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Five Star Quality Care, Inc. Reports Second Quarter 2012 Results

Five Star Quality Care, Inc. (NYSE: FVE) today announced its financial results for the quarter and six months ended June 30, 2012.

Second Quarter 2012 Financial Highlights:

  • Total revenues for the second quarter of 2012 increased 11.9% to $349.1 million from $311.9 million for the same period in the previous year.
  • Income from continuing operations for the second quarter of 2012 was $4.9 million compared to $6.0 million for the same period in the previous year.
  • Income per share from continuing operations for the second quarter of 2012 was $0.10 per basic and diluted share, compared to $0.16 per basic and diluted share, for the same period in the previous year. Income from continuing operations for the second quarter of 2012 included a gain on settlement of our litigation with Sunrise Senior Living, Inc., or Sunrise, of $1.9 million (net of taxes), or $0.04 per basic and diluted share. Income from continuing operations for the second quarter of 2011 included acquisition costs of $1.2 million, or $0.03 per basic and diluted share.
  • Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the second quarter of 2012 was $16.8 million compared to $11.6 million for the same period in the previous year. EBITDA for the second quarter of 2012 included a gain on settlement of our litigation with Sunrise that increased EBITDA by $3.4 million, and EBITDA for the second quarter of 2011 included acquisition costs that decreased EBITDA by $1.2 million. EBITDA excluding these and certain other items was $13.4 million and $12.7 million in the second quarters of 2012 and 2011, respectively. A reconciliation of income from continuing operations determined in accordance with U.S. generally accepted accounting principles, or GAAP, to EBITDA and EBITDA excluding certain items for the quarters ended June 30, 2012 and 2011 appears later in this press release.
  • As of June 30, 2012, we had $23.6 million of cash and cash equivalents, $37.5 million outstanding under our $150.0 million revolving credit facility (secured, principally by real estate), no amounts outstanding under our $35.0 million revolving credit facility (secured, principally by accounts receivable), $46.9 million of mortgage notes outstanding (including $8.7 million in current liabilities) and $24.9 million of convertible senior notes outstanding. At the end of the second quarter, we also had $337.8 million of net property and equipment, including 31 owned senior living communities with 2,954 living units.

Second Quarter 2012 Operating Highlights:

  • Senior living occupancy at our owned and leased senior living communities for the second quarter of 2012 was 85.6% compared to 85.2% for the same period in the previous year.
  • Senior living average daily rate, or ADR, at our owned and leased senior living communities for the second quarter of 2012 decreased by 2.0% to $147.89 from $150.93 for the same period in the previous year. This decrease resulted from lower rates at certain acquired communities.
  • The percentage of senior living revenues derived from residents’ private resources for the second quarter of 2012 at our owned and leased senior living communities increased to 74.2% from 72.0% for the same period in the previous year.
  • For those owned and leased senior living communities that we operated continuously since April 1, 2011, or comparable communities, occupancy was unchanged at 85.2% for the second quarters of 2012 and 2011.
  • The ADR at comparable communities for the second quarter of 2012 increased by 0.3% to $152.05 from $151.55 for the same period in the previous year.

Year to Date Financial Highlights:

  • Total revenues for the six months ended June 30, 2012 increased 12.2% to $695.2 million from $619.5 million for the same period in the previous year.
  • Income from continuing operations for the six months ended June 30, 2012 was $5.7 million compared to $11.9 million for the same period in the previous year.
  • Income per share from continuing operations for the six months ended June 30, 2012 was $0.12 per basic and diluted share, compared to $0.33 and $0.32 per share, basic and diluted, respectively, for the same period in the previous year. Income from continuing operations for the six months ended June 30, 2012 included a gain on settlement of our litigation with Sunrise which was $1.9 million, or $0.04 per basic and diluted share, after taking into account income taxes. Income from continuing operations for the six months ended June 30, 2011 included acquisition costs of $1.3 million, or $0.04 per basic and diluted share.
  • EBITDA for the six months ended June 30, 2012 was $25.7 million compared to $22.4 million for the same period in the previous year. EBITDA for the six months ended June 30, 2012 included a gain on settlement of our litigation with Sunrise that increased EBITDA by $3.4 million and EBITDA for the six months ended June 30, 2011 included acquisition costs that decreased EBITDA by $1.3 million. EBITDA excluding these and certain other items was $22.3 million and $23.5 million in the six months ended June 30, 2012 and 2011, respectively. A reconciliation of income from continuing operations determined in accordance with GAAP to EBITDA and EBITDA excluding certain items for the six months ended June 30, 2012 and 2011 appears later in this press release.

Other Highlights:

  • Since May 2012, we have either begun to manage or agreed to manage 12 senior living communities with a combined 2,763 living units for Senior Housing Properties Trust (NYSE: SNH). All of these communities are focused on providing independent and/or assisted living services and generate a large majority of their revenues from residents’ private resources, not from Medicare or Medicaid government funded programs. In May 2012, we began to manage a senior living community with 59 living units located in South Carolina. In June 2012, we began to manage a senior living community with 232 living units which is also located in South Carolina for another owner pending SNH’s acquisition (SNH completed the acquisition in July 2012). In May 2012, we also reached agreement with SNH and Sunrise whereby Sunrise will terminate its leases for 10 senior living communities owned by SNH and we will begin to manage the 10 communities for SNH’s account. These 10 communities include 2,472 living units and are located in six states. We currently expect to begin managing these 10 communities before year end 2012 after all appropriate regulatory approvals are obtained.
  • In July 2012, we entered into an agreement to sell our pharmacy business to Omnicare, Inc., or Omnicare, for currently expected effective net cash receipts of $39.9 million, before third party transaction costs. Our pharmacy business includes eight licensed pharmacies operating in 13 states that provide institutional pharmacy services to 247 senior living communities with approximately 12,300 living units. We currently anticipate the sale of this business will result in a capital gain of approximately $23.5 million. Completion of this sale is subject to various customary closing conditions, including licensing approvals. We anticipate this sale will be completed during the second half of 2012.
  • In May 2012, we agreed to settle our long running litigation with Sunrise, which involved amounts charged by Sunrise to us for certain insurance programs for senior living communities managed by Sunrise for us in the past. Pursuant to the settlement agreement, Sunrise paid us $4.0 million in cash and we recorded a pre-tax gain of $3.4 million, net of legal fees, during the second quarter of 2012.
  • In April 2012, we entered into a new $150.0 million secured revolving credit facility with a group of nine banks. The new facility is in addition to our existing $35.0 million secured revolving credit facility, which has a maturity date of March 18, 2013. The maturity date of the new facility is April 13, 2015 and includes options which can be exercised by us to extend the facility through April 13, 2017, subject to conditions. Drawings under the new facility are at LIBOR plus a spread of 250 basis points. The new facility is secured by 15 senior living communities with 1,549 living units owned by us that have a total appraised value of approximately $230.0 million. Upon closing of the new credit facility and soon thereafter, we used drawings under the facility to repay $38.0 million under and terminate the bridge loan from SNH as well as to fund the repurchase of $12.4 million of our convertible senior notes outstanding at a price modestly below par value.

Bruce Mackey, President & CEO, made the following statement regarding the second quarter results of operations and recent activities:

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