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, 2023. There have been no significant changes to our critical accounting policies since December 31, 2023. #### 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 June 30, 2024 as compared to three months ended June 30, 2023 ### Revenues Resident revenue for the three months ended June 30, 2024 was $63.1 million as compared to $57.0 million for the three months ended June 30, 2023, representing an increase of $6.1 million, or 10.7%. The increase in revenue was primarily due to increased occupancy and to a lesser extent, increased average rent rates, and one additional owned community that was acquired in May 2024. For the three months ended June 30, 2023, the Company received approximately $0.4 million in various relief funds received from state departments due to financial distress impacts of COVID-19 (“State Relief Funds”). For the three months ended June 30, 2024, the Company received no State Relief Funds. Managed community reimbursement revenue for the three months ended June 30, 2024 was $6.4 million as compared to $5.4 million for the three months ended June 30, 2023, representing an increase of $1.0 million or 18.5%. The increase was primarily a result of managing more communities in the three months ended June 30, 2024 compared to the prior period. ### Expenses Operating expenses for the three months ended June 30, 2024 were $46.0 million as compared to $44.7 million for the three months ended June 30, 2023, representing an increase of $1.3 million, or 2.9%. In our consolidated community portfolio, the labor component of our operating expense increased approximately $1.2 million period-over-period. The additional increase of $0.1 million relates to other expenses. General and administrative expenses for the three months ended June 30, 2024 were $9.2 million as compared to $6.6 million for the three months ended June 30, 2023, representing an increase of $2.6 million. The increase was primarily a result of an increase in labor and employee related expenses of $1.0 million, a $0.6 million increase in stock-based compensation expense, a $0.3 million increase in transaction costs, and a net increase in other expenses of $0.6 million. Managed community reimbursement expense for the three months ended June 30, 2024 was $6.4 million as compared to $5.4 million for the three months ended June 30, 2023, representing an increase of $1.0 million or 18.5%. The increase was primarily a result of managing more communities in the three months ended June 30, 2024 compared to the prior period. Interest expense for the three months ended June 30, 2024 was $9.0 million as compared to $8.6 million for the three months ended June 30, 2023, representing an increase of $0.4 million primarily due to the change in fair value of our IRC and the ending of the Fannie Interest Abatement Period ending on May 31, 2024. ### Six months ended June 30, 2024 as compared to six months ended June 30, 2023 ### Revenues Resident revenue for the six months ended June 30, 2024 was $123.8 million as compared to $113.6 million for the six months ended June 30, 2023, representing an increase of $10.2 million, or 9.0%. The increase in revenue was primarily due to increased occupancy and to a lesser extent, increased average rent rates, and one additional owned community that was acquired in May 2024. For the six months ended June 30, 2023, the Company received $2.4 million in State Relief Funds. For the six months ended June 30, 2024, the Company received no State Relief Funds. Managed community reimbursement revenue for the six months ended June 30, 2024 was $12.5 million as compared to $10.3 million for the six months ended June 30, 2023, an increase of $2.2 million or 21.4%. The increase was primarily a result of managing more communities in the six months ended June 30, 2024 as compared to the prior period. ### Expenses Operating expenses for the six months ended June 30, 2024 were $92.3 million as compared to $88.5 million for the six months ended June 30, 2023, representing an increase of $3.8 million, or 4.3%. The increase is primarily attributable to the increase in labor over this period. General and administrative expenses for the six months ended June 30, 2024 were $16.4 million as compared to $13.6 million for the six months ended June 30, 2023, representing an increase of $2.8 million. The increase was primarily a result of an increase in labor and employee related expenses of $1.6 million, an increase in stock-based compensation of $0.3 million, an increase in transaction costs of $0.3 million, and a net increase in other expenses of $0.6 million. Managed community reimbursement expense for the six months ended June 30, 2024 was $12.5 million as compared to $10.3 million for the six months ended June 30, 2023, an increase of $2.2 million or 21.4%. The increase was primarily a result of managing more communities in the six months ended June 30, 2024 as compared to the prior period. Interest expense for the six months ended June 30, 2024 was $17.6 million as compared to $17.4 million for the six months ended June 30, 2023, representing an increase of $0.2 million primarily due to the change in fair value of our IRC. Gain on extinguishment of debt for the six months ended June 30, 2024 was $38.1 million. The gain relates to the derecognition of notes payable and liabilities as a result of the 2024 Loan Purchase from one of our lenders. Gain on extinguishment of debt for the six months ended June 30, 2023 was $36.3 million and related to the derecognition of notes payable and liabilities as a result of the transition of legal ownership of two communities to Fannie Mae, the holder of the related non-recourse debt. ### Liquidity and Capital Resources In addition to $9.5 million of unrestricted cash as of June 30, 2024, 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 equity offerings, proceeds from debt refinancings or loan modifications, and proceeds from the sale of owned assets. During 2023, we entered into loan modifications with Fannie Mae, an amendment with Ally Bank, including a revised Limited Payment Guaranty, and an Equity Commitment with Conversant. During the first quarter of 2024, we completed the 2024 Private Placement pursuant to which we issued and sold an aggregate of 5.0 million shares of our common stock to several of our shareholders for gross cash proceeds of $47.8 million, which enabled us to purchase all of the Company’s debt then outstanding with a certain lender at a substantial discount, as well as fund future working capital and growth initiatives. Additional financing of $24.8 million for the debt purchase was provided by Ally Bank through an expansion of the Company’s existing Ally Bank term loan. 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. As of June 30, 2024, the Company has received $17.4 million net proceeds from the ATM sales. These transactions are expected to provide additional financial flexibility to us and increase our liquidity position. See “Note 6–Notes Payable,” “Note 7–Securities Financing,” and “Note 15–Subsequent Events” in the Notes to Condensed Consolidated Financial Statements. In February 2024, in order to comply with Ally term loan requirements, the Company expanded its SOFR-based interest rate cap for an aggregate notional amount of $24.8 million at a cost of $0.6 million. The interest rate cap agreement has a 12-month term and caps the floating interest rate portion of our indebtedness with Ally Bank at 2.25%. As of June 30, 2024, the entire balance 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 interest rates. The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio, including debt 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 2023 Annual Report on Form 10-K filed with the SEC on March 27, 2024. In summary, the Company’s cash flows were as follows (in thousands): | | Six months ended June 30, 2024 | 2023 | $ Change | | --- | ---: | ---: | ---: | | Net cash provided by (used in) operating activities | $(1,624) | $5,537 | $(7,161) | | Net cash used in investing activities | (42,715) | (9,355) | (33,360) | | Net cash provided by (used in) financing activities | 50,372 | (6,304) | 56,676 | | Increase (decrease) in cash and cash equivalents and restricted cash | $6,033 | $(10,122) | $16,155 | ### Operating activities Net cash used in operating activities for the six months ended June 30, 2024 was $1.6 million as compared to net cash provided by operating activities of $5.5 million for the six months ended June 30, 2023. The change of $7.2 million is primarily due to the settlement of accounts payable and accrued expenses, and to a lesser extent, timing of accounts receivable collections during the six months ended June 30, 2024. Additionally, we received grants of $2.4 million in the six months ended June 30, 2023 from state departments due to financial distress impacts of COVID-19. ### Investing activities Net cash used in investing activities for the six months ended June 30, 2024 was $42.7 million primarily due to the acquisition of a new community of $11.1 million and acquisition of unconsolidated entities of $22.3 million, ongoing capital improvements combined with refurbishments at the Company’s senior housing communities of $9.9 million, partially offset by $0.6 million from the proceeds from the sale of an unencumbered land parcel in January 2024. Net cash used in investing activities of $9.4 million for the six months ended June 30, 2023 is primarily the result of ongoing capital improvements and refurbishments at the Company’s senior housing communities of $9.7 million, partially offset by $0.3 million from the proceeds from the sale of an unencumbered land parcel in March 2023. ### Financing activities Net cash provided by financing activities for the six months ended June 30, 2024 was $50.4 million primarily due to net proceeds from the issuance of common stock of $65.1 million and proceeds of $36.6 million from notes payable, partially offset by repayments of notes payable of $48.5 million and purchases of derivative assets of $1.9 million. The net cash used in financing activities for the six months ended June 30, 2023 was $6.3 million primarily due to repayments of notes payable. ## Controls and procedures As filed, 2,824 characters. ### 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 in our Annual Report on Form 10-K, which was filed with the SEC on March 27, 2024, 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. 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 June 30, 2024 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 2023 Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 27, 2024, we identified a material weakness in our internal control over financial reporting, which has not been remediated as of June 30, 2024, as disclosed above. We have developed and initiated a plan for remediation of the material weakness, including developing and maintaining appropriate management review and process level controls. 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, and we will make any changes to the design of our plan and take such other actions that we deem appropriate given the circumstances. Our control weaknesses will not be considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that these controls are operating effectively. ## Risk factors As filed, 156 characters. 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, 2023. Filed Aug 12, 2024. Source: SEC EDGAR, the filing index for accession 0001628280-24-036747. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.