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Five Star's CEO Discusses Q2 2012 Results - Earnings Call Transcript

In addition, all 10 communities fall within our current footprint where we offer rehabilitation and wellness services which should drive additional revenues to Five Star. We expect to begin managing these 10 communities before the end of 2012 after all appropriate regulatory approvals are obtained.

The third event took place in July when we announced that we had reached the deal, which is agreement rather to sell our pharmacy business to Omnicare, the net proceeds of $39.9 million. It was a fully marketed transaction by an investment bank Jefferies & Company.

We expect this transaction to close in the second half of 2012 after the completion of customary closing conditions, including licensing approvals. As some of you may know, we entered the pharmacy business in 2003 under a very different environment, where we contemplated achieving margins in the 10% range.

Changes in Medicare billing put great pressure on our margins, as the switch to using generic scripts. And as a result, despite growing to be one of the 10 largest institutional pharmacies in the United States, our pharmacy has only been marginally profitable over the past few years.

However, we expect to generate a gain of approximately $24 million with the sale, which will double our return on investment for our shareholders. We think this is an excellent return on investment for Five Star’s shareholders and set an example of the overall value we believe can be found in Five Star. The sale also simplifies the Five Star story for investors and allows us to increase our focus on our core private pay business.

For the second quarter we generated income from continuing operations of $0.06 per share, after excluding a $0.04 per share gain from the Sunrise litigation settlement, which is $0.04 per share better than income from continuing operations last quarter. Second quarter 2012 also marked Five Star’s 14th consecutive quarter of profitability.

EBITDA adjusted for non-recurring items also improved over the first quarter of 2012 by over 50%, the $13.4 million. EBITDA is also up 6% from last year.

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