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Five Star Senior Living Inc. Announces Third Quarter 2020 Results

November 5, 2020

Third Quarter Total Management and Operating Revenues of $55.0 Million

Third Quarter Net Income of $3.7 Million and Net Income Per Diluted Share of $0.12

Third Quarter Adjusted EBITDA of $6.8 million

NEWTON, Mass.--(BUSINESS WIRE)-- Five Star Senior Living Inc. (Nasdaq: FVE) today announced its financial results for the quarter ended September 30, 2020.

Katherine Potter, President and Chief Executive Officer, made the following statement regarding the third quarter 2020 results:

“Five Star’s third quarter significant positive cash flow and year-over-year growth in Adjusted EBITDA and net income reflect the benefits of the restructuring of our business arrangements with Diversified Healthcare Trust, effective January 1, 2020, particularly in light of the ongoing adverse effects across the senior living industry from the COVID-19 pandemic. Additionally, our rehabilitation and wellness services division grew operating income over 170% as compared to the same period last year and continues to meaningfully contribute to our overall positive performance. Our balance sheet remains strong with $95.8 million of unrestricted cash and no amounts outstanding on our revolving credit facility.

Operationally, we continue to adapt to the evolving impact of the pandemic. I remain inspired by the dedication of our team members. As always, our priority continues to be the health and wellness of our residents, clients and team members.”

Overview and Results for the Quarter Ended September 30, 2020:

  • During the third quarter of 2020, FVE continued with a phased re-opening plan for its senior living communities consistent with federal, state and local regulations and internal criteria. At September 30, 2020, 96% of senior living communities were accepting new residents in at least one service line of business (independent living, assisted living, skilled nursing or memory care). Occupancy declines at the communities FVE owns, operates and manages have decelerated compared to the second quarter of 2020. Despite this deceleration, FVE continued to experience declines in average monthly senior living revenue per available unit (RevPAR) throughout the quarter due to occupancy challenges. In contrast, FVE's rehabilitation and wellness services segment grew by adding three net new outpatient rehabilitation clinics and experienced a 6.3% increase in average daily clinic visits in the quarter compared to the second quarter of 2020. Overall, FVE continues to experience increased costs associated with the impact of the COVID-19 pandemic that are expected to continue throughout the remainder of 2020.
  • Combined senior living revenues and management fees for communities FVE leased from Diversified Healthcare Trust, or DHC, prior to January 1, 2020, and now manages on behalf of DHC, for the quarter ended September 30, 2020, decreased to $33.8 million from $261.7 million for the same period in 2019, primarily due to the conversion of the formerly leased senior living communities to managed communities as a result of the Restructuring Transactions, as described in the Selected Pro Forma Condensed Consolidated Financial Information and Other Data in the Supplemental Information of this press release. Additionally, the decline in revenues as compared to the same period of the prior year are impacted by the sale of 15 communities in the third quarter of 2019 that FVE previously leased from DHC. Senior living revenues at communities FVE leased or owned continuously since July 1, 2019 were $18.5 million, which represents a $2.0 million or 9.8% decrease from the same period in 2019, primarily due to a decline in occupancy as a result of the COVID-19 pandemic.
  • Rehabilitation and wellness services revenues for the third quarter of 2020 increased to $21.1 million from $12.4 million for the same period in 2019, primarily due to the impact of $5.8 million of inpatient rehabilitation clinic revenue at communities FVE previously leased from DHC during the third quarter of 2019, which was previously eliminated in consolidation accounting prior to the Restructuring Transactions, as well as the opening of 36 net new outpatient clinics since the third quarter of 2019. Revenues increased $2.9 million compared to the September 30, 2019 pro forma results primarily attributable to opening 35 net new clinics since July 1, 2019.
  • Net income for the third quarter of 2020 was $3.7 million, or $0.12 per diluted share, compared to net income of $3.5 million, or $0.11 per diluted share, for the September 30, 2019 pro forma results.
  • Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the third quarter of 2020 was $7.1 million compared to $7.3 million for the September 30, 2019 pro forma results. Adjusted EBITDA, as described further below, was $6.8 million for the third quarter of 2020 compared to $7.2 million for the September 30, 2019 pro forma results. EBITDA and Adjusted EBITDA are non-GAAP financial measures. Reconciliations of net income determined in accordance with GAAP to EBITDA and Adjusted EBITDA, both actual and pro forma results, for the quarters ended September 30, 2020 and 2019 are presented later in this press release.
  • As of September 30, 2020, FVE had unrestricted cash and cash equivalents of $95.8 million, of which $12.9 million related to funds received from DHC to fund working capital obligations. In addition, FVE had no amounts outstanding on its revolving credit facility and $7.3 million outstanding on one mortgage note.

Conference Call Information:

At 1:00 p.m. Eastern Time this afternoon, President and Chief Executive Officer, Katherine Potter, Executive Vice President, Chief Financial Officer and Treasurer, Jeffrey Leer, and Senior Vice President and Chief Operating Officer, Margaret Wigglesworth, will host a conference call to discuss FVE's third quarter 2020 results.

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, November 12, 2020. To hear the replay, dial (412) 317-0088. The replay pass code is 10148150.

A live audio webcast of the conference call will also be available in a listen-only mode on FVE’s website, www.fivestarseniorliving.com. Participants wanting to access the webcast should visit FVE’s website about five minutes before the call. The archived webcast will be available for replay on FVE’s website following the call for about a week. The transcription, recording and retransmission in any way of FVE'sthird quarter2020conference callarestrictly prohibited without the prior written consent ofFVE. FVE’s website is not incorporated as part of this press release.

About Five Star Senior Living Inc.:

FVE is a senior living and rehabilitation and wellness services company. As of September 30, 2020, FVE operated 263 senior living communities (30,544 living units) located in 31 states, including 239 communities (28,232 living units) that it managed and 24 communities (2,312 living units) that it owned or leased. FVE operates communities that include independent living, assisted living, continuing care retirement and skilled nursing communities. Additionally, FVE's rehabilitation and wellness services segment includes Ageility Physical Therapy SolutionsTM, or Ageility, a division of FVE, which provides rehabilitation and wellness services within FVE communities as well as to external customers. As of September 30, 2020, Ageility operated 209 outpatient rehabilitation clinics and 40 inpatient rehabilitation clinics. FVE is headquartered in Newton, Massachusetts.

 

Five Star Senior Living Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2020

 

2019

 

2020

 

2019

REVENUES

 

 

 

 

 

 

 

 

Senior living

 

$

18,525

 

 

$

257,600

 

 

$

59,112

 

 

$

786,771

 

Management fees

 

15,302

 

 

4,053

 

 

48,058

 

 

12,060

 

Rehabilitation and wellness services

 

21,124

 

 

12,447

 

 

61,776

 

 

34,707

 

Total management and operating revenues

 

54,951

 

 

274,100

 

 

168,946

 

 

833,538

 

Reimbursed community-level costs incurred on behalf of managed communities

 

233,783

 

 

80,909

 

 

689,903

 

 

232,733

 

Other reimbursed expenses

 

6,589

 

 

 

 

19,003

 

 

 

Total revenues

 

295,323

 

 

355,009

 

 

877,852

 

 

1,066,271

 

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

 

1,499

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Senior living wages and benefits

 

11,128

 

 

137,916

 

 

30,633

 

 

411,553

 

Other senior living operating expenses

 

6,717

 

 

76,929

 

 

18,290

 

 

223,896

 

Rehabilitation and wellness services expenses

 

16,124

 

 

10,412

 

 

48,595

 

 

28,031

 

Community-level costs incurred on behalf of managed communities

 

233,783

 

 

80,909

 

 

689,903

 

 

232,733

 

General and administrative

 

19,916

 

 

20,094

 

 

66,348

 

 

67,144

 

Rent

 

1,282

 

 

33,169

 

 

3,837

 

 

120,973

 

Depreciation and amortization

 

2,680

 

 

2,818

 

 

8,084

 

 

13,924

 

Loss on sale of senior living communities

 

 

 

749

 

 

 

 

850

 

Long-lived asset impairment

 

 

 

18

 

 

 

 

3,278

 

Total operating expenses

 

291,630

 

 

363,014

 

 

865,690

 

 

1,102,382

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

3,693

 

 

(8,005)

 

 

13,661

 

 

(36,111)

 

 

 

 

 

 

 

 

 

 

Interest, dividend and other income

 

104

 

 

414

 

 

625

 

 

985

 

Interest and other expense

 

(379)

 

 

(384)

 

 

(1,170)

 

 

(2,196)

 

Unrealized gain (loss) on equity investments

 

435

 

 

148

 

 

(160)

 

 

476

 

Realized gain (loss) on sale of debt and equity investments

 

327

 

 

(9)

 

 

422

 

 

227

 

Loss on termination of leases

 

 

 

 

 

(22,899)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and equity in earnings of an investee

 

4,180

 

 

(7,836)

 

 

(9,521)

 

 

(36,619)

 

(Provision) benefit for income taxes

 

(465)

 

 

687

 

 

(971)

 

 

(98)

 

Equity in earnings of an investee

 

 

 

83

 

 

 

 

617

 

Net income (loss)

 

$

3,715

 

 

$

(7,066)

 

 

$

(10,492)

 

 

$

(36,100)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding—basic

 

31,486

 

 

5,012

 

 

31,465

 

 

5,007

 

Weighted average shares outstanding—diluted

 

31,563

 

 

5,012

 

 

31,465

 

 

5,007

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share—basic

 

$

0.12

 

 

$

(1.41)

 

 

$

(0.33)

 

 

$

(7.21)

 

Net income (loss) per share—diluted

 

$

0.12

 

 

$

(1.41)

 

 

$

(0.33)

 

 

$

(7.21)

 

 

Five Star Senior Living Inc.
Reconciliation of Non-GAAP Financial Measures
(dollars 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. FVE believes the non-GAAP financial measures presented in the table below are meaningful supplemental disclosures because they may help investors better understand changes in FVE’s operating results and its ability to pay rent or service debt, make capital expenditures and expand its business. These non-GAAP financial measures may also help investors make comparisons between FVE and other companies on both a GAAP and non-GAAP basis. FVE believes that EBITDA and Adjusted EBITDA are meaningful financial measures that may help investors better understand its financial performance, including by allowing investors to compare FVE's performance between periods and to the performance of other companies. FVE management uses EBITDA and Adjusted EBITDA to evaluate FVE’s financial performance and compare FVE’s performance over time and to the performance of other companies. FVE calculates EBITDA and Adjusted EBITDA as shown below. These measures should not be considered as alternatives to net income (loss) or operating income (loss), as indicators of FVE’s operating performance or as measures of FVE’s liquidity. Also, EBITDA and Adjusted EBITDA as presented may not be comparable to similarly titled amounts calculated by other companies.

FVE believes that net income (loss) is the most directly comparable financial measure, determined according to GAAP, to FVE’s presentation of EBITDA and Adjusted EBITDA. The following table presents the reconciliation of these non-GAAP financial measures to net income (loss) for each of the three and nine months ended September 30, 2020 and 2019.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

Net income (loss)

 

$

3,715

 

 

$

(7,066)

 

 

$

(10,492)

 

 

$

(36,100)

 

Add (less):

 

 

 

 

 

 

 

 

Interest and other expense

 

379

 

 

384

 

 

1,170

 

 

2,196

 

Interest, dividend and other income

 

(104)

 

 

(414)

 

 

(625)

 

 

(985)

 

Provision (benefit) for income taxes

 

465

 

 

(687)

 

 

971

 

 

98

 

Depreciation and amortization

 

2,680

 

 

2,818

 

 

8,084

 

 

13,924

 

EBITDA

 

7,135

 

 

(4,965)

 

 

(892)

 

 

(20,867)

 

Add (less):

 

 

 

 

 

 

 

 

Long-lived asset impairment

 

 

 

18

 

 

 

 

3,278

 

Loss on sale of senior living communities

 

 

 

749

 

 

 

 

850

 

Severance (1)

 

 

 

 

 

282

 

 

393

 

Litigation settlement (2)

 

 

 

 

 

2,473

 

 

 

Unrealized (gain) loss on equity investments

 

(435)

 

 

(148)

 

 

160

 

 

(476)

 

Loss on termination of leases (3)

 

 

 

 

 

22,899

 

 

 

Transaction costs (4)

 

142

 

 

1,330

 

 

1,412

 

 

10,138

 

Adjusted EBITDA

 

$

6,842

 

 

$

(3,016)

 

 

$

26,334

 

 

$

(6,684)

 

___________________________________

(1) Costs incurred during 2020 represent those related to a reduction in workforce.

(2) Represents costs incurred related to the settlement of a lawsuit and is included in other senior living operating expenses in our condensed consolidated statements of operations. The agreed upon settlement remains subject to a final definitive settlement agreement and to court and regulatory approvals.

(3) Represents the excess of the fair value of the Share Issuances of $97,899 compared to the consideration of $75,000 paid by DHC, as described in the Selected Pro Forma Condensed Consolidated Financial Information and Other Data in the Supplemental Information of this press release.

(4) Includes costs incurred related to the Restructuring Transactions as described in the Selected Pro Forma Condensed Consolidated Financial Information and Other Data in the Supplemental Information of this press release.

 

Five Star Senior Living Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

2020

 

2019

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

95,779

 

 

$

31,740

 

Restricted cash and cash equivalents

 

23,842

 

 

23,995

 

Accounts receivable, net of allowance

 

9,755

 

 

34,190

 

Due from related person

 

79,807

 

 

5,533

 

Debt and equity investments

 

20,465

 

 

21,070

 

Prepaid expenses and other current assets

 

21,006

 

 

17,286

 

Assets held for sale

 

 

 

9,554

 

Total current assets

 

250,654

 

 

143,368

 

 

 

 

 

 

Property and equipment, net

 

160,741

 

 

167,247

 

Equity investment of an investee, net

 

11

 

 

298

 

Restricted cash and cash equivalents

 

821

 

 

1,244

 

Restricted debt and equity investments

 

4,975

 

 

7,105

 

Operating lease right of use assets

 

18,748

 

 

20,855

 

Finance lease right of use assets

 

4,515

 

 

 

Other long-term assets

 

3,844

 

 

5,676

 

Total assets

 

$

444,309

 

 

$

345,793

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

21,543

 

 

$

30,440

 

Accrued expenses and other current liabilities

 

49,960

 

 

55,981

 

Accrued compensation and benefits

 

67,725

 

 

35,629

 

Accrued self-insurance obligations

 

28,567

 

 

23,791

 

Operating lease liabilities

 

2,773

 

 

2,872

 

Finance lease liabilities

 

386

 

 

 

Due to related persons

 

199

 

 

2,247

 

Mortgage note payable

 

381

 

 

362

 

Security deposits and current portion of continuing care contracts

 

375

 

 

434

 

Liabilities held for sale

 

 

 

12,544

 

Total current liabilities

 

171,909

 

 

164,300

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

Accrued self-insurance obligations

 

35,985

 

 

33,872

 

Operating lease liabilities

 

17,636

 

 

19,671

 

Finance lease liabilities

 

4,129

 

 

 

Mortgage note payable

 

6,882

 

 

7,171

 

Other long-term liabilities

 

207

 

 

798

 

Total long-term liabilities

 

64,839

 

 

61,512

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common stock, par value $0.01

 

316

 

 

52

 

Additional paid-in-capital

 

459,851

 

 

362,450

 

Accumulated deficit

 

(253,982)

 

 

(245,184)

 

Accumulated other comprehensive income

 

1,376

 

 

2,663

 

Total shareholders’ equity

 

207,561

 

 

119,981

 

Total liabilities and shareholders' equity

 

$

444,309

 

 

$

345,793

 

 

Five Star Senior Living Inc.

Supplemental Financial Data

(dollars in thousands)

(unaudited)

 

Management and Operating Revenues by Product Type

 

 

Three Months Ended September 30, 2020

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

18,525

 

 

$

8,751

 

 

$

 

 

$

27,276

 

Continuing care retirement community revenues

 

 

5,451

 

 

 

 

5,451

 

Skilled nursing facility revenues

 

 

1,100

 

 

 

 

1,100

 

Rehabilitation and wellness services revenues

 

 

 

 

21,124

 

 

21,124

 

Total management and operating revenues

$

18,525

 

 

$

15,302

 

 

$

21,124

 

 

$

54,951

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

127,201

 

 

$

3,207

 

 

$

 

 

$

130,408

 

Continuing care retirement community revenues

95,746

 

 

846

 

 

 

 

96,592

 

Skilled nursing facility revenues

34,653

 

 

 

 

 

 

34,653

 

Rehabilitation and wellness services revenues

 

 

 

 

12,447

 

 

12,447

 

Total management and operating revenues

$

257,600

 

 

$

4,053

 

 

$

12,447

 

 

$

274,100

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

59,112

 

 

$

27,402

 

 

$

 

 

$

86,514

 

Continuing care retirement community revenues

 

 

17,273

 

 

 

 

17,273

 

Skilled nursing facility revenues

 

 

3,383

 

 

 

 

3,383

 

Rehabilitation and wellness services revenues

 

 

 

 

61,776

 

 

61,776

 

Total management and operating revenues

$

59,112

 

 

$

48,058

 

 

$

61,776

 

 

$

168,946

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

380,739

 

 

$

9,484

 

 

$

 

 

$

390,223

 

Continuing care retirement community revenues

290,427

 

 

2,576

 

 

 

 

293,003

 

Skilled nursing facility revenues

115,605

 

 

 

 

 

 

115,605

 

Rehabilitation and wellness services revenues

 

 

 

 

34,707

 

 

34,707

 

Total management and operating revenues

$

786,771

 

 

$

12,060

 

 

$

34,707

 

 

$

833,538

 

 

Five Star Senior Living Inc.

Supplemental Financial Data

(dollars in thousands)

(unaudited)

 

Comparable Management and Operating Revenues by Product Type (1)

 

 

Three Months Ended September 30, 2020

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

18,489

 

 

$

3,793

 

 

$

 

 

$

22,282

 

Continuing care retirement community revenues

 

 

1,084

 

 

 

 

1,084

 

Rehabilitation and wellness services revenues

 

 

 

 

17,563

 

 

17,563

 

Total management and operating revenues

$

18,489

 

 

$

4,877

 

 

$

17,563

 

 

$

40,929

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

20,499

 

 

$

3,146

 

 

$

 

 

$

23,645

 

Continuing care retirement community revenues

 

 

735

 

 

 

 

735

 

Rehabilitation and wellness services revenues

 

 

 

 

11,921

 

 

11,921

 

Total management and operating revenues

$

20,499

 

 

$

3,881

 

 

$

11,921

 

 

$

36,301

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

58,336

 

 

$

11,516

 

 

$

 

 

$

69,852

 

Continuing care retirement community revenues

 

 

3,425

 

 

 

 

3,425

 

Rehabilitation and wellness services revenues

 

 

 

 

47,671

 

 

47,671

 

Total management and operating revenues

$

58,336

 

 

$

14,941

 

 

$

47,671

 

 

$

120,948

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

Management and Operating Revenues by Product Type:

Senior
Living

 

Management Fees

 

Rehabilitation and Wellness Services

 

Total
Revenues

Independent and assisted living community revenues

$

61,744

 

 

$

9,052

 

 

$

 

 

$

70,796

 

Continuing care retirement community revenues

 

 

2,221

 

 

 

 

2,221

 

Rehabilitation and wellness services revenues

 

 

 

 

31,279

 

 

31,279

 

Total management and operating revenues

$

61,744

 

 

$

11,273

 

 

$

31,279

 

 

$

104,296

 

(1) The tables for the three months ended September 30, 2020 and 2019 include data for 24 owned and leased senior living communities, 75 managed senior living communities and 185 rehabilitation clinics that FVE has continuously owned, continuously leased or continuously managed since July 1, 2019. The tables for the nine months ended September 30, 2020 and 2019 include data for senior living communities and rehabilitation clinics that FVE has continuously owned, continuously leased or continuously managed since January 1, 2019.

 

Five Star Senior Living Inc.

Senior Living Segment Data

(dollars in thousands, except per unit amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

 

2020

 

2020

 

2020

 

2019

 

2019

 

 

 

 

 

 

 

 

 

 

 

Owned and Leased Communities

 

 

 

 

 

 

 

 

 

 

Independent and assisted living communities:

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

18,525

 

 

$

19,590

 

 

$

20,997

 

 

$

249,726

 

 

$

257,600

 

Operating expenses

 

19,661

 

 

20,165

 

 

17,470

 

 

220,389

 

 

250,840

 

Operating (loss) income

 

(1,136)

 

 

(575)

 

 

3,527

 

 

29,337

 

 

6,760

 

Operating margin

 

(6.1)

%

 

(2.9)

%

 

16.8

%

 

11.7

%

 

2.6

%

Number of communities (end of period)

 

24

 

 

24

 

 

24

 

 

190

 

 

190

 

Number of living units (end of period) (1)

 

2,312

 

 

2,312

 

 

2,312

 

 

20,948

 

 

20,948

 

Occupancy

 

74.7

%

 

78.3

%

 

81.3

%

 

82.9

%

 

82.9

%

RevPAR (2)

 

$

2,665

 

 

$

2,813

 

 

$

2,938

 

 

$

3,974

 

 

$

3,943

 

 

 

 

 

 

 

 

 

 

 

 

Managed Communities (3)

 

 

 

 

 

 

 

 

 

 

Independent and assisted living communities:

 

 

 

 

 

 

 

 

 

 

Management fees

 

$

8,751

 

 

$

9,088

 

 

$

9,563

 

 

$

3,221

 

 

$

3,207

 

Community-level revenues

 

167,436

 

 

174,648

 

 

184,455

 

 

81,188

 

 

81,380

 

Community-level expenses

 

145,399

 

 

139,175

 

 

143,105

 

 

65,899

 

 

64,491

 

Community operating income

 

22,037

 

 

35,473

 

 

41,350

 

 

15,289

 

 

16,889

 

Community operating margin

 

13.2

%

 

20.3

%

 

22.4

%

 

18.8

%

 

20.8

%

Number of communities (end of period)

 

189

 

(4)

191

 

(4)

193

 

(4)

69

 

(4)

68

 

Number of living units (end of period) (1)

 

18,032

 

(4)

18,148

 

(4)

18,395

 

(4)

8,106

 

(4)

7,937

 

Occupancy

 

75.5

%

 

79.1

%

 

82.9

%

 

84.0

%

 

85.3

%

RevPAR (2)

 

$

3,088

 

 

$

3,208

 

 

$

3,360

 

 

$

3,401

 

 

$

3,448

 

 

 

 

 

 

 

 

 

 

 

 

Continuing care retirement communities:

 

 

 

 

 

 

 

 

 

 

Management fees

 

$

5,451

 

 

$

5,485

 

 

$

6,337

 

 

$

888

 

 

$

846

 

Community-level revenues

 

104,770

 

 

110,729

 

 

123,498

 

 

27,502

 

 

26,436

 

Community-level expenses

 

99,816

 

 

99,071

 

 

103,946

 

 

24,998

 

 

25,002

 

Community operating income

 

4,954

 

 

11,658

 

 

19,552

 

 

2,504

 

 

1,434

 

Community operating margin

 

4.7

%

 

10.5

%

 

15.8

%

 

9.1

%

 

5.4

%

Number of communities (end of period)

 

39

 

 

39

 

 

40

 

 

9

 

 

9

 

Number of living units (end of period) (1)(5)

 

8,936

 

 

8,936

 

 

9,301

 

 

2,231

 

 

2,231

 

Occupancy

 

75.6

%

 

79.1

%

 

83.4

%

 

83.5

%

 

82.8

%

RevPAR (2)

 

$

3,908

 

 

$

4,131

 

 

$

4,426

 

 

$

4,109

 

 

$

3,950

 

 

Skilled nursing facilities (6):

 

 

 

 

 

 

 

 

 

 

Management fees

 

$

1,100

 

 

$

1,132

 

 

$

1,151

 

 

$

 

 

$

 

Community-level revenues

 

21,900

 

 

24,554

 

 

22,956

 

 

 

 

 

Community-level expenses

 

22,831

 

 

22,009

 

 

21,854

 

 

 

 

 

Community operating (loss) income

 

(931)

 

 

2,545

 

 

1,102

 

 

 

 

 

Community operating margin

 

(4.3)

%

 

10.4

%

 

4.8

%

 

%

 

%

Number of communities (end of period)

 

11

 

 

11

 

 

11

 

 

 

 

 

Number of living units (end of period) (1)(7)

 

1,264

 

 

1,264

 

 

1,264

 

 

 

 

 

Occupancy

 

68.8

%

 

70.1

%

 

73.3

%

 

%

 

%

RevPAR (2)

 

$

5,775

 

 

$

6,475

 

 

$

6,054

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Total managed communities:

 

 

 

 

 

 

 

 

 

 

Management fees

 

$

15,302

 

 

$

15,705

 

 

$

17,051

 

 

$

4,109

 

 

$

4,053

 

Community-level revenues

 

294,106

 

 

309,931

 

 

330,909

 

 

108,690

 

 

107,816

 

Community-level expenses

 

268,046

 

 

260,255

 

 

268,905

 

 

90,897

 

 

89,493

 

Community operating income

 

26,060

 

 

49,676

 

 

62,004

 

 

17,793

 

 

18,323

 

Community operating margin

 

8.9

%

 

16.0

%

 

18.7

%

 

16.4

%

 

17.0

%

Number of communities (end of period)

 

239

 

(4)

241

 

(4)

244

 

 

78

 

 

77

 

Number of living units (end of period) (1)

 

28,232

 

(4)

28,348

 

(4)

28,960

 

 

10,337

 

 

10,168

 

Occupancy

 

75.2

%

 

78.7

%

 

82.6

%

 

83.9

%

 

84.7

%

RevPAR (2)

 

$

3,468

 

 

$

3,644

 

 

$

3,820

 

 

$

3,556

 

 

$

3,559

 

________________________________________

(1) Includes living units categorized as in service. As a result, the number of living units may vary from period to period for reasons other than the acquisition or disposition of senior living communities.

(2) RevPAR is defined by FVE as resident fee revenues for the corresponding portfolio for the period divided by the average number of available units for the period, divided by the number of months in the period. Data for the period ended December 31, 2019, excludes approximately $4,200 of deferred resident fees and deposits recognized due to the Restructuring Transactions.

(3) Senior living segment data for managed communities, other than FVE's management fees, represents financial data of communities FVE manages for the account of DHC and does not represent financial results of FVE. Managed communities data is included to provide supplemental information regarding the operating results and financial condition of the communities from which FVE earns management fees.

(4) Includes one active adult community with 168 units.

(5) Includes 2,186 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.

(6) FVE did not manage skilled nursing facilities prior to January 1, 2020.

(7) Includes 53 assisted living and independent living units in communities where skilled nursing services are the predominant services provided.

 

Five Star Senior Living Inc.

Comparable Communities Senior Living Segment Data

(dollars in thousands, except per unit amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

 

2020

 

2020

 

2019

 

2019

 

2019

Owned and Leased Communities (1):

 

 

 

 

 

 

 

 

 

 

Number of communities (end of period)

 

24

 

 

24

 

 

24

 

 

24

 

 

24

 

Number of living units (end of period) (2)

 

2,312

 

 

2,312

 

 

2,312

 

 

2,312

 

 

2,312

 

Occupancy

 

74.7

%

 

78.3

%

 

81.3

%

 

81.4

%

 

81.3

%

RevPAR (3)

 

$

2,665

 

 

$

2,813

 

 

$

2,930

 

 

$

2,941

 

 

$

2,954

 

 

 

 

 

 

 

 

 

 

 

 

Managed Communities (1)(4):

 

 

 

 

 

 

 

 

 

 

Number of communities (end of period)

 

75

 

 

75

 

 

75

 

 

75

 

 

75

 

Number of living units (end of period) (2)

 

9,689

 

 

9,689

 

 

9,697

 

 

9,700

 

 

9,700

 

Occupancy

 

76.7

%

 

80.1

%

 

83.9

%

 

84.5

%

 

85.5

%

RevPAR (3)

 

$

3,221

 

 

$

3,398

 

 

$

3,548

 

 

$

3,559

 

 

$

3,561

 

________________________________

(1) Includes data for senior living communities that FVE has continuously owned, continuously leased or continuously managed since July 1, 2019.

(2) Includes living units categorized as in service. As a result, the number of living units may vary from period to period for reasons other than the acquisition or sale of senior living communities.

(3) RevPAR is defined by FVE as resident fee revenues for the corresponding portfolio for the period divided by the average number of available units for the period, divided by the number of months in the period.

(4) Senior living segment data for comparable managed communities represents financial data of communities FVE manages for the account of DHC and does not represent financial results of FVE. Managed communities data is included to provide supplemental information regarding the operating results and financial condition of the communities from which FVE earns management fees.

 

Five Star Senior Living Inc.

Rehabilitation and Wellness Services Segment Data

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

 

2020

 

2020

 

2020

 

2019

 

2019

Rehabilitation and Wellness Services:

 

 

 

 

 

 

 

 

 

 

Revenues (1)(2)

 

$

21,124

 

 

$

19,268

 

 

$

21,384

 

 

$

13,978

 

 

$

12,447

 

Other operating income (3)

 

 

 

1,499

 

 

 

 

 

 

 

Operating expenses

 

16,833

 

 

16,259

 

 

17,616

 

 

12,384

 

 

10,861

 

Operating income (1)

 

4,291

 

 

4,508

 

 

3,768

 

 

1,594

 

 

1,586

 

Operating margin (1)

 

20.3

%

 

21.7

%

 

17.6

%

 

11.4

%

 

12.7

%

Number of inpatient clinics (end of period)

 

40

 

 

40

 

 

41

 

 

41

 

 

41

 

Number of outpatient clinics (end of period)

 

209

 

 

206

 

 

203

 

 

190

 

 

173

 

__________________________________

(1) Includes Ageility clinics and home health operations.

(2) Prior to the effective date of the Transaction Agreement (as defined below), revenue related to inpatient clinics at communities we previously leased from DHC was eliminated in consolidation pursuant to GAAP.

(3) Other operating income represents revenues recognized for funds received under the Provider Relief Fund of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, for which FVE has determined that it complies with the associated terms and conditions that permit FVE to retain these funds.

 

Five Star Senior Living Inc.

Comparable Rehabilitation and Wellness Services Segment Data

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

 

2020

 

2020

 

2020

 

2019

 

2019

Rehabilitation and Wellness Services:

 

 

 

 

 

 

 

 

 

 

Revenues (1)(2)

 

$

17,563

 

 

$

16,756

 

 

$

18,938

 

 

$

12,433

 

 

$

11,921

 

Other operating income (3)

 

 

 

1,103

 

 

 

 

 

 

 

Operating expenses

 

14,000

 

 

13,924

 

 

15,210

 

 

10,413

 

 

9,698

 

Operating income (1)

 

3,563

 

 

3,935

 

 

3,728

 

 

2,020

 

 

2,223

 

Operating margin (1)

 

20.3

%

 

22.0

%

 

19.7

%

 

16.2

%

 

18.6

%

Number of inpatient clinics (end of period)

 

40

 

 

40

 

 

40

 

 

40

 

 

40

 

Number of outpatient clinics (end of period)

 

145

 

 

145

 

 

145

 

 

145

 

 

145

 

__________________________________

(1) Includes Ageility clinics and home health operations.

(2) Prior to the effective date of the Transaction Agreement (as defined below), revenue related to inpatient clinics at communities we previously leased from DHC was eliminated in consolidation pursuant to GAAP.

(3) Other operating income represents revenues recognized for funds received under the Provider Relief Fund of the CARES Act for which FVE has determined that it complies with the associated terms and conditions that permit FVE to retain these funds.

 

Five Star Senior Living Inc.

Owned Senior Living Communities as of and for the Three Months Ended September 30, 2020

(dollars in thousands)

(unaudited)

 

No.

 

Community Name

 

State

 

Property Type (1)

 

Living Units

 

Senior Living Revenues

 

Gross Carrying Value

 

Net Carrying Value

 

Date Acquired

 

Year Built or Most Recent Renovation

1

 

Morningside of Decatur (2)

 

Alabama

 

AL

 

49

 

$

333

 

 

$

3,666

 

 

$

2,176

 

 

11/19/2004

 

1999

2

 

Morningside of Auburn

 

Alabama

 

AL

 

42

 

402

 

 

2,292

 

 

1,540

 

 

11/19/2004

 

1997

3

 

The Palms of Fort Myers (2)

 

Florida

 

IL

 

218

 

1,753

 

 

30,764

 

 

15,108

 

 

4/1/2002

 

1988

4

 

Five Star Residences of Banta Pointe (3)

 

Indiana

 

AL

 

121

 

807

 

 

18,273

 

 

12,743

 

 

9/29/2011

 

2006

5

 

Five Star Residences of Fort Wayne (2)

 

Indiana

 

AL

 

154

 

1,136

 

 

25,675

 

 

17,752

 

 

9/29/2011

 

1998

6

 

Five Star Residences of Clearwater

 

Indiana

 

AL

 

88

 

366

 

 

9,766

 

 

5,547

 

 

6/1/2011

 

1999

7

 

Five Star Residences of Lafayette (2)

 

Indiana

 

AL

 

109

 

521

 

 

15,878

 

 

10,943

 

 

6/1/2011

 

2000

8

 

Five Star Residences of Noblesville (2)

 

Indiana

 

AL

 

151

 

1,248

 

 

25,161

 

 

17,706

 

 

7/1/2011

 

2005

9

 

The Villa at Riverwood (2)

 

Missouri

 

IL

 

110

 

642

 

 

6,876

 

 

3,198

 

 

4/1/2002

 

1986

10

 

Carriage House Senior Living

 

North Carolina

 

AL

 

98

 

1,049

 

 

8,407

 

 

5,366

 

 

12/1/2008

 

1997

11

 

Forest Heights Senior Living

 

North Carolina

 

AL

 

111

 

883

 

 

13,593

 

 

8,922

 

 

12/1/2008

 

1998

12

 

Fox Hollow Senior Living (2)

 

North Carolina

 

AL

 

77

 

874

 

 

11,034

 

 

7,258

 

 

7/1/2000

 

1999

13

 

Legacy Heights Senior Living (2)

 

North Carolina

 

AL

 

116

 

1,437

 

 

12,668

 

 

8,156

 

 

12/1/2008

 

1997

14

 

Morningside at Irving Park

 

North Carolina

 

AL

 

91

 

775

 

 

6,973

 

 

3,902

 

 

11/19/2004

 

1997

15

 

Voorhees Senior Living (2)

 

New Jersey

 

AL

 

104

 

941

 

 

10,245

 

 

6,100

 

 

7/1/2008

 

1999

16

 

Washington Township Senior Living (2)

 

New Jersey

 

AL

 

103

 

866

 

 

10,177

 

 

6,094

 

 

7/1/2008

 

1998

17

 

The Devon Senior Living

 

Pennsylvania

 

AL

 

84

 

613

 

 

6,881

 

 

3,858

 

 

7/1/2008

 

1985

18

 

The Legacy of Anderson

 

South Carolina

 

IL

 

101

 

580

 

 

1,371

 

 

467

 

 

12/1/2008

 

2003

19

 

Morningside of Springfield (2)

 

Tennessee

 

AL

 

54

 

407

 

 

3,654

 

 

1,738

 

 

11/19/2004

 

1984

20

 

Huntington Place

 

Wisconsin

 

AL

 

127

 

829

 

 

17,504

 

 

11,309

 

 

7/15/2010

 

1999

 

 

Total

 

 

 

 

 

2,108

 

$

16,462

 

 

$

240,858

 

 

$

149,883

 

 

 

 

 

(1) AL is primarily an assisted living community and IL is primarily an independent living community.

(2) Encumbered property under our $65,000 revolving credit facility.

(3) Encumbered property under our $7,263 mortgage note.

 

Selected Pro Forma Condensed Consolidated Financial Information and Other Data

As previously announced, FVE entered into a transaction agreement, or the Transaction Agreement, with DHC to restructure our business arrangements pursuant to which, effective January 1, 2020:

  • FVE’s then existing five master leases with DHC as well as FVE’s existing management and pooling agreements with DHC were terminated and replaced with new management agreements for all of these senior living communities, together with a related omnibus agreement, the New Management Agreements;
  • FVE issued 10,268,158 of its common shares to DHC and an aggregate of 16,118,849 of its common shares to DHC's shareholders of record as of December 13, 2019, or together, the Share Issuances; and
  • as consideration for the Share Issuances, DHC provided to FVE $75.0 million by assuming certain of FVE's working capital liabilities and through cash payments. Such consideration, the New Management Agreements and the Share Issuances are collectively referred to as the Restructuring Transactions.

The following is a summary of selected financial and other data presented on a pro forma basis after giving effect to the completion of the Restructuring Transactions. The unaudited pro forma condensed consolidated statement of operations includes adjustments related to the Restructuring Transactions described above, and assumes that the Restructuring Transactions occurred as of January 1, 2019. In the opinion of management, all adjustments necessary to reflect the effects of the Restructuring Transactions have been included. The unaudited pro forma condensed consolidated statement of operations and the selected financial and other data are primarily based on, and should be read in conjunction with, FVE’s unaudited condensed consolidated financial statements and accompanying notes included in FVE’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019.

The historical consolidated financial information for FVE included in the unaudited condensed consolidated pro forma statement of operations and selected financial and other data has been adjusted to give effect to pro forma events that are (1) directly attributable to the Restructuring Transactions, (2) factually supportable and (3) expected to have a continuing impact on FVE’s results of operations. The unaudited pro forma condensed consolidated statement of operations and pro forma selected financial and other data should be read in conjunction with the accompanying notes. The unaudited pro forma condensed consolidated statement of operations and other selected financial and other data are provided for informational purposes only.

 

Five Star Senior Living Inc.

Condensed Consolidated Statement of Operations

(amounts in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

2020

 

Pro Forma 2019 (1)

REVENUES

 

 

 

 

Senior living

 

$

18,525

 

 

$

20,499

 

Management fees

 

15,302

 

 

17,801

 

Rehabilitation and wellness services

 

21,124

 

 

18,248

 

Total management and operating revenues

 

54,951

 

 

56,548

 

Reimbursed community-level costs incurred on behalf of managed communities

 

233,783

 

 

263,029

 

Other reimbursed expenses

 

6,589

 

 

 

Total revenues

 

295,323

 

 

319,577

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

Senior living wages and benefits

 

11,128

 

 

9,815

 

Other senior living operating expenses

 

6,717

 

 

7,334

 

Rehabilitation and wellness services expenses

 

16,124

 

 

16,213

 

Community-level costs incurred on behalf of managed communities

 

233,783

 

 

263,029

 

General and administrative

 

19,916

 

 

15,051

 

Rent

 

1,282

 

 

1,044

 

Depreciation and amortization

 

2,680

 

 

2,754

 

Total operating expenses

 

291,630

 

 

315,240

 

 

 

 

 

 

Operating income

 

3,693

 

 

4,337

 

 

 

 

 

 

Interest, dividend and other income

 

104

 

 

414

 

Interest and other expense

 

(379)

 

 

(281)

 

Unrealized gain on equity investments

 

435

 

 

148

 

Realized gain (loss) on sale of debt and equity investments

 

327

 

 

(9)

 

 

 

 

 

 

Income before income taxes and equity in earnings of an investee

 

4,180

 

 

4,609

 

Provision for income taxes

 

(465)

 

 

(1,225)

 

Equity in earnings of an investee

 

 

 

83

 

Net income

 

$

3,715

 

 

$

3,467

 

Add (less):

 

 

 

 

Interest and other expense

 

379

 

 

281

 

Interest, dividend and other income

 

(104)

 

 

(414)

 

Provision for income taxes

 

465

 

 

1,225

 

Depreciation and amortization

 

2,680

 

 

2,754

 

EBITDA

 

$

7,135

 

 

$

7,313

 

Add (less):

 

 

 

 

Unrealized gain on equity investments

 

(435)

 

 

(148)

 

Transaction costs

 

142

 

 

 

Adjusted EBITDA

 

$

6,842

 

 

$

7,165

 

 

 

 

 

 

Weighted average shares outstanding—basic

 

31,486

 

 

31,400

 

Weighted average shares outstanding—diluted

 

31,563

 

 

31,522

 

Net income per share—basic

 

$

0.12

 

 

$

0.11

 

Net income per share—diluted

 

$

0.12

 

 

$

0.11

 

 

Five Star Senior Living Inc.

Pro Forma Condensed Consolidated Statement of Operations

(amounts in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended September 30, 2019

 

 

As Reported

 

Restructuring Transactions

 

Note

 

Pro Forma

REVENUES

 

 

 

 

 

 

 

 

Senior living

 

$

257,600

 

 

$

(237,101)

 

 

2(a)

 

$

20,499

 

Management fees

 

4,053

 

 

13,748

 

 

2(b)

 

17,801

 

Rehabilitation and wellness services

 

12,447

 

 

5,801

 

 

2(c)

 

18,248

 

Reimbursed community-level costs incurred on behalf of managed communities

 

80,909

 

 

182,120

 

 

2(d)

 

263,029

 

Total revenue

 

355,009

 

 

(35,432)

 

 

 

 

319,577

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Senior living wages and benefits

 

137,916

 

 

(128,101)

 

 

2(e)

 

9,815

 

Other senior living operating expenses

 

76,929

 

 

(69,595)

 

 

2(f)

 

7,334

 

Rehabilitation and wellness services expenses

 

10,412

 

 

5,801

 

 

2(c)

 

16,213

 

Community-level costs incurred on behalf of managed communities

 

80,909

 

 

182,120

 

 

2(d)

 

263,029

 

General and administrative

 

20,094

 

 

(5,043)

 

 

2(g)

 

15,051

 

Rent

 

33,169

 

 

(32,125)

 

 

2(h)

 

1,044

 

Depreciation and amortization

 

2,818

 

 

(64)

 

 

2(i)

 

2,754

 

Loss on sale of senior living communities

 

749

 

 

(749)

 

 

 

 

 

Long-lived asset impairment

 

18

 

 

(18)

 

 

 

 

 

Total operating expenses

 

363,014

 

 

(47,774)

 

 

 

 

315,240

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

(8,005)

 

 

12,342

 

 

 

 

4,337

 

 

 

 

 

 

 

 

 

 

Interest, dividend and other income

 

414

 

 

 

 

 

 

414

 

Interest and other expense

 

(384)

 

 

103

 

 

2(j)

 

(281)

 

Unrealized gain on equity investments

 

148

 

 

 

 

 

 

148

 

Realized loss on sale of debt and equity investments

 

(9)

 

 

 

 

 

 

(9)

 

 

 

 

 

 

 

 

 

 

(Loss) Income before income taxes and equity in earnings of an investee

 

(7,836)

 

 

12,445

 

 

 

 

4,609

 

Benefit (provision) for income taxes

 

687

 

 

(1,912)

 

 

2(k)

 

(1,225)

 

Equity in earnings of an investee

 

83

 

 

 

 

 

 

83

 

Net (loss) income

 

$

(7,066)

 

 

$

10,533

 

 

 

 

$

3,467

 

Add (less):

 

 

 

 

 

 

 

 

Interest and other expense

 

384

 

 

(103)

 

 

 

 

281

 

Interest, dividend and other income

 

(414)

 

 

 

 

 

 

(414)

 

(Benefit) provision for income taxes

 

(687)

 

 

1,912

 

 

 

 

1,225

 

Depreciation and amortization

 

2,818

 

 

(64)

 

 

 

 

2,754

 

EBITDA

 

$

(4,965)

 

 

$

12,278

 

 

 

 

$

7,313

 

Add (less):

 

 

 

 

 

 

 

 

Loss on sale of senior living communities

 

749

 

 

(749)

 

 

 

 

 

Long-lived asset impairment

 

18

 

 

(18)

 

 

 

 

 

Unrealized gain on equity investments

 

(148)

 

 

 

 

 

 

(148)

 

Transaction costs

 

1,330

 

 

(1,330)

 

 

 

 

 

Adjusted EBITDA

 

$

(3,016)

 

 

$

10,181

 

 

 

 

$

7,165

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding—basic

 

5,012

 

 

26,388

 

 

2(l)

 

31,400

 

Weighted average shares outstanding—diluted

 

5,012

 

 

26,510

 

 

2(l)

 

31,522

 

Net income per share—basic

 

$

(1.41)

 

 

 

 

 

 

$

0.11

 

Net income per share—diluted

 

$

(1.41)

 

 

 

 

 

 

$

0.11

 

See accompanying notes.

Five Star Senior Living Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(unaudited)

Note 1. Basis of Presentation

The unaudited pro forma condensed consolidated statement of operations was derived from FVE’s historical financial statements prepared in accordance with GAAP, and should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in FVE’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

The unaudited pro forma condensed consolidated statement of operations is presented for informational purposes only and is not necessarily indicative of what FVE’s actual results of operations would have been had the Restructuring Transactions described herein been completed as of the assumed dates, or of FVE’s expected results of operations for any future period. Differences could result from many factors, including future changes in FVE’s capital structure, operating expenses, revenues and cash flows.

Note 2. Pro Forma Restructuring Transactions Adjustments

The unaudited pro forma condensed consolidated statement of operations includes adjustments related to the Restructuring Transactions described herein, including the conversion of all of FVE’s then existing leases and management arrangements with DHC to the New Management Agreements and the Share Issuances.

FVE’s historical consolidated financial information has been adjusted in the pro forma condensed consolidated statement of operations to give effect to events that are (1) directly attributable to the Restructuring Transactions, (2) factually supportable and (3) expected to have a continuing impact on the results of operations.

Pro Forma Condensed Consolidated Statement of Operations

a. Senior living revenues

The adjustment to senior living revenues is related to the termination and conversion of the then existing master leases to the New Management Agreements. The resulting revenues earned will be recognized and reported as management fee revenues in FVE's condensed consolidated statements of operations.

b. Management fees

Adjustments to management fee revenues are comprised as follows:

 

 

Three Months Ended
September 30, 2019

Adjustment to increase management fee revenues for then existing management agreements from 3% to 5% per the New Management Agreements

 

$

1,558

 

5% management fee relating to the termination and conversion of the then existing master leases to the New Management Agreements

 

11,855

 

3% construction management fee relating to the termination and conversion of the then existing master leases to the New Management Agreements

 

335

 

Net adjustment to management fee revenues

 

$

13,748

 

c. Rehabilitation and wellness services revenues and rehabilitation and wellness services expenses

Adjustments to rehabilitation and wellness services revenues and expenses are attributable to Ageility inpatient clinics at communities where FVE leased and operated the business and where revenues and expenses were previously considered to be intercompany revenues and expenses and hence were eliminated pursuant to consolidation accounting. Upon the consummation of the Restructuring Transactions, and consistent with the existing managed communities, the revenues and

Five Star Senior Living Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(unaudited)

expenses at these inpatient clinics no longer constitute intercompany revenues and expenses and thus are not eliminated in consolidation and recognized and reported as rehabilitation and wellness services revenue and rehabilitation and wellness services expenses in FVE's condensed consolidated statements of operations.

d. Reimbursed community-level costs incurred on behalf of managed communities and community-level costs incurred on behalf of managed communities

Adjustments to both reimbursed community-level costs incurred on behalf of managed communities and community- level costs incurred on behalf of managed communities were related to the conversion of FVE's master leases with DHC to the New Management Agreements, which provide for reimbursement of FVE's direct costs and expenses related to such communities, inclusive of certain costs that are directly attributable to managing the communities, including personnel-related costs.

e. Senior living wages and benefits

The adjustment to senior living wages and benefits is related to the conversion of all FVE's leases with DHC to the New Management Agreements. Certain of these expenses were recognized and reported as community-level costs incurred on behalf of managed communities in FVE's condensed consolidated statements of operations (with an offsetting reimbursement from DHC recognized as revenues in the condensed consolidated statements of operations). See 2.d above.

f. Other senior living operating expenses

Adjustments to other senior living operating expenses are related to the conversion of all FVE's leases with DHC to the New Management Agreements and include, but are not limited to, utilities, housekeeping, dietary, repairs and maintenance, insurance and community-level administrative costs. These costs were reimbursable costs and treated as described in 2.d above.

g. General and administrative

Adjustments to general and administrative expenses are comprised as follows:

 

 

Three Months Ended
September 30, 2019

Adjustment of certain reimbursable costs to directly support managed communities

 

$

(3,748)

 

Adjustment to remove non-recurring transaction costs we previously incurred relating to the Restructuring Transactions

 

(1,330)

 

Increase in management fee to The RMR Group LLC due to increase in Ageility revenue

 

35

 

Net adjustment to general and administrative expenses

 

$

(5,043)

 

h. Rent

The reduction to rent expense is for rent under the then existing master leases converted to the New Management Agreements.

Five Star Senior Living Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(unaudited)

i. Depreciation and amortization

In connection with the Transaction Agreement, on April 1, 2019, we sold $49,200 of assets to DHC. Prior to that sale, we recorded depreciation and amortization expense with respect to those assets in operating expenses in our condensed consolidated statements of operations. Adjustments to depreciation and amortization expense reflect the amounts previously recognized during the periods presented for depreciation and amortization expense with respect to those assets.

j. Interest and other expense

Interest and other expense has been adjusted to give effect to the assumed repayment of our outstanding borrowings under our credit facility.

k. Provision for income taxes

Adjustments to provision for income taxes reflect the income tax effect of the pro forma adjustments based on the estimated effective tax rate of approximately 26.1% for the three months ended September 30, 2019.

l. Weighted average common shares outstanding - basic and diluted

The increase in FVE's basic and diluted weighted average common shares outstanding is a result of the issuance of 10,268,158 and 16,118,849 common shares to DHC and to the applicable DHC shareholders, respectively, in connection with the completion of the Restructuring Transactions based on the number of FVE common shares outstanding on December 31, 2019. FVE's diluted weighted average common shares outstanding is also impacted by the potentially dilutive restricted unvested common shares of 122,412 for the three months ended September 30, 2019. This diluted share impact is directly related to FVE's 2014 Equity Compensation Plan and was originally excluded from the as reported numbers as to include them would be antidilutive.

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 Senior Living Inc. uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, "will", “may” and negatives or derivatives of these or similar expressions, FVE is making forward-looking statements. These forward-looking statements are based upon FVE’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 FVE’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond FVE's control. For example:

  • Ms. Potter states in this press release that FVE's third quarter significant positive cash flow and year-over-year growth in Adjusted EBITDA and net income reflect the benefits of restructuring FVE's business arrangements with DHC, in light of the ongoing adverse effects across the senior living industry from the COVID-19 pandemic and that the rehabilitation and wellness services division continues to meaningfully contribute to FVE's overall positive performance. This may imply that FVE is outperforming other companies in the senior living industry, that FVE will be profitable in the future and that its rehabilitation and wellness services division will grow; however, FVE's business remains subject to various risks, including overall macro-economic factors in addition to market conditions of the senior living and rehabilitation and wellness industries and consumer demand and preferences of older adults in addition to the continuing impact of the COVID-19 pandemic. In addition, some of the improvements in net income resulted in a change following the Restructuring Transactions in how FVE accounts for its rehabilitation and wellness services revenues at the senior living communities FVE manages for, and previously leased from, DHC. As a result, FVE may not outperform other companies in the senior living industry, may not be profitable in the future, any future improvements in net income may be less, the deceleration of occupancy declines at its senior living communities may reverse, its rehabilitation and wellness services division may fail to continue to grow and any growth it may realize may not be profitable to FVE.
  • Ms. Potter's statement that FVE's balance sheet remains strong with $95.8 million of unrestricted cash on hand and no borrowings outstanding on its revolving credit facility may imply that FVE has adequate cash and availability under its revolving credit facility; however, FVE's business remains subject to various risks, some of which are beyond FVE's control, including the disruption of the COVID-19 pandemic and economic downturn. In addition, FVE's ability to borrow under its revolving credit facility is subject to it satisfying certain conditions and limited to the amount of qualified collateral; the maximum borrowing capacity was $42.7 million as of September 30, 2020 and may be lower in amount or not available in the future.
  • Ms. Potter states that FVE continues to adapt to the evolving impact of the pandemic. This may imply that the adaptation is adequate to protect FVE from potential liabilities and declines in financial results. FVE may not be able, or may fail, to make all the necessary changes to adequately protect itself from the potential challenges and impacts of the COVID-19 pandemic.
  • This press release states that negative trends due to the COVID-19 pandemic are expected to continue throughout at least the remainder of 2020. The extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact cannot be predicted, but are expected to be substantial, and could continue beyond December 31, 2020 for an indefinite period.
  • The information contained in FVE’s filings with the Securities and Exchange Commission, or SEC, including under “Risk Factors” in FVE’s periodic reports, or incorporated therein, identifies other important factors that could cause FVE’s actual results to differ materially from those stated in or implied by FVE’s forward-looking statements. FVE’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, FVE does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

Olivia Snyder, Manager, Investor Relations
(617) 796-8245

Source: Five Star Senior Living Inc.

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