Form 8-K FIVE STAR QUALITY CARE For: Aug 10

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/ Paul V. Hoagland

Paul V. Hoagland

Treasurer and Chief Financial Officer

FOR IMMEDIATE RELEASE 

Contact: Kimberly Brown, Director, Investor Relations

(617) 796-8245

§

Senior living revenues for the second quarter of 2015 increased 0.9% to $277.9 million from $275.4 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 Five Star’s managed communities for the second quarter of 2015 increased 10.9% 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, partially offset by decreases in occupancy at same store comparable communities.

§

Earnings from continuing operations before interest, taxes, depreciation and amortization, or EBITDA, for the second quarter of 2015 were $5.9 million compared to $7.7 million for the same period in 2014.  EBITDA, 

excluding certain items described below that Five Star believes may be non-recurring, or Adjusted EBITDA, was $7.1 million and $8.9 million for the second quarter of 2015 and 2014, respectively. Adjusted EBITDA excluding rent, or Adjusted EBITDAR,  was $56.8 million for the second quarter of 2015 compared to $58.1 million for the same period in 2014. 

§

Loss from continuing operations for the second quarter of 2015 was $3.4 million, or $0.07 per basic and diluted share, compared to loss from continuing operations of $1.0 million, or $0.02 per basic and diluted share, for the same period in 2014.  

§

Net loss for the second quarter of 2015 was $3.9 million, or $0.08 per basic and diluted share, compared to net loss of $1.9 million, or $0.04 per basic and diluted share, for the same period in 2014. Net loss for the second quarter of 2015 included a loss from discontinued operations of $0.5 million; net loss for the second quarter of 2014 included a loss from discontinued operations of $0.9 million.    

§

EBITDA, EBITDAR, loss from continuing operations and net loss in the second quarter of 2015 included $1.2 million of items that Five Star believes may not be recurring and which included compliance costs and professional fees of $1.9 million, primarily resulting from Medicare records billing deficiencies which Five Star discovered and self-reported as previously disclosed and as described below, offset by a gain of $0.7 million on early extinguishment of debt.  EBITDA, EBITDAR, loss from continuing operations and net loss in the second quarter of 2014 included $1.1 million of accounting costs incurred in connection with the restatement of certain previously issued financial statements and the delayed completion of Five Star’s 2013 third quarter and 2013 annual financial reporting which Five Star believes may not be recurring.

§

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, 2015 and 2014 appears later in this press release.

§

Occupancy at owned and leased senior living communities for the second quarter of 2015 decreased by 70 basis points (“bps”) to 85.1% from 85.8% for the same period in 2014.  

§

The average monthly rate at owned and leased senior living communities for the second quarter of 2015 increased by 1.2% to $4,591 from $4,537 for the same period in 2014.

§

The percentage of revenues derived from residents’ private resources at owned and leased senior living communities for the second quarter of 2015 increased by 50 bps to 77.6% from 77.1% for the same period in 2014.

§

Senior living revenues for the six months ended June 30, 2015 increased 1.1% to $553.1 million from $547.2 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 Five Star recorded in the 2015 period, as further described below. Management fee revenue from Five Star’s managed communities for the six months ended June 30, 2015 increased by 7.5% to $5.2 million from $4.9 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, partially offset by decreases in occupancy at same store comparable communities.

§

EBITDA for the six months ended June 30, 2015 was $10.6 million compared to $7.7 million for the same period in 2014. Adjusted EBITDA was $16.7 million and $11.6 million for the six months ended June 30, 2015 and

2014, respectively. Adjusted EBITDAR was $116.0 million for the six months ended June 30, 2015 compared to $109.9 million for the same period in 2014. 

§

Loss from continuing operations for the six months ended June 30, 2015 was $8.2 million, or $0.17 per basic and diluted share, compared to loss from continuing operations of $6.9 million, or $0.14 per basic and diluted share, for the same period in 2014.  

§

Net loss for the six months ended June 30, 2015 was $9.2 million, or $0.19 per basic and diluted share, compared to net loss of $8.7 million, or $0.18 per basic and diluted share, for the same period in 2014. Net loss for the six months ended June 30, 2015 included a loss from discontinued operations of $1.0 million; net loss for the six months ended June 30, 2014 included a loss from discontinued operations of $1.8 million.    

§

EBITDA, EBITDAR, loss from continuing operations and net loss in the six months ended June 30, 2015 included $6.1 million of items that Five Star believes may not be recurring and which included a revenue reserve of $2.4 million and estimated penalties, compliance costs and professional fees of $4.4 million, primarily resulting from Medicare records billing deficiencies which Five Star discovered and self-reported as previously disclosed and as described below, offset by a gain of $0.7 million on early extinguishment of debt.  EBITDA, EBITDAR, loss from continuing operations and net loss in the six months ended June 30, 2014 included $4.1 million of accounting costs incurred in connection with the restatement of certain previously issued financial statements and the delayed completion of Five Star’s 2013 third quarter and 2013 annual financial reporting which Five Star believes may not be recurring.

§

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, 2015 and 2014 appears later in this press release.

§

In May 2015, Five Star began managing 14 assisted living communities in four states with a combined 838 living units which were acquired by SNH at that time.

§

Also in May 2015, Five Star began managing a newly constructed senior living community with 40 private pay independent living units located in Georgia, which is located adjacent to another community that Five Star manages for SNH.  Five Star now manages these communities as a single integrated community under the same management agreement.

·

THIS PRESS RELEASE STATES THAT FIVE STAR HAS AGREED TO ACQUIRE TWO INDEPENDENT LIVING COMMUNITIES FOR $26.0 MILLION, INCLUDING THE ASSUMPTION OF APPROXIMATELY $17.0 MILLION OF MORTGAGE DEBT AND EXCLUDING CLOSING COSTS, AND THAT THIS ACQUISITION IS EXPECTED TO CLOSE BY YEAR END 2015.  THIS TRANSACTION IS SUBJECT TO CLOSING CONDITIONS.  THESE CONDITIONS MAY NOT BE SATISFIED AND THIS ACQUISITION MAY NOT OCCUR, MAY BE DELAYED OR THE PRICE AND TERMS MAY CHANGE.

·

THIS PRESS RELEASE STATES THAT FIVE STAR IS CONTINUING TO MARKET FOR SALE ONE COMMUNITY IT OWNS AND FIVE STAR AND SNH ARE CONTINUING 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.

·

in february 2015, FIVE STAR MADE A VOLUNTARY DISCLOSURE OF CERTAIN DOCUMENTATION DEFICIENCIES RELATED TO MEDICARE RECORDS AND OTHER MATTERS TO THE OIG. FIVE STAR COMPLETED ITS INVESTIGATION AND ASSESSMENT OF THESE MATTERS AND submitted A FINAL SUPPLEMENTAL DISCLOSURE TO THE OIG IN MAY 2015. ALTHOUGH FIVE STAR HAS ACCRUED A REVENUE RESERVE FOR REPAYMENT OF HISTORICAL MEDICARE REVENUES FIVE STAR EXPECTS TO REPAY AND HAS ACCRUED A RESERVE FOR ASSOCIATED ADDITIONAL COSTS FIVE STAR INCURRED OR EXPECTS TO INCUR, INCLUDING OIG IMPOSED PENALTIES, THERE CAN BE NO ASSURANCE THAT FIVE STAR’S RESERVES WILL BE ADEQUATE TO COVER THE REPAYMENT OBLIGATIONS IT IS FINALLY DETERMINED TO OWE OR ASSOCIATED ADDITIONAL COSTS. ALSO, ADDITIONAL DEFICIENCIES MAY BE DISCOVERED THAT COULD INCREASE FIVE STAR’S LIABILITY TO THE OIG AND THE ASSOCIATED COSTS.

·

THIS PRESS RELEASE STATES THAT FIVE STAR BELIEVES THE JURY’S VERDICTS AWARDED IN THE ARIZONA CASE AGAINST IT WERE WRONG AND THE RESULT OF SIGNIFICANT TRIAL ERROR AND THAT FIVE STAR INTENDS TO VIGOROUSLY PURSUE ITS POSITION IN POST TRIAL MOTIONS AND, IF THOSE MOTIONS ARE UNSUCCESSFUL, ON APPEAL.  THIS PRESS RELEASE ALSO STATES THAT BECAUSE FIVE STAR HAS DETERMINED THAT LOSSES BEYOND COSTS ALREADY INCURRED IN DEFENDING THE LAWSUIT ARE NOT PROBABLE AND FIVE STAR IS UNABLE TO REASONABLY ESTIMATE ITS POTENTIAL LIABILITY FOR THIS MATTER, FIVE STAR HAS NOT RECORDED A RESERVE FOR THIS MATTER.    THESE STATEMENTS MAY IMPLY THAT FIVE STAR WILL BE SUCCESSFUL IN THE ARIZONA CASE AND WILL NOT HAVE TO PAY ANY AMOUNTS IN CONNECTION WITH THE JURY VERDICTS IN ADDITION TO COSTS ALREADY INCURRED IN DEFENDING THE LAWSUIT. HOWEVER, LITIGATION CAN BE UNPREDICTABLE AND OFTEN HAS UNANTICIPATED RESULTS. THERE CAN BE NO ASSURANCE THAT FIVE STAR WILL BE SUCCESSFUL IN ITS

EFFORTS TO OVERTURN THE JURY VERDICTS AND FIVE STAR MAY HAVE TO FUND SIGNIFICANT AMOUNTS TO SATISFY THESE JURY VERDICTS.

·

THIS PRESS RELEASE STATES THAT FIVE STAR BELIEVES THAT IT MAY HAVE A BASIS TO RECOVER FROM ITS INSURER SOME OR ALL OF THE PUNITIVE DAMAGES AWARDED IN THE ARIZONA CASE.   FIVE STAR IS CURRENTLY INVESTIGATING WHETHER ITS INSURER MAY BE RESPONSIBLE UNDER THE TERMS OF FIVE STAR’S INSURANCE OR OTHERWISE UNDER APPLICABLE LAW TO PAY SOME OR ALL OF ANY PUNITIVE DAMAGES AWARD THAT MAY BE SUSTAINED. FIVE STAR’S INSURER HAS DENIED ANY RESPONSIBILITY FOR THE PUNITIVE DAMAGES AWARD AND THERE CAN BE NO ASSURANCE THAT FIVE STAR WILL HAVE INSURANCE COVERAGE IN THE EVENT THE PUNITIVE DAMAGES AWARD IS NOT SET ASIDE OR REVERSED ON APPEAL.

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

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

Depreciation and amortization

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 other comprehensive (loss) income

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

(Provision for) benefit from income taxes

Equity in earnings of an investee

Loss from continuing operations

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,

2015

2014

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

Goodwill, equity investment and other long term assets

Total assets

$

$

Liabilities and Shareholders’ Equity

Current liabilities:

Revolving credit facilities

$

$

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,

2015

2014

Cash flows from operating activities:

Net loss

$

Adjustments to reconcile net loss to cash provided by operating activities:

Depreciation and amortization

Gain on early extinguishment of debt

 —

Loss from discontinued operations before income tax

Gain on sale of available for sale securities

Loss on disposal of property and equipment

 —

Equity in earnings of an investee

Stock-based compensation

Deferred income taxes

 —

Provision for losses on receivables

Changes in assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accrued compensation and benefits

Due to related persons, net

Other current and long term liabilities

Cash provided by operating activities

Cash flows from investing activities:

(Increase) decrease in restricted cash and investment accounts, net

Acquisition of property and equipment

Acquisition of senior living communities, net of liabilities assumed

 —

Purchases of available for sale securities

Investment in Affiliates Insurance Company

 —

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

Proceeds from sale of available for sale securities

Cash used in investing activities

Cash flows from financing activities:

Proceeds from borrowings on credit facilities

Repayments of borrowings on credit facilities

Repayments of mortgage notes payable

Payment of deferred financing fees

 —

Cash used in financing activities

Cash flows from discontinued operations:

Net cash (used in) provided by operating activities

Net cash used in investing activities

 —

Net cash flows (used in) provided by 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

$

Non-cash activities:

Issuance of common stock

$

 —

Real estate acquisition

 —

$

Assumption of mortgage note payable

 —

$

Three months ended June 30, (2)

Six months ended June 30, (2)

2015

2014

2015

2014

Senior living revenue:

Independent and assisted living community revenue (owned)

$

$

$

$

Independent and assisted living community revenue (leased)

Continuing care retirement community revenue (leased)

Skilled nursing facility revenue (leased)

(3)

Other(4)

Total senior living revenue (owned and leased)

$

$

$

$

Senior living wages and benefits:

Independent and assisted living community wages and benefits (owned)

$

$

$

$

Independent and assisted living community wages and benefits (leased)

Continuing care retirement community wages and benefits (leased)

Skilled nursing facility wages and benefits (leased)

Other(4)

Total senior living wages and benefits (owned and leased)

$

$

$

$

Senior living other operating expenses:

Independent and assisted living community other operating expenses (owned)

$

$

$

$

Independent and assisted living community other operating expenses (leased)

Continuing care retirement community other operating expenses (leased)

Skilled nursing facility other operating expenses (leased)

(5)

(5)

Other(4)

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 April 1, 2014 and June 30, 2015 increased by only one due to the acquisition of an assisted living community during the second quarter of 2014; therefore this press release does not present same store results.

(3)

SNF revenue for the six months ended June 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)

SNF other senior living operating expenses for the three and six months ended June 30, 2015 includes $1.3 million and $3.6 million, respectively, of estimated penalties, compliance costs and professional fees related to the Medicare payments Five Star expects to repay.

Three months ended June 30,

Six months ended June 30,

2015

2014

2015

2014

Independent and assisted living communities (owned):

Private and other sources

Medicaid

Total

Independent and assisted living communities (leased):

Private and other sources

Medicaid

Total

Continuing care retirement communities (leased):

Private and other sources

Medicare

Medicaid

Total

Skilled nursing facilities (leased):

Private and other sources

Medicare

Medicaid

Total

Total senior living communities (owned and leased):

Private and other sources

Medicare

Medicaid

Total

(1)

Excludes data for managed communities and discontinued operations.

Three months ended

June 30,

March 31,

December 31,

September 30,

June 30,

2015

2015

2014

2014

2014

Independent and assisted living communities (owned):

Number of communities (end of period)

Number of units (end of period)

Occupancy

Avg. monthly rate(2)

$                3,602 

$                3,594 

$                3,492 

$                3,472 

$                3,469 

Independent and assisted living communities (leased):

Number of communities (end of period)

Number of units (end of period)(3)

Occupancy(3)

Avg. monthly rate(2)

$                3,819 

$                3,820 

$                3,734 

$                3,723 

$                3,744 

CCRC communities (leased):

Number of communities (end of period)

Number of units (end of period)(4)

Occupancy

Avg. monthly rate(2)

$                5,384 

$                5,450 

$                5,317 

$                5,304 

$                5,375 

Skilled nursing facilities (leased):

Number of communities (end of period)

Number of units (end of period)(5)

Occupancy

Avg. monthly rate(2)

$                6,652 

$                6,752 

$                6,535 

$                6,543 

$                6,603 

Total senior living communities (owned and leased):

Number of communities (end of period)

Number of units (end of period)(3)