Five Star Announces $112.4 Million Sale Leaseback and Amends Certain Management Arrangements

NEWTON, Mass.–(BUSINESS WIRE)–Five Star Quality Care, Inc. (NYSE: FVE) today announced that it has
entered a $112.4 million sale and leaseback transaction with Senior
Housing Properties Trust (NYSE: SNH) for seven assisted living
communities (545 living units) located in four states (North Carolina:
3; South Carolina: 2; Tennessee: 1; and Virginia: 1). Simultaneously
with the sale of these communities, Five Star entered a combination
lease for these communities for 12.5 years plus renewal options
thereafter. The initial rent payable by Five Star will be $8.4
million/year. The net sale price realized for these seven communities
was approximately $81.8 million in excess of net book value and, under
generally accepted accounting principles, Five Star will amortize this
gain as a reduction of rent expense during the lease term.

Five Star intends to use the proceeds it receives from the sale and
leaseback transaction to repay in full amounts outstanding under its
secured revolving credit facility which had $60 million outstanding on
June 28, 2016, and for general business purposes. Some of the
communities sold to SNH previously served as collateral for the
Company’s $150 million credit facility and availability under that
facility was reduced according to the formula in that facility. After
the sale of the seven communities, Five Star continues to own 26 senior
living communities (2,666 living units), including 10 communities which
are unencumbered.

Simultaneously with entering the sale and leaseback transaction, Five
Star and SNH also amended certain terms of the agreements under which
Five Star manages 63 senior living communities (8,428 living units) for
taxable REIT subsidiaries of SNH, as follows:

• the formula for calculating management fees payable to Five Star for
  communities that Five Star commenced managing after May 1, 2015, (17
  communities with 1,172 living units) changed from three percent (3%)
  of gross revenues and thirty five percent (35%) of net operating
  income that exceeds threshold amounts to five percent (5%) of gross
  revenues and twenty percent (20%) of net operating income that exceeds
  threshold amounts; and
• certain other amendments were made to the formulas for calculating
  management fees payable to Five Star which are not expected to have a
  current material impact on Five Star, but may allow Five Star to
  realize additional management fees from participation in the net
  operating income at the managed communities sooner than before the
  formulas were amended.

“This transaction allows us to recognize and utilize a portion of the
value of Five Star’s owned real estate to improve our financial position
while preserving the properties’ operating economics within our
portfolio,” said Bruce Mackey, President and Chief Executive Officer of
Five Star. “Additionally, the amendments to our management arrangements
with SNH will increase management fee revenue from certain managed
communities.”

Five Star was formerly a 100% owned subsidiary of SNH and SNH is Five
Star’s largest shareholder, owning 4,235,000 of Five Star’s shares. One
of Five Star’s Directors is also a Trustee of SNH. Both Five Star and
SNH have contracted for management services from The RMR Group LLC, the
operating subsidiary of The RMR Group Inc. (NASDAQ: RMR). Because of
these historical and continuing relationships, the terms of the sale and
leaseback as well as the amendments to the management arrangements under
which Five Star serves as manager for SNH described in this press
release were negotiated and approved by Special Committees of Five
Star’s Independent Directors and SNH’s Independent Trustees who are not
also Directors or Trustees of the other party and who are independent of
RMR, and these Committees were represented by separate legal counsel.

Five Star Quality Care, Inc. is a senior living and healthcare services
company. As of March 31, 2016, Five Star owned, leased and managed a
total of 274 senior living communities with 31,051 living units located
in 32 states (excluding one community classified as discontinued
operations). These communities offer independent living, assisted living
and skilled nursing services. Five Star is headquartered in Newton, MA.

WARNING REGARDING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE INCLUDES STATEMENTS AND HAS IMPLICATIONS WHICH
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 BELIEVES, EXPECTS, INTENDS,
ANTICIPATES, ESTIMATES, WILL, MAY OR SIMILAR EXPRESSIONS, FIVE STAR IS
MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE
BASED UPON FIVE STAR’S CURRENT INTENT, BELIEFS, OR EXPECTATIONS, BUT
THEY ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE STATED OR IMPLIED BY
FORWARD LOOKING STATEMENTS. FOR EXAMPLE:

.

• THIS PRESS RELEASE STATES THAT THE INITIAL RENT PAYABLE BY FIVE STAR
  FOR THE SEVEN COMMUNITIES SOLD TO SNH WILL BE $8.4 MILLION. THAT RENT
  AMOUNT IS SUBJECT TO FUTURE INCREASES IN THE EVENT FIVE STAR REQUESTS
  AND SNH AGREES TO PURCHASE IMPROVEMENTS TO THE LEASED COMMUNITIES;
  AND, STARTING AFTER 2017, INCREASED RENT MAY BE PAYABLE BY FIVE STAR
  TO SNH CALCULATED AS A PERCENTAGE OF REVENUE INCREASES AT THE LEASED
  COMMUNITIES.
• THIS PRESS RELEASE STATES THAT CERTAIN AMENDMENTS WERE MADE TO THE
  FORMULAS FOR CALCULATING MANAGEMENT FEES PAYABLE TO FIVE STAR WHICH
  MAY ALLOW FIVE STAR TO PARTICIPATE IN NET OPERATING INCOME SOONER THAN
  BEFORE THE FORMULAS WERE AMENDED. FIVE STAR’S ABILITY TO REALIZE
  MANAGEMENT FEES BY PARTICIPATING IN THE NET OPERATING INCOME OF ITS
  MANAGED COMMUNITIES DEPENDS UPON THOSE COMMUNITIES ACHIEVING INCOME IN
  EXCESS OF THRESHOLD AMOUNTS. THE THRESHOLD AMOUNTS MAY INCREASE WHEN
  THE COMMUNITY OWNER INVESTS IN IMPROVEMENTS TO THE MANAGED
  COMMUNITIES. THERE IS NO ASSURANCE THAT THE NET OPERATING INCOME FROM
  THE MANAGED COMMUNITIES WILL EXCEED THE THRESHOLDS OR THAT FIVE STAR
  WILL EARN INCREASED MANAGEMENT FEES IN THE FUTURE.
• THIS PRESS RELEASE STATES THAT THE TERMS OF THE TRANSACTIONS ANNOUNCED
  TODAY WERE NEGOTIATED AND APPROVED BY SPECIAL COMMITTEES OF FIVE
  STAR’S INDEPENDENT DIRECTORS AND SNH’S INDEPENDENT TRUSTEES WHO ARE
  NOT ALSO DIRECTORS OR TRUSTEES OF THE OTHER PARTY AND WHO ARE
  INDEPENDENT OF RMR, AND THAT THESE COMMITTEES WERE REPRESENTED BY
  SEPARATE LEGAL COUNSEL. AN IMPLICATION OF THESE STATEMENTS IS THAT THE
  TERMS OF THESE TRANSACTIONS WERE SIMILAR TO THE TERMS THAT WOULD HAVE
  BEEN ACHIEVED BY NEGOTIATIONS BETWEEN UNRELATED PARTIES. FIVE STAR CAN
  PROVIDE NO ASSURANCE THAT THE TERMS OF THESE TRANSACTIONS ARE THE SAME
  AS WOULD HAVE BEEN ACHIEVED BY NEGOTIATIONS BETWEEN UNRELATED PARTIES.
  ALSO, THE FACT THAT THESE TERMS WERE NEGOTIATED AND APPROVED BETWEEN
  RELATED PARTIES MAY CAUSE SOMEONE TO CHALLENGE THESE AGREEMENTS AND
  SUCH CHALLENGES MAY BE EXPENSIVE TO DEFEND EVEN IF THE CHALLENGES ARE
  WITHOUT MERIT.

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, COULD
CAUSE FIVE STAR’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED
OR IMPLIED IN THIS PRESS RELEASE. FIVE STAR’S FILINGS WITH THE SEC ARE
AVAILABLE AT THE SEC’S WEBSITE AT WWW.SEC.GOV.

FOR THESE AND OTHER REASONS, INVESTORS SHOULD NOT PLACE UNDUE RELIANCE
UPON FORWARD LOOKING STATEMENTS OR THEIR IMPLICATIONS.

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.

Contacts

Five Star Quality Care, Inc.
Brad Shepherd, 617-796-8245
Director,
Investor Relations