SONIDA SENIOR LIVING INC

Previous wording

The following discussion and analysis addresses (i) the Company’s results of operations for the three months ended March 31, 2024 and 2023, and (ii) liquidity and capital resources of the Company.

Current wording

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.

Previous wording

The Company is one of the leading owner-operators 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.

Current wording

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.

Previous wording

As of March 31, 2024, the Company operated 71 senior housing communities in 18 states with an aggregate capacity of approximately 8,000 residents, including 61 owned senior housing communities and 10 communities that the Company third-party manages.

Current wording

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.

Previous wording

The Company derives its revenue primarily by providing senior living and healthcare services to seniors. During the three months ended March 31, 2024, the Company generated resident revenue of approximately $60.7 million compared to approximately $56.6 million during the three months ended March 31, 2023, representing an increase of 7.3%. The increase in revenue was primarily due to increased occupancy and increased average rent rates.

Current wording

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.

Previous wording

Weighted average occupancy for thethree months ended March 31, 2024 and 2023 for the communities owned by the Company was 85.9% and 83.9%, respe ctively, reflecting continued occupancy recovery. The average monthly rental rate for thethree months ended March 31, 2024 was 5.9% higher as compared to thethree months ended March 31, 2023.

Current wording

Weighted average occupancy for thesix months ended June 30, 2024 and 2023 for the 61 same-store communities owned by the Company was 86.0% and 83.9%, respe ctively, reflecting continued occupancy growth. The average monthly rental rate for thesix months ended June 30, 2024 was 7.1% higher as compared to thesix months ended June 30, 2023.

Previous wording

The Company has property management agreements with affiliates of Ventas, Inc. (collectively, “Ventas”) pursuant to which the Company manages certain communities for Ventas, and Ventas pays the Company 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 ten communities on behalf of Ventas during the three months ended March 31, 2024 and 2023.

Current wording

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.

Previous wording

On March 21, 2024, following receipt of stockholder approval at the Special Meeting of the Company’s stockholders held on March 21, 2024, the Company filed an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, 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.

Current wording

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.

Previous wording

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 approximately $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 approximately $15.9 million. The second tranche occurred following receipt of the Stockholder Approval. The Company used a portion of the proceeds from the first closing of the 2024 Private Placement to fund a portion of the cash purchase price for the Protective Life Loan Purchase. The Company intends to use the remaining proceeds for ongoing working capital, continued investments in community improvements, potential acquisitions of new communities, broader community programming and general corporate purposes. As of March 22, 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”).

Current wording

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”).

Previous wording

Protective Life Insurance Company Loan Repurchase Agreement and Ally Term Loan Expansion

Current wording

2024 Loan Repurchase Agreement and Ally Term Loan Expansion

Previous wording

(“Ally”) by $24.8 million and the remainder was funded by proceeds from the 2024 Private Placement described below. The Protective Life 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 will be 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 Protective Life Loan Purchase.

Current wording

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.

Previous wording

•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”). On June 1, 2024, the reduced interest rates will expire.

Current wording

•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.

Previous wording

•The Company is required to make a second principal payment of$5.0 million with respect to the Fannie Mae debt whichisdue on June 1, 2024, the one-year anniversary of the Fannie Forbearance Effective Date.

Current wording

•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.

Previous wording

•In the first twelve months following the effective date of the Loan Modification Agreements, the Company is 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 will be 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 will be able to draw down such amounts on qualifying projects as the capital expenditures are incurred.

Current wording

•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.

Previous wording

During 2020, the Company initiated aprocess to transfer the operations and ownership of 18 propertiesto 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 three months ended March 31, 2023. With the transition of these two remaining properties, the 18 total Fannie Mae properties’ foreclosure was complete.

Current wording

During 2020, the Company initiated aprocess to transfer the operations and ownership of 18 propertiesto 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.

Previous wording

On February 2, 2024, the Company expanded the existing loan facility with Ally by $24.8 million to partially fund the Protective Life 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 agreement with Ally, 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 Protective Life Loan Purchase.

Current wording

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.

Previous wording

•With respect to the Second Amended Ally Guaranty, Ally will grant 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 will be effective, with such threshold increasing $1.0 million per month through the earlier of the release of the Waiver period or December 31, 2024.

Current wording

•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.

Previous wording

$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.

Current wording

•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.

Previous wording

•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”).

Current wording

•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

Previous wording

Resident revenue for thethree months ended March 31, 2024 was $60.7 million as compared to $56.6 million for thethree months ended March 31, 2023, an increase of $4.1 million, or 7.3%. The increase in revenue was primarily due to increased occupancy and increased average rent rates. For thethree months ended March 31, 2023, the Company received approximately $2.0 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 March 31, 2024, the Company received no State Relief Funds.

Current wording

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.

Previous wording

Operating expenses for thethree months ended March 31, 2024 were$46.3 million as compared to$43.8 million for thethree months ended March 31, 2023, representing an increase of$2.5 million, or 5.7%. In our consolidated community portfolio, the labor component of our operating expense increased approximately $2.5 million period-over-period.

Current wording

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.

Previous wording

General and administrative expenses for the three months ended March 31, 2024 were $7.2 million as compared to $7.1 million for the three months ended March 31, 2023, representing an increase of$0.1 million. The increase was primarily a result of an increase in labor and employee related expenses of $0.6 million, partially offset by decreases in stock-based compensation of $0.3 million and other expenses of $0.2 million.

Current wording

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.

Previous wording

Gain on extinguishment of debtfor the three months ended March 31, 2024 was $38.1 million. The gain relates to the derecognition of notes payable and liabilities as a result of the Protective Life Loan Purchase. Gain onextinguishment of debtfor the three months ended March 31, 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.

Current wording

Gain on extinguishment of debtfor 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 onextinguishment of debtfor 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.

Previous wording

In addition to $24.2 million of unrestricted cash balances on hand as of March 31, 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 5,026,318 shares of our common stock to several of our shareholders for gross cash proceeds of approximately $47.8 million, which enabled us to purchase all of the Company’s debt then outstanding with Protective Life 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”) with Mizuho Securities USA LLC, whereby the Company may sell, at its option, shares of its common stock up to an aggregate offering price of $75,000,000. 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–Subse quent Events” in the Notes to Condensed Consolidated Financial Statements.

Current wording

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.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $4.1 million as compared to net cash provided by operating activities of $3.2 million for the three months ended March 31, 2023. The change of $7.4 million is primarily due to the settlement of accounts payable and accrued expenses from the proceeds of the 2024 Private Placement, and to a lesser extent, timing of accounts receivable collections during the three months ended March 31, 2024.

Current wording

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.

Previous wording

Net cash used in investing activities was $5.1 million in the three months ended March 31, 2024 primarily results from ongoing capital improvements and refurbishments at the Company’s senior housing communities of $5.7 million, 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 $5.1 million for the three months ended March 31, 2023 isprimarily the result ofongoing capital improvements and refurbishments at the Company’s senior housing communities of $5.4 million, partially offset by $0.3 million from the proceeds from the sale of an unencumbered land parcel in March 2023.

Current wording

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 isprimarily the result ofongoing 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.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $29.1 million primarily due to net proceeds from the issuance of common stock of $47.6 million and proceeds of $24.8 million from notes payable, partially offset by repayments of notes payable of $42.0 million. The net cash used in financing activities for the three months ended March 31, 2023 was $3.8 million primarily due to repayments of notes payable.

Current wording

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.