Five Star Quality Care, Inc. Reports Fourth Quarter And Year End 2012 Results

Five Star Quality Care, Inc. (NYSE: FVE) today announced its financial results for the quarter and year ended December 31, 2012.

Fourth Quarter 2012 Financial Highlights:

• Total revenues for the fourth quarter of 2012 increased 14.4% to $359.1 million from $314.0 million for the same period in the previous year.
• Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the fourth quarter of 2012 were $12.0 million compared to $8.4 million for the same period in the previous year. EBITDA for the fourth quarter of 2011 included impairment of long-lived assets of $3.5 million and acquisition related costs of $229,000, partially offset by a gain on sale of available for sale securities of $3.5 million. EBITDA excluding these and certain other items was $12.1 million and $8.7 million in the fourth 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 December 31, 2012 and 2011 appears later in this press release.
• Income from continuing operations for the fourth quarter of 2012 was $3.5 million, or $0.07 per basic and diluted share, compared to $52.7 million, or $1.11 and $1.05 per share, basic and diluted, respectively, for the same period in the previous year. Income from continuing operations for the fourth quarter of 2011 included certain items that, in aggregate, increased our earnings by $51.8 million, or $1.09 and $1.03 per share, basic and diluted, respectively. These items were a $50.7 million income tax benefit related to the reversal of our valuation allowance, a $1.4 million income tax benefit related to impairment of long-lived assets and a $3.5 million gain on sale of available for sale securities, partially offset by impairment of long-lived assets of $3.5 million and acquisition related costs of $229,000.
• Net income for the fourth quarter of 2012 was $3.5 million, or $0.07 per basic and diluted share, compared to $55.4 million, or $1.16 and $1.10 per share, basic and diluted, respectively, for the same period in the previous year. Net income in the 2012 period included income from discontinued operations of $6,000 compared to $2.7 million of income from discontinued operations in the 2011 period.

Fourth Quarter 2012 Operating Highlights:

• Occupancy at our owned and leased senior living communities for the fourth quarter of 2012 was 85.7% compared to 86.2% for the same period in the previous year.
• The average monthly rate at our owned and leased senior living communities for the fourth quarter of 2012 increased by 2.5% to $4,516 from $4,408 for the same period in the previous year.
• The percentage of revenues derived from residents’ private resources for the fourth quarter of 2012 at our owned and leased senior living communities modestly decreased to 74.5% from 74.7% for the same period in the previous year.
• Our fee revenues from managed senior living communities in the fourth quarter of 2012 were $2.2 million compared to $515,000 in the fourth quarter of 2011.

Fiscal Year Financial Highlights:

• Total revenues for the year ended December 31, 2012 increased 12.1% to $1.4 billion from $1.2 billion for the year ended December 31, 2011.
• EBITDA for the year ended December 31, 2012 was $49.5 million compared to $39.3 million for the year ended December 31, 2011. EBITDA for the year ended December 31, 2012 included a gain on settlement of our litigation with Sunrise Senior Living, Inc., or Sunrise, which increased EBITDA by $3.4 million. EBITDA for the year ended December 31, 2011 included impairment of long-lived assets of $3.5 million and acquisition related costs of $1.8 million, partially offset by a gain on sale of available for sale securities of $4.1 million. EBITDA excluding these and certain other items was $46.2 million and $40.4 million for the year ended December 31, 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 years ended December 31, 2012 and 2011 appears later in this press release.
• Income from continuing operations for the year ended December 31, 2012 was $13.4 million, or $0.28 per basic and diluted share, compared to $67.5 million, or $1.60 and $1.52 per share, basic and diluted, respectively, for the year ended December 31, 2011. Income from continuing operations for the year ended December 31, 2012 included a gain on settlement of our litigation with Sunrise of $1.9 million (net of taxes), or $0.04 per basic and diluted share. Income from continuing operations for the year ended December 31, 2011 included certain items that, in aggregate, increased our earnings by $51.0 million, or $1.21 and $1.13 per share, basic and diluted, respectively. These items were a $50.7 million income tax benefit related to the reversal of our valuation allowance, a $1.4 million income tax benefit related to impairment of long-lived assets, a $4.1 million gain on sale of available for sale securities and a $1,000 gain on early extinguishment of debt, partially offset by impairment of long-lived assets of $3.5 million and acquisition related costs of $1.8 million.
• Net income for the year ended December 31, 2012 was $24.9 million, or $0.52 per basic and diluted share, compared to $64.2 million, or $1.52 and $1.45 per share, basic and diluted, respectively, for the year ended December 31, 2011. Net income for the 2012 period included income from discontinued operations, including the sale of our pharmacy business, of $11.5 million. Net income for the 2011 period included a loss from discontinued operations of $(3.3) million.

Other Highlights:

During the fourth quarter of 2012, we began to manage nine senior living communities with a combined 2,233 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.

• As previously reported, in May 2012 we reached agreement with SNH and Sunrise whereby Sunrise would terminate its leases for 10 senior living communities owned by SNH and we would begin to manage the 10 communities for SNH’s account. These 10 communities include 2,472 living units and are located in six states. Prior to the fourth quarter of 2012, we began to manage three of these senior living communities with a combined 407 living units. During the fourth quarter of 2012, we began to manage the remaining seven of these senior living communities with a combined 2,065 living units.
• In December 2012, we began to manage two senior living communities with a combined 168 living units located in Tennessee and Texas.

In October 2012, we entered an agreement to sell two skilled nursing facilities, or SNFs, with a total of 271 living units that we own which are located in Michigan for $8.0 million, including the assumption by the buyer of $7.5 million of United States Department of Housing and Urban Development mortgage debt. These SNFs receive the majority of their revenues from Medicare/Medicaid reimbursements. The losses generated at these facilities are included in our discontinued operations. We expect the sale of these SNFs to occur before the end of 2013, but completion of this sale is subject to customary closing conditions, including regulatory approvals, and we can provide no assurance that a sale of these SNFs will occur before the end of 2013 or will be completed at all.

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