Five Star Quality Care, Inc. Announces Fourth Quarter and Year End 2016 Results and Corporate Name Change to Five Star Senior Living Inc.

NEWTON, Mass.–(BUSINESS WIRE)–Five Star Senior Living Inc. (Nasdaq: FVE) today announced its financial
results for the quarter and year ended December 31, 2016.

Bruce Mackey, President and Chief Executive Officer of Five Star, made
the following statement:

During the quarter, we continued to make progress with our operating
initiatives that are intended to improve occupancy, ancillary revenues
and cash flows from our senior living communities. Despite the recent
increased amount of competition in the senior living industry, we are
pleased that our occupancy rate remained stable between the third and
fourth quarters of 2016. Also during the quarter, we began operating
seven new senior living communities with a combined 521 living units.
Subsequent to the quarter’s end, we entered into a new $100 million
secured revolving credit facility which replaced our prior facility that
was scheduled to expire in April 2017. This new credit facility adds
liquidity to our already conservative balance sheet.

In addition, we are pleased to announce we have changed our name to
Five Star Senior Living Inc. In 2001 we started the company with a focus
on clinical care, but we have evolved into a full service healthcare,
hospitality and senior lifestyle services company. Our new name helps
bring alignment to our evolved business.”

Financial Results for the quarter ended December 31,
2016:

  • Senior living revenue for the fourth quarter of 2016 decreased 0.8% to
    $279.0 million from $281.2 million for 2015. The decline in senior
    living revenue is a result of decreases in occupancy, partially offset
    by an increase in average monthly rates to residents who pay privately
    for services. Management fee revenue for the fourth quarter of 2016
    increased 21.7% to $3.4 million from $2.8 million for 2015. Growth in
    management fees was primarily due to the previously disclosed
    modifications to Five Star’s management and pooling arrangements with
    Senior Housing Properties Trust, or SNH, that became effective on July
    1, 2016 and to an increase in the number of Five Star’s managed
    communities compared to 2015.
  • Loss from continuing operations for the fourth quarter of 2016 was
    $6.0 million, or $0.12 per diluted share, compared to loss from
    continuing operations of $6.3 million, or $0.13 per diluted share, for
    2015. Loss from continuing operations for the fourth quarter of 2016
    included benefits from income taxes of $0.5 million, or $0.01 per
    diluted share, related to a reduction of previously accrued estimated
    state tax expense. Loss from continuing operations for the fourth
    quarter of 2015 included the previously disclosed litigation
    settlement charge of $4.2 million, or $0.09 per diluted share, and
    employee termination costs of $0.9 million, or $0.02 per diluted share.
  • Net loss for the fourth quarter of 2016 was $5.6 million, or $0.11 per
    diluted share, compared to net loss of $6.4 million, or $0.13 per
    diluted share, for 2015. Net loss for the fourth quarter of 2016
    included income from discontinued operations of $0.3 million. As of
    December 31, 2016, we have no senior living communities classified as
    held for sale.
  • Earnings from continuing operations before interest, taxes,
    depreciation and amortization, or EBITDA, for the fourth quarter of
    2016 was $3.5 million compared to $4.2 million for 2015. EBITDA,
    excluding certain items noted in the supplemental information provided
    below, or Adjusted EBITDA, was $3.5 million and $9.5 million for the
    fourth quarters of 2016 and 2015, respectively. A reconciliation of
    loss from continuing operations determined in accordance with U.S.
    generally accepted accounting principles, or GAAP, to EBITDA and
    Adjusted EBITDA for the quarters ended December 31, 2016 and 2015
    appears later in this press release.

Operating Results for the quarter ended December 31,
2016:

  • Occupancy at owned and leased senior living communities for the fourth
    quarter of 2016 was 83.9%. For the quarter ended December 31, 2016,
    the calculation of occupancy includes only living units categorized as
    in service; occupancy calculations for periods prior to 2016 included
    certain living units categorized as out of service.
  • The average monthly rate at owned and leased senior living communities
    for the fourth quarter of 2016 increased 1.4% to $4,639 from $4,577
    for 2015.
  • The percentage of revenue derived from residents’ private resources at
    owned and leased senior living communities for the fourth quarter of
    2016 decreased 40 basis points to 77.6% from 78.0% for 2015.

Financial Results for the year ended December 31, 2016:

  • Senior living revenue for the year ended December 31, 2016 increased
    0.1% to $1.12 billion from $1.11 billion for 2015. Growth in senior
    living revenue was the result of increases in average monthly rates to
    residents who pay privately for services, a $1.0 million reversal in
    revenue reserves recorded in 2016 as a result of the final settlement
    amount with the U.S. Department of Health and Human Services Office of
    the Inspector General resulting from the previously disclosed Medicare
    compliance assessment at one of Five Star’s skilled nursing
    facilities, or the Compliance Assessment, being less than the
    previously estimated amount, a revenue reserve recorded in 2015 of
    $2.4 million related to the Compliance Assessment and the acquisition
    of two senior living communities during the fourth quarter of 2015,
    partially offset by a decrease in occupancy at comparable senior
    living communities. Management fee revenue for the year ended
    December 31, 2016 increased by 15.1% to $12.4 million from $10.7
    million for 2015. Growth in management fees was primarily due to the
    previously disclosed modifications to Five Star’s management and
    pooling arrangements with SNH that became effective on July 1, 2016
    and to an increase in the number of Five Star’s managed communities
    compared to 2015.
  • Loss from continuing operations for the year ended December 31, 2016
    was $22.0 million, or $0.45 per diluted share, compared to loss from
    continuing operations of $40.8 million, or $0.84 per diluted share,
    for 2015. Loss from continuing operations for the year ended
    December 31, 2016 included a $1.5 million, or $0.03 per diluted share,
    reversal in revenue reserves and accrued liability for estimated
    penalties related to the Compliance Assessment and a provision for
    income taxes of $2.4 million, or $0.05 per diluted share, resulting
    primarily from state tax expense. Loss from continuing operations for
    the year ended December 31, 2015 included a non-cash charge for
    goodwill impairment of $25.3 million, or $0.52 per diluted share, a
    revenue reserve of $2.4 million, or $0.05 per diluted share, and
    penalties, compliance costs and professional fees of $4.8 million, or
    $0.10 per diluted share, resulting primarily from the Compliance
    Assessment, a previously disclosed litigation settlement charge of
    $4.2 million, or $0.09 per diluted share, and employee termination
    costs of $0.9 million, or $0.02 per diluted share, partially offset by
    a gain on early extinguishment of debt of $0.7 million, or $0.01 per
    diluted share.
  • Net loss for the year ended December 31, 2016 was $21.8 million, or
    $0.45 per diluted share, compared to net loss of $43.1 million, or
    $0.89 per diluted share, for 2015. Net loss for the years ended
    December 31, 2016 and 2015 included income from discontinued
    operations of $0.2 million and loss from discontinued operations of
    $2.3 million, respectively.
  • EBITDA for the year ended December 31, 2016 was $22.3 million compared
    to negative $2.3 million for 2015. Adjusted EBITDA was $22.8 million
    and $35.5 million for the years ended December 31, 2016 and 2015,
    respectively. A reconciliation of loss from continuing operations
    determined in accordance with GAAP to EBITDA and Adjusted EBITDA for
    the years ended December 31, 2016 and 2015 appears later in this press
    release.

Expansion and Disposition Activities:

In October 2016, Five Star entered into an agreement to acquire an
assisted living community, located in Illinois, with 63 living units for
$7.9 million. Five Star terminated this agreement during the fourth
quarter of 2016.

In December 2016, Five Star began leasing from SNH two senior living
communities that SNH acquired, located in Illinois, with a combined 126
living units. These communities were added to one of Five Star’s leases
with SNH and Five Star’s annual rent payable to SNH increased by $1.4
million in accordance with the terms of that lease.

In December 2016, Five Star began managing for the account of SNH five
senior living communities that SNH owns, located in Georgia, with a
combined 395 living units. Five Star and SNH entered into management
agreements for each of these communities on terms substantially similar
to those of existing management agreements between Five Star and SNH,
and these management agreements were added to existing or new pooling
agreements between Five Star and SNH.

Financing Activities:

In February 2017, Five Star entered into a new $100 million secured
revolving credit facility with terms substantially similar to those of
its previously existing secured revolving credit facility, which the new
facility replaced. The new credit facility matures in February 2020,
and, subject to Five Star’s payment of extension fees and meeting other
conditions, Five Star has options to extend the stated maturity date of
the new credit facility for two, one year periods. Five Star pays
interest on borrowings under the new credit facility at an annual rate
of LIBOR plus a premium of 250 basis points. The new credit facility is
secured by real estate mortgages on 10 senior living communities with a
combined 1,219 living units owned by Five Star’s guarantor subsidiaries
and those guarantor subsidiaries’ accounts receivable and related
collateral.

Other:

Effective March 3, 2017, Five Star changed its name from “Five Star
Quality Care, Inc.” to “Five Star Senior Living Inc.” This name change
reflects Five Star’s current business focus on not just providing high
quality clinical care but also providing hospitality, various amenities
and personalized services to enhance the lifestyle of its residents.
Five Star’s common shares will continue to trade on The NASDAQ Stock
Market LLC under the symbol “FVE”.

Conference Call:

On March 3, 2017, at 10:00 a.m. Eastern Time, Five Star will host a
conference call to discuss its fourth quarter and full year 2016
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 Thursday, March 9, 2017. To
hear the replay, dial (412) 317-0088. The replay pass code is 10099970.

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 fourth quarter 2016 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 Senior Living Inc.:

Five Star Senior Living Inc. is a senior living and healthcare services
company. As of December 31, 2016, Five Star operated 283 senior living
communities with 31,830 living units located in 32 states, including 215
communities (23,042 living units) that it owned or leased and 68
communities (8,788 living units) that it managed. 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”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR
SIMILAR EXPRESSIONS, FIVE STAR 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 FIVE STAR’S FORWARD
LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:

  • FIVE STAR’S ABILITY TO OPERATE NEW SENIOR LIVING COMMUNITIES
    PROFITABLY DEPENDS UPON MANY FACTORS, INCLUDING FIVE STAR’S ABILITY TO
    INTEGRATE NEW COMMUNITIES INTO ITS EXISTING OPERATIONS, AS WELL AS
    SOME FACTORS WHICH ARE BEYOND FIVE STAR’S CONTROL, SUCH AS THE DEMAND
    FOR FIVE STAR’S SERVICES ARISING FROM ECONOMIC CONDITIONS GENERALLY
    AND COMPETITION FROM OTHER PROVIDERS OF SENIOR LIVING SERVICES. FIVE
    STAR MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE, OPERATE AND PROFITABLY
    MANAGE THE NEW SENIOR LIVING COMMUNITIES THAT FIVE STAR BEGAN TO
    OPERATE IN THE FOURTH QUARTER OF 2016.
  • STATEMENTS IN THIS PRESS RELEASE REGARDING FIVE STAR HAVING OBTAINED A
    REPLACEMENT SECURED CREDIT FACILITY AND MR. MACKEY’S STATEMENTS THAT
    THIS FACILITY ADDS LIQUIDITY TO FIVE STAR’S ALREADY CONSERVATIVE
    BALANCE SHEET MAY IMPLY THAT FIVE STAR HAS SUFFICIENT CASH LIQUIDITY.
    HOWEVER, FIVE STAR’S OPERATIONS AND BUSINESS REQUIRE SIGNIFICANT
    AMOUNTS OF WORKING CASH AND REQUIRE IT TO MAKE SIGNIFICANT CAPITAL
    EXPENDITURES TO MAINTAIN ITS COMPETITIVENESS. ACCORDINGLY, FIVE STAR
    MAY NOT HAVE SUFFICIENT CASH LIQUIDITY.
  • FIVE STAR’S OPTIONS TO EXTEND THE MATURITY DATE OF THE NEW CREDIT
    FACILITY ARE SUBJECT TO FIVE STAR’S PAYMENT OF EXTENSION FEES AND
    MEETING OTHER CONDITIONS, BUT THE APPLICABLE CONDITIONS MAY NOT BE MET.
  • THE AMOUNT OF AVAILABLE BORROWINGS UNDER THE NEW CREDIT FACILITY IS
    SUBJECT TO FIVE STAR HAVING QUALIFIED COLLATERAL, WHICH IS PRIMARILY
    BASED ON THE VALUE OF THE ASSETS SECURING FIVE STAR’S OBLIGATIONS
    UNDER THE NEW CREDIT FACILITY. ACCORDINGLY, THE AVAILABILITY OF
    BORROWINGS UNDER THE NEW CREDIT FACILITY AT ANY TIME MAY BE LESS THAN
    $100.0 MILLION. ALSO, THE AVAILABILITY OF BORROWINGS UNDER THE NEW
    CREDIT FACILITY IS SUBJECT TO FIVE STAR SATISFYING CERTAIN FINANCIAL
    COVENANTS AND OTHER CUSTOMARY CONDITIONS THAT IT MAY BE UNABLE TO
    SATISFY.
  • ACTUAL COSTS UNDER THE NEW CREDIT FACILITY WILL BE HIGHER THAN LIBOR
    PLUS A PREMIUM BECAUSE OF OTHER FEES AND EXPENSES ASSOCIATED WITH THE
    NEW CREDIT FACILITY.

THE INFORMATION CONTAINED IN FIVE STAR’S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER “RISK FACTORS” IN FIVE
STAR’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER
IMPORTANT FACTORS THAT COULD CAUSE FIVE STAR’S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE STATED IN OR IMPLIED BY 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 SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

Three Months Ended
December 31,

Year Ended
December 31,

2016     2015 2016     2015
Revenues:
Senior living revenue $ 279,028 $ 281,178 $ 1,115,551 $ 1,113,971
Management fee revenue 3,395 2,789 12,350 10,728
Reimbursed costs incurred on behalf of managed communities 63,829   60,629   250,207   240,711  
Total revenues 346,252   344,596   1,378,108   1,365,410  
Operating expenses:
Senior living wages and benefits 136,717 134,349 545,603 539,086
Other senior living operating expenses 71,968 77,394 284,533 293,501
Costs incurred on behalf of managed communities 63,829 60,629 250,207 240,711
Rent expense 50,830 50,060 201,667 199,075
General and administrative expenses 19,298 18,007 73,516 70,757
Depreciation and amortization expense 9,205 9,178 38,052 33,815
Goodwill impairment 25,344
Long lived asset impairment     502   145  
Total operating expenses 351,847   349,617   1,394,080   1,402,434  
 
Operating loss (5,595 ) (5,021 ) (15,972 ) (37,024 )
 
Interest, dividend and other income 218 281 984 982
Interest and other expense (955 ) (1,330 ) (4,912 ) (4,927 )
Gain on early extinguishment of debt 692

(Loss) gain on sale of available for sale securities reclassified
from accumulated other
comprehensive income (loss)

(140 ) 122   107   160  
 

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

(6,472 ) (5,948 ) (19,793 ) (40,117 )
Benefit from (provision for) income taxes 490 (314 ) (2,351 ) (662 )
Equity in earnings (losses) of an investee 30   (50 ) 137   20  
Loss from continuing operations (5,952 ) (6,312 ) (22,007 ) (40,759 )
Income (loss) from discontinued operations, net of tax 325   (71 ) 194   (2,324 )
 
Net loss $ (5,627 ) $ (6,383 ) $ (21,813 ) $ (43,083 )
 
 
Weighted average shares outstanding—basic and diluted 48,807   48,434   48,815   48,406  
 
Basic and diluted (loss) income per share from:
Continuing operations $ (0.12 ) $ (0.13 ) $ (0.45 ) $ (0.84 )
Discontinued operations 0.01       (0.05 )
Net loss per share—basic and diluted $ (0.11 ) $ (0.13 ) $ (0.45 ) $ (0.89 )
 
         

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 
December 31, December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 16,608 $ 14,672
Accounts receivable, net of allowance 38,324 37,829
Due from related persons 17,010 9,731
Investments in available for sale securities 24,081 26,417
Restricted cash 15,059 3,301
Prepaid expenses and other current assets 17,295 19,138
Assets of discontinued operations 1,010   981
Total current assets 129,387   112,069
 
Property and equipment, net 351,929 383,858
Restricted cash 1,909 2,821
Restricted investments in available for sale securities 16,589 23,166
Equity investment of an investee and other long term assets 9,920   9,856
Total assets $ 509,734   $ 531,770
 
Liabilities and Shareholders’ Equity
Current liabilities:
Revolving credit facility $ $ 50,000
Other current liabilities 172,993   193,920
Total current liabilities 172,993   243,920
 
Mortgage notes payable 58,494 60,396
Deferred gain on sale and leaseback transaction with Senior Housing
Properties Trust
72,695
Other long term liabilities 41,286 43,002
Shareholders’ equity 164,266   184,452
Total liabilities and shareholders’ equity $ 509,734   $ 531,770
 
     

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
Year Ended December 31,
2016     2015
Cash flows from operating activities:
Net loss $ (21,813 ) $ (43,083 )
Adjustments to reconcile net loss to cash (used in) provided by
operating activities:
Depreciation and amortization expense 38,052 33,815
Gain on early extinguishment of debt (742 )
(Income) loss from discontinued operations before income tax (194 ) 2,324
Gain on sale of available for sale securities reclassified from
accumulated other comprehensive income
(107 ) (160 )
Loss on disposal of property and equipment 121 102
Goodwill impairment 25,344
Long lived asset impairment 502 145
Equity in earnings of an investee (137 ) (20 )
Stock based compensation 1,194 1,618
Provision for losses on receivables 4,033 4,646
Amortization of deferred gain on sale and leaseback transaction with
Senior Housing Properties Trust
(3,340 )
Other non-cash income adjustments, net (531 ) (143 )
Changes in assets and liabilities:
Accounts receivable (4,528 ) (3,661 )
Prepaid expenses and other assets 521 2,391
Accounts payable and accrued expenses (24,661 ) 8,582
Accrued compensation and benefits 3,812 (2,044 )
Due (to) from related persons, net (7,923 ) 809
Other current and long term liabilities (8,454 ) 10,617  
Cash (used in) provided by operating activities (23,453 ) 40,540  
 
Cash flows from investing activities:
Increase in restricted cash and investment accounts, net (10,846 ) (737 )
Acquisition of property and equipment (55,419 ) (57,480 )
Acquisition of senior living communities, net of liabilities assumed (9,200 )
Purchase of intangible assets (191 )
Purchases of available for sale securities (8,388 ) (17,870 )
Proceeds from sale of property and equipment to Senior Housing
Properties Trust
21,437 21,323
Proceeds from sale and leaseback transaction with Senior Housing
Properties Trust
112,350
Proceeds from sale of available for sale securities 17,905   10,857  
Cash provided by (used in) investing activities 77,039   (53,298 )
 
Cash flows from financing activities:
Proceeds from borrowings on credit facilities 25,000 40,000
Repayments of borrowings on credit facilities (75,000 ) (25,000 )
Repayments of mortgage notes payable (1,260 ) (5,998 )
Payment of deferred financing fees (300 ) (300 )
Payment of employee tax obligations on withheld shares (86 ) (90 )
Cash (used in) provided by financing activities (51,646 ) 8,612  
 
Cash flows from discontinued operations:
Net cash provided by (used in) operating activities 11 (2,151 )
Net cash used in investing activities (15 ) (19 )
Net cash flows provided by (used in) discontinued operations (4 ) (2,170 )
 
Change in cash and cash equivalents 1,936 (6,316 )
Cash and cash equivalents at beginning of period 14,672   20,988  
Cash and cash equivalents at end of period $ 16,608   $ 14,672  
 
Supplemental cash flow information:
Cash paid for interest $ 4,855 $ 4,078
Cash paid for income taxes, net $ 3,213 $ 658
 
 

FIVE STAR SENIOR LIVING INC.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(in thousands)
(unaudited)

Non-GAAP financial measures are financial measures that are not
determined in accordance with U.S. generally accepted accounting
principles, or GAAP. Five Star considers these Non-GAAP financial
measures to be meaningful supplemental disclosures because it believes
that the presentation of these Non-GAAP financial measures may help
investors to gain a better understanding of changes in Five Star’s
operating results and its ability to pay rent or service debt, make
capital expenditures and expand its business. These Non-GAAP financial
measures also may help investors who wish to make comparisons between
Five Star and other companies on both a GAAP and a non-GAAP basis.

The Non-GAAP financial measures presented are used by management to
evaluate Five Star’s financial performance and for comparing Five Star’s
performance over time and to the performance of its competitors. This
supplemental information should not be considered as an alternative to
income (loss) from continuing operations or net income (loss), as an
indicator of Five Star’s operating performance or as a measure of Five
Star’s liquidity. Non-GAAP financial measures as presented by Five Star
may not be comparable to amounts calculated by other companies

Five Star believes that income (loss) from continuing operations is the
most directly comparable financial measure determined according to GAAP
to Five Star’s presentation of EBITDA and Adjusted EBITDA.

Contacts

Five Star Senior Living Inc.
Brad Shepherd, 617-796-8245
Director,
Investor Relations

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