Five Star Quality Care, Inc. Announces Third Quarter 2015 Results

Adjusted EBITDA Increased 44.0% and Adjusted EBITDAR Increased 5.5%
Year Over Year

Acquired Two Senior Living Communities with 152 Private Pay Living
Units for $26 Million in November 2015

NEWTON, Mass.–(BUSINESS WIRE)–Five Star Quality Care, Inc. (NYSE: FVE) today announced its financial
results for the quarter and nine months ended September 30, 2015.

Five Star’s President and CEO, Bruce J. Mackey Jr., made the following
statement:

“Our third quarter results were highlighted by a 44.0% increase in
Adjusted EBITDA and a 5.5% increase in Adjusted EBITDAR compared to the
same period last year. Although growing occupancy continues to be a
challenge, third quarter revenues increased on a year over year basis
because of the management of additional senior living communities and
increases in average monthly rates at our owned and leased senior living
communities. Third quarter Adjusted EBITDA and Adjusted EBITDAR
increased compared to the same period last year because of greater
revenues and operating expense controls.

“We recently acquired two senior living communities for our own account.
In November 2015, we closed on the acquisition of two independent living
communities with 152 private pay units located in Tennessee for $26.0
million, including the assumption of approximately $17.3 million of
mortgage debt.”

Third Quarter 2015 Financial Results:

  • Senior living revenues for the third quarter of 2015 increased 0.8% to
    $279.7 million from $277.4 million for the same period in 2014. Growth
    in senior living revenues was the result of increases in average
    monthly rates to residents who pay privately for services, partially
    offset by decreases in occupancy. Management fee revenue from managed
    communities for the third quarter of 2015 increased 11.4% to $2.7
    million from $2.4 million for the same period in 2014. Growth in
    management fees was primarily due to an increase in the number of
    communities managed and an increase in average monthly rates to
    residents who pay privately for services, partially offset by
    decreases in occupancy at comparable managed communities.
  • Earnings from continuing operations before interest, taxes,
    depreciation and amortization, or EBITDA, for the third quarter of
    2015 were $(17.2) million compared to $5.3 million for the same period
    in 2014. EBITDA, excluding certain items described below, or Adjusted
    EBITDA, was $9.2 million and $6.4 million for the third quarter of
    2015 and 2014, respectively. Adjusted EBITDA excluding rent, or
    Adjusted EBITDAR, was $59.0 million for the third quarter of 2015
    compared to $55.9 million for the same period in 2014.
  • Loss from continuing operations for the third quarter of 2015 was
    $26.3 million, or $0.54 per basic and diluted share, compared to loss
    from continuing operations of $2.4 million, or $0.05 per basic and
    diluted share, for the same period in 2014. Loss from continuing
    operations for the third quarter of 2015 included a non-cash charge
    for goodwill impairment described below of $25.3 million, or $0.52 per
    basic and diluted share.
  • Net loss for the third quarter of 2015 was $27.5 million, or $0.57 per
    basic and diluted share, compared to net loss of $3.0 million, or
    $0.06 per basic and diluted share, for the same period in 2014. Net
    loss for the third quarter of 2015 included a non-cash charge for
    goodwill impairment described below of $25.3 million and a loss from
    discontinued operations of $1.2 million; net loss for the third
    quarter of 2014 included a non-cash long lived asset impairment charge
    of $0.6 million and a loss from discontinued operations of $0.6
    million.
  • EBITDA, EBITDAR, loss from continuing operations and net loss in the
    third quarter of 2015 included a non-cash charge for goodwill
    impairment described below of $25.3 million and compliance costs and
    professional fees of $0.9 million, primarily resulting from previously
    disclosed Medicare records billing deficiencies discovered and
    self-reported by Five Star. EBITDA, EBITDAR, loss from continuing
    operations and net loss in the third quarter of 2014 included $0.6
    million of accounting costs incurred in connection with the
    restatement of certain previously issued financial statements and the
    delayed completion of Five Star’s 2014 financial reporting and a $0.6
    million non-cash long lived asset impairment charge.
  • A reconciliation of loss from continuing operations determined in
    accordance with U.S. generally accepted accounting principles, or
    GAAP, to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the quarters
    ended September 30, 2015 and 2014 appears later in this press release.

Third Quarter 2015 Operating Results (continuing operations):

  • Occupancy at owned and leased senior living communities for the third
    quarter of 2015 decreased by 110 basis points (“bps”) to 85.0% from
    86.1% for the same period in 2014.
  • The average monthly rate at owned and leased senior living communities
    for the third quarter of 2015 increased by 1.7% to $4,567 from $4,492
    for the same period in 2014.
  • The percentage of revenues derived from residents’ private resources
    at owned and leased senior living communities for the third quarter of
    2015 increased by 30 bps to 78.0% from 77.7% for the same period in
    2014.

Year to Date Financial Results:

  • Senior living revenues for the nine months ended September 30, 2015
    increased 1.0% to $832.8 million from $824.6 million for the same
    period in 2014. Growth in senior living revenues was the result of
    increases in average monthly rates to residents who pay privately for
    services, partially offset by decreases in occupancy and a revenue
    reserve recorded in the 2015 period described below. Management fee
    revenue from managed communities for the nine months ended September
    30, 2015 increased by 8.8% to $7.9 million from $7.3 million for the
    same period in 2014. Growth in management fees was primarily due to an
    increase in the number of communities managed and an increase in
    average monthly rates to residents who pay privately for services,
    partially offset by decreases in occupancy at comparable managed
    communities.
  • EBITDA for the nine months ended September 30, 2015 was $(6.6) million
    compared to $12.9 million for the same period in 2014. Adjusted EBITDA
    was $26.0 million and $18.1 million for the nine months ended
    September 30, 2015 and 2014, respectively. Adjusted EBITDAR was $175.0
    million for the nine months ended September 30, 2015 compared to
    $165.8 million for the same period in 2014.
  • Loss from continuing operations for the nine months ended September
    30, 2015 was $34.4 million, or $0.71 per basic and diluted share,
    compared to loss from continuing operations of $9.2 million, or $0.19
    per basic and diluted share, for the same period in 2014. Loss from
    continuing operations for the nine months ended September 30, 2015
    included a non-cash charge for goodwill impairment described below of
    $25.3 million, or $0.52 per basic and diluted share.
  • Net loss for the nine months ended September 30, 2015 was $36.7
    million, or $0.76 per basic and diluted share, compared to net loss of
    $11.7 million, or $0.24 per basic and diluted share, for the same
    period in 2014. Net loss for the nine months ended September 30, 2015
    included a non-cash charge for goodwill impairment described below of
    $25.3 million and a loss from discontinued operations of $2.3 million;
    net loss for the nine months ended September 30, 2014 included a
    non-cash long lived asset impairment charge of $0.6 million and a loss
    from discontinued operations of $2.4 million.
  • EBITDA, EBITDAR, loss from continuing operations and net loss in the
    nine months ended September 30, 2015 included a non-cash charge for
    goodwill impairment described below of $25.3 million, a revenue
    reserve of $2.4 million and estimated penalties, compliance costs and
    professional fees of $5.3 million primarily resulting from previously
    disclosed Medicare records billing deficiencies discovered and
    self-reported by Five Star, partially offset by a gain of $0.7 million
    on early extinguishment of debt. EBITDA, EBITDAR, loss from continuing
    operations and net loss in the nine months ended September 30, 2014
    included $4.7 million of accounting costs incurred in connection with
    the restatement of certain previously issued financial statements and
    the delayed completion of Five Star’s 2014 financial reporting and a
    $0.6 million non-cash long lived asset impairment charge.
  • A reconciliation of loss from continuing operations determined in
    accordance with GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDAR
    for the nine months ended September 30, 2015 and 2014 appears later in
    this press release.

Expansion and Disposition Activities:

In July and August 2015, Five Star and Senior Housing Properties Trust,
or SNH, sold two skilled nursing facilities located in Iowa and
Wisconsin with a combined 51 living units that were owned by SNH and
leased by Five Star for approximately $1.0 million. As a result of these
sales, Five Star’s annual rent payable to SNH decreased by $0.1 million
in accordance with the terms of the applicable lease.

In November 2015, Five Star acquired two private pay independent living
communities with a combined 152 living units located in Tennessee for
$26.0 million, excluding closing costs. Five Star funded this
acquisition with cash on hand and by assuming $17.3 million of mortgage
debt.

As of the date of this press release, Five Star continues to market for
sale one community it owns with 32 living units and Five Star and SNH
continue to jointly market for sale one community that Five Star leases
from SNH with 116 living units, each of which are reported as held for
sale and are included in discontinued operations in Five Star’s
financial statements.

Goodwill Impairment:

Goodwill in Five Star’s balance sheets relates to senior living
community acquisitions made in prior years and is required by GAAP to be
evaluated for recovery annually, or more frequently if events or changes
in circumstances indicate that goodwill may be impaired. As part of the
preparation of its 2015 third quarter financial statements, Five Star
determined that, as a result of the significant decline in its stock
price subsequent to the announcement of its financial and operating
results for the 2015 second quarter and the overall decline in values of
other comparable publicly traded senior living operating companies,
potential indicators of impairment existed and an interim assessment of
goodwill for impairment should be undertaken. Upon completion of this
interim assessment, Five Star recorded a non-cash goodwill impairment
charge of $25.3 million for the 2015 third quarter to reduce the
carrying value of goodwill to zero.

Conference Call:

Later this morning, November 6, 2015, at 9:00 a.m. Eastern Time, Five
Star will host a conference call to discuss its third quarter 2015
results. Following management’s presentation, there will be a question
and answer period.

The conference call telephone number is (877) 329-4332. Participants
calling from outside the United States and Canada should dial (412)
317-5436. No pass code is necessary to access the call from either
number. Participants should dial in about 15 minutes prior to the
scheduled start of the call. A replay of the conference call will be
available through 11:59 p.m. Eastern Time on Friday, November 13, 2015.
To hear the replay, dial (412) 317-0088. The replay pass code is
10074255.

A live audio webcast of the conference call will also be available in a
listen only mode on Five Star’s website at www.fivestarseniorliving.com.
Participants wanting to access the webcast should visit Five Star’s
website about five minutes before the call. The archived webcast will be
available for replay on Five Star’s website for about one week after the
call. The transcription, recording and retransmission in any way of
Five Star’s third quarter 2015 conference call are strictly prohibited
without the prior written consent of Five Star.
Five Star’s website
is not incorporated as part of this press release.

About Five Star Quality Care, Inc.:

Five Star Quality Care, Inc. is a senior living and healthcare services
company. As of September 30, 2015, Five Star operated 272 senior living
communities (excluding those senior living communities it has classified
as discontinued operations) with 31,310 living units located in 32
states, including 212 communities (23,099 living units) that it owns or
leases and 60 communities (8,211 living units) that it manages. These
communities include independent living, assisted living, continuing care
retirement communities and skilled nursing communities. Five Star is
headquartered in Newton, Massachusetts.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER FIVE STAR
USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”,
“ESTIMATE” OR SIMILAR EXPRESSIONS, IT IS MAKING FORWARD LOOKING
STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON FIVE STAR’S
PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS
ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:

  • THIS PRESS RELEASE STATES THAT FIVE STAR CONTINUES TO MARKET FOR SALE
    ONE COMMUNITY IT OWNS AND FIVE STAR AND SNH CONTINUE TO JOINTLY MARKET
    FOR SALE ONE COMMUNITY THAT FIVE STAR LEASES FROM SNH. FIVE STAR AND
    SNH MAY NOT BE ABLE TO SELL THESE COMMUNITIES ON ACCEPTABLE TERMS OR
    OTHERWISE, AND THE SALES OF THESE COMMUNITIES MAY NOT OCCUR.

THE INFORMATION CONTAINED IN FIVE STAR’S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR THE SEC, INCLUDING UNDER THE CAPTION “RISK
FACTORS” IN FIVE STAR’S PERIODIC REPORTS, OR INCORPORATED THEREIN,
IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM
FIVE STAR’S FORWARD LOOKING STATEMENTS. FIVE STAR’S FILINGS WITH THE SEC
ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, FIVE STAR DOES NOT INTEND TO UPDATE OR CHANGE
ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.

 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

             

Three Months Ended September 30,

Nine Months Ended September 30,
2015 2014 2015 2014
Revenues:
Senior living revenue $ 279,685 $ 277,411 $ 832,793 $ 824,580
Management fee revenue 2,717 2,438 7,939 7,296

Reimbursed costs incurred on behalf of managed
communities

  62,170   54,490   180,082   163,673
Total revenues   344,572   334,339   1,020,814   995,549

 

Operating expenses:
Senior living wages and benefits 135,133 135,507 404,737 402,469
Other senior living operating expenses 72,637 71,217 216,107 214,368

Costs incurred on behalf of managed
communities

62,170 54,490 180,082 163,673
Rent expense 49,730 49,481 149,015 147,758
General and administrative 16,587 17,865 52,750 54,187
Depreciation and amortization 8,419 8,278 24,637 23,529
Goodwill impairment 25,344 25,344
Long lived asset impairment   145   589   145   589
Total operating expenses   370,165   337,427   1,052,817   1,006,573
 
Operating loss (25,593) (3,088) (32,003) (11,024)
 
Interest, dividend and other income 238 214 701 623
Interest and other expense (1,106) (1,324) (3,597) (3,803)
Gain on early extinguishment of debt 692

Gain on sale of available for sale securities
reclassified
from other comprehensive (loss)
income

    23   38   349
 

Loss from continuing operations before income taxes
and
equity in (loss) earnings of an investee

(26,461) (4,175) (34,169) (13,855)
Benefit from (provision for) income taxes 236 1,763 (348) 4,558

Equity in (loss) earnings of an investee

 

(25)

  38   70   59
Loss from continuing operations (26,250) (2,374) (34,447) (9,238)
Loss from discontinued operations   (1,238)   (634)   (2,253)   (2,420)
 
Net loss $ (27,488) $ (3,008) $ (36,700) $ (11,658)
 
 

Weighted average shares outstanding—basic and
diluted

  48,427   48,020   48,397   48,012
 
Basic and diluted loss per share from:
Continuing operations $ (0.54) $ (0.05) $ (0.71) $ (0.19)
Discontinued operations   (0.03)   (0.01)   (0.05)   (0.05)
Net loss per share—basic and diluted $ (0.57) $ (0.06) $ (0.76) $ (0.24)
 
 
FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS DATA

(in thousands)

(unaudited)

       
September 30, December 31,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 19,826 $ 20,988
Accounts receivable, net of allowance 37,983 38,814
Due from related persons 9,558 12,641
Investments in available for sale securities 26,330 23,436
Restricted cash 3,018 2,945
Prepaid and other current assets 22,011 21,494
Assets of discontinued operations   961   1,463
Total current assets   119,687   121,781
 
Property and equipment, net 354,514 357,186
Restricted cash 2,514 2,170
Restricted investments in available for sale securities 20,674 19,835
Goodwill, equity investment and other long term assets   9,883   34,001
Total assets $ 507,272 $ 534,973
 
Liabilities and Shareholders’ Equity
Current liabilities:
Revolving credit facilities $ 35,000 $ 35,000
Other current liabilities   196,071   180,392
Total current liabilities   231,071   215,392
 
Mortgage notes payable 42,924 49,373
Other long term liabilities 42,813 43,426
Shareholders’ equity   190,464   226,782
Total liabilities and shareholders’ equity $ 507,272 $ 534,973
 

 

FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

       
Nine Months Ended September 30,
2015 2014
Cash flows from operating activities:
Net loss $ (36,700) $ (11,658)
Adjustments to reconcile net loss to cash provided by operating
activities:
Depreciation and amortization 25,046 24,313
Gain on early extinguishment of debt (742)
Loss from discontinued operations before income tax 2,253 3,927
Gain on sale of available for sale securities (38) (349)
Loss on disposal of property and equipment 98
Goodwill impairment 25,344
Long lived asset impairment 145 589
Equity in earnings of an investee (70) (59)
Stock-based compensation 948 949

Deferred income taxes

(6,726)
Provision for losses on receivables 3,520 1,998
Changes in assets and liabilities:
Accounts receivable (2,689) (790)
Prepaid expenses and other assets (1,962) (4,620)
Accounts payable and accrued expenses 330 1,858
Accrued compensation and benefits 9,917 11,456
Due to related persons, net 1,026 (1,952)
Other current and long term liabilities   9,278   9,347
Cash provided by operating activities   35,704   28,283
 
Cash flows from investing activities:
(Increase) decrease in restricted cash and investment accounts, net (417) 11,563
Acquisition of property and equipment (40,867) (39,189)
Acquisition of senior living communities, net of liabilities assumed (5,926)
Purchases of intangible assets (191)
Purchases of available for sale securities (10,717) (21,349)
Investment in an investee (825)
Proceeds from sale of property and equipment to Senior Housing
Properties Trust
16,425 23,776
Proceeds from sale of available for sale securities   6,469   8,737
Cash used in investing activities   (29,298)   (23,213)
 
Cash flows from financing activities:
Proceeds from borrowings on credit facilities 20,000 10,000
Repayments of borrowings on credit facilities (20,000) (20,000)
Repayments of mortgage notes payable (5,732) (1,064)
Payment of deferred financing fees (300)
Cash used in financing activities   (6,032)   (11,064)
 
Cash flows from discontinued operations:
Net cash (used in) provided by operating activities (1,512) 7,020
Net cash (used in) provided by investing activities (24) 293
Net cash flows (used in) provided by discontinued operations   (1,536)   7,313
 
Change in cash and cash equivalents (1,162) 1,319
Cash and cash equivalents at beginning of period   20,988   23,628
Cash and cash equivalents at end of period $ 19,826 $ 24,947
 
Supplemental cash flow information:
Cash paid for interest $ 3,078 $ 2,562
Cash paid for income taxes, net $ 805 $ 1,041
 
Non-cash activities:
Issuance of common stock $ 206 $ 189
Real estate acquisition $ $ (15,518)
Assumption of mortgage note payable $ $ 15,518
 

 

FIVE STAR QUALITY CARE, INC.

SENIOR LIVING COMMUNITY FINANCIAL DATA(1)

(in thousands)

             
Three months ended September 30, (2) Nine months ended September 30, (2)
2015 2014 2015 2014
Senior living revenue:

Independent and assisted living community revenue
(owned)

$ 29,618 $ 29,256 $ 88,673 $ 84,811

Independent and assisted living community revenue
(leased)

101,948 100,845 302,917 298,642

Continuing care retirement community revenue (leased)

98,717 99,062 298,554 297,761

Skilled nursing facility revenue (leased)(3)

45,223 44,699 130,446 133,274
Other(4)   4,179   3,549   12,203   10,092
Total senior living revenue (owned and leased) $ 279,685 $ 277,411 $ 832,793 $ 824,580
 
Senior living wages and benefits:

Independent and assisted living community wages and
benefits
(owned)

$ 12,377 $ 12,478 $ 36,691 $ 36,009

Independent and assisted living community wages and
benefits
(leased)

43,128 43,246 128,393 127,547
Continuing care retirement community wages and benefits (leased) 49,347 50,217 149,238 149,714
Skilled nursing facility wages and benefits (leased) 28,339 27,962 83,996 83,109
Other(4)   1,942   1,604   6,419   6,090
Total senior living wages and benefits (owned and leased) $ 135,133 $ 135,507 $ 404,737 $ 402,469
 
Senior living other operating expenses:

Independent and assisted living community other operating expenses
(owned)

$ 7,620 $ 6,978 $ 22,044 $ 20,835

Independent and assisted living community other operating expenses
(leased)

25,635 24,664 75,327 74,449

Continuing care retirement community other operating expenses
(leased)

26,047 26,321 77,262 79,418
Skilled nursing facility other operating expenses (leased)(5) 12,690 12,286 39,832 36,871
Other(4)   645   968   1,642   2,795
Total senior living operating expenses (owned and leased) $ 72,637 $ 71,217 $ 216,107 $ 214,368
 

(1) Excludes data for managed communities and discontinued operations.

(2) The number of owned and leased communities between July 1, 2014 and
September 30, 2015 did not change; as a result, there is no separate
same store comparable senior living community financial data presented.

(3) Skilled nursing facility revenue for the nine months ended September
30, 2015 is net of a $2.4 million reserve for estimated Medicare
payments Five Star expects to repay.

(4) Other senior living revenue and expenses relate primarily to
rehabilitation and other specialty service revenues and expenses
provided at the residential communities owned and leased by Five Star.

(5) Skilled nursing facility other senior living operating expenses for
the three and nine months ended September 30, 2015 includes $0.9 million
and $4.5 million, respectively, of estimated penalties, compliance costs
and professional fees related to the Medicare payments Five Star expects
to repay.

 

FIVE STAR QUALITY CARE, INC.

PERCENT BREAKDOWN OF SENIOR LIVING COMMUNITY REVENUES(1)

                   
Three months ended September 30, Nine months ended September 30,
2015 2014 2015 2014

Independent and assisted living communities
(owned):

Private and other sources 99.5% 99.1% 99.5% 99.2%
Medicaid   0.5%   0.9% 0.5%   0.8%
Total   100.0%   100.0% 100.0%   100.0%
 

Independent and assisted living communities
(leased):

Private and other sources 98.9% 99.1% 99.0% 99.1%
Medicaid   1.1%   0.9%   1.0%   0.9%
Total   100.0%   100.0%   100.0%   100.0%
 

Continuing care retirement communities (leased):

Private and other sources 74.1% 72.9% 73.0% 72.3%
Medicare 19.2% 21.0% 20.4% 21.7%
Medicaid   6.7%   6.1%   6.6%   6.0%
Total   100.0%   100.0%   100.0%   100.0%
 
Skilled nursing facilities (leased):
Private and other sources 25.9% 26.2% 25.8% 25.4%
Medicare 22.6% 23.1% 23.7% 24.4%
Medicaid   51.5%   50.7%   50.5%   50.2%
Total   100.0%   100.0%   100.0%   100.0%
 

Total senior living communities (owned and
leased):

Private and other sources 78.0% 77.7% 77.6% 77.2%
Medicare 10.6% 11.4% 11.3% 12.0%
Medicaid   11.4%   10.9%   11.1%   10.8%
Total   100.0%   100.0%   100.0%   100.0%
 

Contacts

Five Star Quality Care, Inc.
Olivia Snyder, 617-796-8245
Investor
Relations Analyst

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