Form 8-K FIVE STAR QUALITY CARE For: Aug 04

1-16817

04-3516029

(Commission File Number)

(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts

02458

(Address of Principal Executive Offices)

(Zip Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing

obligation of the registrant under any of the following provisions:

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

(d)

Exhibits.

FIVE STAR QUALITY CARE, INC.

By:

/s/ Richard A. Doyle

Richard A. Doyle

Chief Financial Officer and Treasurer

FOR IMMEDIATE RELEASE 

Contact: Brad Shepherd, Director, Investor Relations

(617) 796-8245

§

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.

§

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.

§

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.

§

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.

·

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.

Three Months Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

Revenues:

Senior living revenue

$

$

$

$

Management fee revenue

Reimbursed costs incurred on behalf of managed communities

Total revenues

Operating expenses:

Senior living wages and benefits

Other senior living operating expenses

Costs incurred on behalf of managed communities

Rent expense

General and administrative expenses

Depreciation and amortization expense

Long lived asset impairment

 —

 —

 —

Total operating expenses

Operating loss

Interest, dividend and other income

Interest and other expense

Gain on early extinguishment of debt

 —

 —

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

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

Provision for income taxes

Equity in earnings of an investee

Loss from continuing operations

Income (loss) from discontinued operations

Net loss

$

$

$

$

Weighted average shares outstanding—basic and diluted

Basic and diluted loss per share from:

Continuing operations

$

$

$

$

Discontinued operations

 —

 —

Net loss per share—basic and diluted

$

$

$

$

June 30,

December 31,

2016

2015

Assets

Current assets:

Cash and cash equivalents

$

$

Accounts receivable, net of allowance

Due from related persons

Investments in available for sale securities

Restricted cash

Prepaid and other current assets

Assets of discontinued operations

Total current assets

Property and equipment, net

Restricted cash

Restricted investments in available for sale securities

Equity investment and other long term assets

Total assets

$

$

Liabilities and Shareholders’ Equity

Current liabilities:

Revolving credit facility

$

$

Other current liabilities

Total current liabilities

Mortgage notes payable

Other long term liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

$

$

Six Months Ended June 30,

2016

2015

Cash flows from operating activities:

Net loss

$

$

Adjustments to reconcile net loss to cash (used in) provided by operating activities:

Depreciation and amortization expense

Gain on early extinguishment of debt

 —

Loss from discontinued operations before income tax

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

Loss on disposal of property and equipment

Long lived asset impairment

              —

Equity in earnings of an investee

Stock based compensation

Provision for losses on receivables

Other noncash (income) expense adjustments, net

Changes in assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accrued compensation and benefits

Due to/from related persons, net

Other current and long term liabilities

Cash (used in) provided by operating activities

Cash flows from investing activities:

Increase in restricted cash and investment accounts, net

Acquisition of property and equipment

Purchases of available for sale securities

Proceeds from sale of property and equipment to Senior Housing Properties Trust

Proceeds from sale and leaseback transaction with Senior Housing Properties Trust

 —

Proceeds from sale of available for sale securities

Cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from borrowings on revolving credit facility

Repayments of borrowings on revolving credit facility

Repayments of mortgage notes payable

Payment of deferred financing fees

Cash used in financing activities

Cash flows from discontinued operations:

Net cash used in operating activities

Net cash used in investing activities

Net cash flows used in discontinued operations

Change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$

$

Supplemental cash flow information:

Cash paid for interest

$

$

Cash paid for income taxes, net

$

$

For the three months
ended June 30,

For the six months
ended June 30,

2016

2015

2016

2015

Loss from continuing operations

$

$

$

$

Add: interest and other expense

Add: income tax expense

Add: depreciation and amortization

Less: interest, dividend and other income

EBITDA

Add (less):

Long lived asset impairments

 —

 —

 —

Costs related to the Compliance Assessment

(1)

(2)

(1)

(3)

Financial accounting restatement and remediation costs

 —

 —

Transaction costs

(4)

 —

(4)

Gain on early extinguishment of debt

 —

 -

Adjusted EBITDA

Add: Rent expense

Adjusted EBITDAR

$

$

$

$

(1)

Includes a $1.5 million reversal in revenue reserves and accrued liability for estimated penalties related to the Compliance Assessment.

(2)

Includes compliance costs and professional fees related to the Compliance Assessment.

(3)

Includes a $2.4 million revenue reserve and $4.2 million of estimated penalties, compliance costs and professional fees related to the Compliance Assessment.

(4)

Transaction costs in 2016 are related to the June 2016 sale and leaseback transaction.    

Three months ended June 30, (2)

Six months ended June 30, (2)

2016

2015

2016

2015

Senior living revenue:

Independent and assisted living community revenue (owned)(3)

$

$

$

$

Independent and assisted living community revenue (leased)(3)

Continuing care retirement community revenue (leased)

Skilled nursing facility revenue (leased)(4)

Other(5)

Total senior living revenue (owned and leased)

$

$

$

$

Senior living wages and benefits:

Independent and assisted living community wages and benefits (owned)(3)

$

$

$

$

Independent and assisted living community wages and benefits (leased)(3)

Continuing care retirement community wages and benefits (leased)

Skilled nursing facility wages and benefits (leased)

Other(5)

Total senior living wages and benefits (owned and leased)

$

$

$

$

Other senior living operating expenses:

Independent and assisted living community other operating expenses (owned)(3)

$

$

$

$

Independent and assisted living community other operating expenses (leased)(3)

Continuing care retirement community other operating expenses (leased)

Skilled nursing facility other operating expenses (leased)(6)

Other(5)

Total senior living operating expenses (owned and leased)

$

$

$

$

(1)

Excludes data for managed communities and discontinued operations.

(2)

The number of owned and leased communities between January 1, 2015 and June 30, 2016 increased by two due to the acquisition of two senior living communities in November 2015; separate comparable senior living community financial data is not presented because the differences between that data and the data for all owned and leased communities are not material.

(3)

2016 data presents the seven communities that were sold to SNH as part of the June 2016 sale and leaseback transaction as leased; 2015 data presents those communities as owned.

(4)

Skilled nursing facility revenue for the three and six months ended June 30, 2016 includes a  $1.0 million reversal in revenue reserves related to the Compliance Assessment. Skilled nursing facility revenue for the six months ended June 30, 2015 is net of a $2.4 million reserve related to the Compliance Assessment.

(5)

Other senior living revenue and expenses primarily relate to rehabilitation and other specialty service revenues and expenses provided at owned and leased senior living communities.

(6)

Skilled nursing facility other operating expenses for the three and six months ended June 30, 2016 includes a $0.5 million reversal in accrued liability for estimated penalties related to the Compliance Assessment. Skilled nursing facility other operating expenses for the six months ended June 30, 2015 includes $4.2 million of estimated penalties, compliance costs and professional fees related to the Compliance Assessment.

Three months ended 

June 30,

March 31,

December 31,

September 30,

June 30,

2016

2016

2015

2015

2015

Independent and assisted living communities (owned):(2)

Number of communities (end of period)

Number of units (end of period)(3)

Occupancy(3)

Avg. monthly rate(4)

$

$

$

$

$

Independent and assisted living communities (leased):(2)

Number of communities (end of period)

Number of units (end of period)(3)

Occupancy(3)

Avg. monthly rate(4)

$

$

$

$

$

Continuing care retirement communities (leased):

Number of communities (end of period)

Number of units (end of period)(3)(5)

Occupancy(3)

Avg. monthly rate(4)

$

$

$

$

$

Skilled nursing facilities (leased):

Number of communities (end of period)

Number of units (end of period)(3)(6)

Occupancy(3)

Avg. monthly rate(4)

$

$

$

$

$

Total senior living communities (owned and leased):

Number of communities (end of period)

Number of units (end of period)(3)

Occupancy(3)

Avg. monthly rate(4)

$

$

$

$

$

Managed communities:

Number of communities (end of period)

Number of units (end of period)(3)(7)

Occupancy(3)

Avg. monthly rate(4)

$

$

$

$

$

Other ancillary services:

Rehabilitation and wellness inpatient clinics (end of period)

Rehabilitation and wellness outpatient clinics (end of period)

Home health communities served (end of period)

(1)

Excludes data for discontinued operations.

(2)

Second quarter 2016 data presents the seven communities that were sold to SNH as part of the June 2016 sale and leaseback transaction as leased; data for all other periods presents those communities as owned.

(3)

For  2016, the calculation of occupancy includes in service living units only; prior period occupancy calculations included certain living units categorized as out of service.

(4)

Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenues divided by occupied units during the period, and multiplying it by 30 days.

(5)

Includes 1,949 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.

(6)

Includes 69 assisted living and independent living units in communities where skilled nursing services are the predominant services provided.

(7)

Includes 463 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.