Five Star Quality Care, Inc. Announces Second Quarter 2016 Results

NEWTON, Mass.–(BUSINESS WIRE)–Five Star Quality Care, Inc. (Nasdaq: FVE) today announced its financial
results for the quarter and six months ended June 30, 2016.

Financial Results for the quarter ended June 30, 2016:

  • Senior living revenue for the second quarter of 2016 increased 0.4% to
    $279.0 million from $277.9 million for the same period in 2015. Growth
    in senior living revenue reflects increases in average monthly rates
    to residents who pay privately for services and in the number of
    communities owned compared to the 2015 period, as well as a $1.0
    million reversal in revenue reserves as a result of the final
    settlement amount with the United States Department of Health and
    Human Services Office of the Inspector General for Five Star’s
    previously disclosed Medicare compliance assessment at one of its
    skilled nursing facilities, or the Compliance Assessment, being less
    than the previously estimated amount, partially offset by a decrease
    in occupancy at comparable senior living communities. Management fee
    revenue for the second quarter of 2016 increased 4.3% to $2.8 million
    from $2.7 million for the same period in 2015. Growth in management
    fees was primarily due to an increase in the number of managed
    communities compared to the 2015 period and an increase in average
    monthly rates to private pay residents at comparable managed
    communities, partially offset by a decrease in occupancy at comparable
    managed communities.
  • Loss from continuing operations for the second quarter of 2016 was
    $7.9 million, or $0.16 per diluted share, compared to loss from
    continuing operations of $3.4 million, or $0.07 per diluted share, for
    the same period in 2015.
  • Net loss for the second quarter of 2016 was $7.7 million, or $0.16 per
    diluted share, compared to net loss of $3.9 million, or $0.08 per
    diluted share, for the same period in 2015. Net loss for the second
    quarter of 2016 included $3.5 million, or $0.07 per diluted share, of
    income tax expense resulting primarily from the previously disclosed
    sale and leaseback transaction with Senior Housing Properties Trust,
    or SNH, in June 2016, for which Five Star’s available federal net
    operating loss carry forwards were not applicable. Net loss for the
    second quarters of 2016 and 2015 included income from discontinued
    operations of $0.2 million and losses from discontinued operations of
    $0.5 million, respectively.
  • Earnings from continuing operations before interest, taxes,
    depreciation and amortization, or EBITDA, for the second quarter of
    2016 was $6.7 million compared to $5.9 million for the same period in
    2015. EBITDA, excluding certain items described below, or Adjusted
    EBITDA, was $5.9 million and $7.1 million for the second quarters of
    2016 and 2015, respectively. Adjusted EBITDA excluding rent, or
    Adjusted EBITDAR, was $56.1 million and $56.8 million for the second
    quarters of 2016 and 2015, respectively.
  • Loss from continuing operations, net loss and EBITDA for the second
    quarter of 2016 included a $1.5 million reversal in revenue reserves
    and accrued liability for estimated penalties related to the
    Compliance Assessment, and $0.8 million in transaction costs related
    to the June 2016 sale and leaseback transaction. Loss from continuing
    operations, net loss and EBITDA for the second quarter of 2015
    included $1.9 million in estimated penalties, compliance costs and
    professional fees related to the Compliance Assessment, but such
    amounts have been excluded from the Adjusted EBITDA and Adjusted
    EBITDAR calculations for these periods.
  • 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 June 30, 2016 and 2015 appears later in this press release.

Operating Results for the quarter ended June 30, 2016 (continuing
operations):

  • Occupancy at owned and leased senior living communities for the second
    quarter of 2016 was 84.3%. For the quarter ended June 30, 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 second quarter of 2016 increased 1.4% to $4,657 from $4,591
    for the same period in 2015.
  • The percentage of revenue derived from residents’ private resources at
    owned and leased senior living communities for the second quarter of
    2016 increased 90 basis points to 78.5% from 77.6% for the same period
    in 2015.

Year to Date Financial Results:

  • Senior living revenue for the six months ended June 30, 2016 increased
    1.1% to $559.1 million from $553.1 million for the same period in
    2015. Growth in senior living revenue was the result of increases in
    average monthly rates to residents who pay privately for services and
    a $1.0 million reversal in revenue reserves as a result of the final
    settlement amount of the Compliance Assessment being less than the
    previously estimated amount, partially offset by a decrease in
    occupancy at comparable senior living communities. Senior living
    revenue for the six months ended June 30, 2015 included a revenue
    reserve of $2.4 million related to the Compliance Assessment.
    Management fee revenue for the six months ended June 30, 2016
    increased by 7.6% to $5.6 million from $5.2 million for the same
    period in 2015. Growth in management fees was primarily due to an
    increase in the number of managed communities compared to the 2015
    period and an increase in average monthly rates to private pay
    residents at comparable managed communities, partially offset by a
    decrease in occupancy at comparable managed communities.
  • Loss from continuing operations for the six months ended June 30, 2016
    was $10.2 million, or $0.21 per diluted share, compared to loss from
    continuing operations of $8.2 million, or $0.17 per diluted share, for
    the same period in 2015.
  • Net loss for the six months ended June 30, 2016 was $10.3 million, or
    $0.21 per diluted share, compared to net loss of $9.2 million, or
    $0.19 per diluted share, for the same period in 2015. Net loss for the
    six months ended June 30, 2016 included $3.8 million, or $0.08 per
    diluted share, of income tax expense resulting primarily from the June
    2016 sale and leaseback transaction, for which Five Star’s available
    federal net operating loss carry forwards were not applicable. Net
    loss for the six months ended June 30, 2016 and 2015 included losses
    from discontinued operations of $0.1 million and $1.0 million,
    respectively.
  • EBITDA for the six months ended June 30, 2016 was $15.5 million
    compared to $10.6 million for the same period in 2015. Adjusted EBITDA
    was $15.1 million and $16.8 million for the six months ended June 30,
    2016 and 2015, respectively. Adjusted EBITDAR was $115.3 million and
    $116.1 million for the six months ended June 30, 2016 and 2015,
    respectively.
  • Loss from continuing operations, net loss and EBITDA for the six
    months ended June 30, 2016 included a $1.5 million reversal in revenue
    reserves and accrued liability for estimated penalties related to the
    Compliance Assessment, and $0.8 million in transaction costs relating
    to the June 2016 sale and leaseback transaction. Loss from continuing
    operations, net loss and EBITDA for the six months ended June 30, 2015
    included a revenue reserve of $2.4 million and estimated penalties,
    compliance costs and professional fees of $4.2 million related to the
    Compliance Assessment, partially offset by a gain of $0.7 million on
    early extinguishment of debt.
  • A reconciliation of loss from continuing operations determined in
    accordance with GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDAR
    for the six months ended June 30, 2016 and 2015 appears later in this
    press release.

Acquisition and Disposition Activities:

In April, May and July 2016, Five Star began managing three senior
living communities SNH owns located in North Carolina, Georgia and
Alabama with 87, 38 and 163 living units, respectively.

In June 2016, Five Star completed a $112.4 million sale and leaseback
transaction with SNH whereby Five Star sold seven senior living
communities it owned located in four states (North Carolina: 3; South
Carolina: 2; Tennessee: 1; and Virginia: 1) to SNH and simultaneously
entered into a new lease with SNH for those communities for 12.5 years
plus renewal options thereafter. The initial annual rent payable by Five
Star under the lease is $8.4 million.

In connection with entering the sale and leaseback transaction, Five
Star and SNH also amended certain terms of the agreements under which
Five Star manages senior living communities 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,
    changed from 3% of gross revenues and 35% of net operating income that
    exceeds threshold amounts to 5% of gross revenues and 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 the net operating income at
    the managed communities sooner than before the formulas were amended.

In June 2016, Five Star entered an agreement to sell a community it owns
with 32 living units that is reported as held for sale and included in
discontinued operations in Five Star’s financial statements. The sales
price is $0.2 million, excluding closing costs. This sale is subject to
conditions and is currently expected to occur by the end of 2016.

Financing Activities:

In April 2016, Five Star extended the maturity date of its secured
revolving credit facility to April 13, 2017. In connection with the June
2016 sale and leaseback transaction, Five Star reduced the aggregate
commitments under its secured revolving facility from $150.0 million to
$100.0 million because, as part of that transaction, Five Star sold SNH
five senior living communities that had been collateral under that
facility prior to the sale.

Five Star used part of the net proceeds from its June 2016 sale of seven
senior living communities to repay $60.0 million in borrowings under its
secured revolving credit facility.

Conference Call:

On August 4, 2016, at 10:00 a.m. Eastern Time, Five Star will host a
conference call to discuss its second quarter 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, August 11, 2016.
To hear the replay, dial (412) 317-0088. The replay pass code is
10088724.

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 second 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 Quality Care, Inc.:

Five Star Quality Care, Inc. is a senior living and healthcare services
company. As of June 30, 2016, Five Star operated 276 senior living
communities (excluding one senior living community classified as a
discontinued operation) with 31,191 living units located in 32 states,
including 214 communities (22,952 living units) that it owned or leased
and 62 communities (8,239 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”, “MAY” 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:

  • THIS PRESS RELEASE INCLUDES A STATEMENT THAT CERTAIN AMENDMENTS WHICH
    WERE MADE TO THE FORMULAS FOR CALCULATING MANAGEMENT FEES PAYABLE TO
    FIVE STAR UNDER ITS MANAGEMENT AGREEMENTS WITH SNH MAY ALLOW FIVE STAR
    TO REALIZE ADDITIONAL MANAGEMENT FEES FROM ITS MANAGED COMMUNITIES
    SOONER THAN BEFORE THE FORMULAS WERE AMENDED. THERE CAN BE NO
    ASSURANCE THAT FIVE STAR WILL REALIZE ANY SUCH ADDITIONAL MANAGEMENT
    FEES OR THAT IT WILL REALIZE MANAGEMENT FEES SOONER UNDER THE AMENDED
    FORMULAS, AND
  • FVE HAS ENTERED AN AGREEMENT TO SELL ONE SENIOR LIVING COMMUNITY IT
    OWNS. THIS TRANSACTION IS SUBJECT TO CONDITIONS. AS A RESULT, THIS
    TRANSACTION MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS MAY CHANGE.

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 QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 
  Three Months Ended June 30,   Six Months Ended June 30,
2016     2015   2016     2015  
Revenues:
Senior living revenue $ 279,023 $ 277,935 $ 559,113 $ 553,108
Management fee revenue 2,815 2,699 5,619 5,222
Reimbursed costs incurred on behalf of managed communities   61,095     61,635     122,413     117,912  
Total revenues   342,933     342,269     687,145     676,242  
 
Operating expenses:
Senior living wages and benefits 135,892 136,351 271,696 269,604
Other senior living operating expenses 71,934 71,245 141,675 143,470
Costs incurred on behalf of managed communities 61,095 61,635 122,413 117,912
Rent expense 50,117 49,657 100,212 99,285
General and administrative expenses 17,573 18,181 35,676 36,163
Depreciation and amortization expense 9,850 8,123 19,449 16,218
Long lived asset impairment           306      
Total operating expenses   346,461     345,192     691,427     682,652  
 
Operating loss (3,528 ) (2,923 ) (4,282 ) (6,410 )
 
Interest, dividend and other income 264 243 529 463
Interest and other expense (1,511 ) (1,137 ) (3,012 ) (2,491 )
Gain on early extinguishment of debt 692 692

Gain on sale of available for sale securities reclassified from
accumulated other

comprehensive income

  344     18     235     38  
 
Loss from continuing operations before income taxes and equity in
earnings of an
investee (4,431 ) (3,107 ) (6,530 ) (7,708 )
Provision for income taxes (3,486 ) (280 ) (3,775 ) (584 )
Equity in earnings of an investee   17     23     94     95  
Loss from continuing operations (7,900 ) (3,364 ) (10,211 ) (8,197 )
Income (loss) from discontinued operations   234     (546 )   (78 )   (1,015 )
 
Net loss $ (7,666 ) $ (3,910 ) $ (10,289 ) $ (9,212 )
 
 
Weighted average shares outstanding—basic and diluted   48,813     48,399     48,802     48,382  
 
Basic and diluted loss per share from:
Continuing operations $ (0.16 ) $ (0.07 ) $ (0.21 ) $ (0.17 )
Discontinued operations       (0.01 )       (0.02 )
Net loss per share—basic and diluted $ (0.16 ) $ (0.08 ) $ (0.21 ) $ (0.19 )
 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 
  June 30,   December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 64,306 $ 14,672
Accounts receivable, net of allowance 36,909 37,829
Due from related persons 10,348 9,731
Investments in available for sale securities 27,465 26,417
Restricted cash 11,312 3,301
Prepaid and other current assets 18,192 19,138
Assets of discontinued operations   797   981
Total current assets   169,329   112,069
 
Property and equipment, net 351,492 383,858
Restricted cash 2,073 2,821
Restricted investments in available for sale securities 19,742 23,166
Equity investment and other long term assets   9,783   9,856
Total assets $ 552,419 $ 531,770
 
Liabilities and Shareholders’ Equity
Current liabilities:
Revolving credit facility $ 10,000 $ 50,000
Other current liabilities   190,678   193,920
Total current liabilities   200,678   243,920
 
Mortgage notes payable 59,457 60,396
Other long term liabilities 116,894 43,002
Shareholders’ equity   175,390   184,452
Total liabilities and shareholders’ equity $ 552,419 $ 531,770
 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
  Six Months Ended June 30,
2016   2015
Cash flows from operating activities:
Net loss $ (10,289 ) $ (9,212 )
Adjustments to reconcile net loss to cash (used in) provided by
operating activities:
Depreciation and amortization expense 19,449 16,218
Gain on early extinguishment of debt (742 )
Loss from discontinued operations before income tax 78 1,015
Gain on sale of available for sale securities reclassified from
accumulated other comprehensive income
(235 ) (38 )
Loss on disposal of property and equipment 37 56
Long lived asset impairment 306
Equity in earnings of an investee (94 ) (95 )
Stock based compensation 542 788
Provision for losses on receivables 1,899 2,880
Other noncash (income) expense adjustments, net (316 ) 278
Changes in assets and liabilities:
Accounts receivable (979 ) (2,565 )
Prepaid expenses and other assets 76 (627 )
Accounts payable and accrued expenses (16,809 ) 4,081
Accrued compensation and benefits 10,001 10,115
Due to/from related persons, net (198 ) 448
Other current and long term liabilities   (6,406 )   1,358  
Cash (used in) provided by operating activities   (2,938 )   23,958  
 
Cash flows from investing activities:
Increase in restricted cash and investment accounts, net (7,263 ) (2,830 )
Acquisition of property and equipment (26,981 ) (25,175 )
Purchases of available for sale securities (4,987 ) (298 )
Proceeds from sale of property and equipment to Senior Housing
Properties Trust
11,710 8,902
Proceeds from sale and leaseback transaction with Senior Housing
Properties Trust
112,350
Proceeds from sale of available for sale securities   8,685     2,817  
Cash provided by (used in) investing activities   93,514     (16,584 )
 
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facility 25,000 5,000
Repayments of borrowings on revolving credit facility (65,000 ) (5,000 )
Repayments of mortgage notes payable (621 ) (5,498 )
Payment of deferred financing fees   (300 )   (300 )
Cash used in financing activities   (40,921 )   (5,798 )
 
Cash flows from discontinued operations:
Net cash used in operating activities (12 ) (536 )
Net cash used in investing activities   (9 )   (12 )
Net cash flows used in discontinued operations   (21 )   (548 )
 
Change in cash and cash equivalents 49,634 1,028
Cash and cash equivalents at beginning of period   14,672     20,988  
Cash and cash equivalents at end of period $ 64,306   $ 22,016  
 
Supplemental cash flow information:
Cash paid for interest $ 2,952 $ 2,088
Cash paid for income taxes, net $ 932 $ 750
 

FIVE STAR QUALITY CARE, 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. In addition to presenting EBITDA
and Adjusted EBITDA, Five Star also presents the non-GAAP
financial measure Adjusted EBITDAR. Five Star leases a majority of
the senior living communities that it operates. Five Star
believes that presenting investors with Adjusted EBITDAR amounts may
help them to compare Five Star’s results with other
companies that may own their properties and finance that ownership
with debt financing or to consider how Five Star’s results
might compare if Five Star owned its leased senior living
communities and financed that ownership with debt. The interest
expense
related to those debt financings would be added when calculating
EBITDA. Five Star believes that presenting Adjusted EBITDAR may
help investors better understand the form, extent and implications
of Five Star’s form of leverage for the senior living
communities it leases. 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 from continuing operations is the
most directly comparable financial measure determined according
to GAAP to Five Star’s presentation of EBITDA, Adjusted EBITDA and
Adjusted EBITDAR from continuing operations. The following
table presents the reconciliation of these Non-GAAP financial
measures to loss from continuing operations, the most directly
comparable financial measure under GAAP reported in Five Star’s
condensed consolidated financial statements, for the three and
six months ended June 30, 2016 and 2015.
  For the three months
ended June 30,

For the six months
ended June 30,

2016 2015 2016 2015
Loss from continuing operations $ (7,900 ) $ (3,364 ) $ (10,211 ) $ (8,197 )
Add: interest and other expense 1,511 1,137 3,012 2,491
Add: income tax expense 3,486 280 3,775 584
Add: depreciation and amortization 9,850 8,123 19,449 16,218
Less: interest, dividend and other income   (264 )   (243 )   (529 )   (463 )
EBITDA 6,683 5,933 15,496 10,633
Add (less):
Long lived asset impairments 306
Costs related to the Compliance Assessment (1,498 )

(1)

1,856

(2)

(1,498 )

(1)

6,561

(3)

Financial accounting restatement and remediation costs 18 228
Transaction costs 750

(4)

750

(4)

 

41
Gain on early extinguishment of debt       (692 )       (692 )
Adjusted EBITDA 5,935 7,115 15,054 16,771
Add: Rent expense   50,117     49,657     100,212     99,285  
Adjusted EBITDAR $ 56,052   $ 56,772   $ 115,266   $ 116,056  

Contacts

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

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