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Five Star Quality Care, Inc. Agrees To Transfer Operations Of Two Hospitals

Stocks in this article: FVE

Five Star Quality Care, Inc. (NYSE: FVE) today announced that it has entered an agreement to transfer the operations of two rehabilitation hospitals to entities affiliated with Reliant Hospital Partners, LLC (Reliant) of Richardson, TX.

The two hospitals are New England Rehabilitation Hospital (198 licensed beds) located in Woburn, MA and Braintree Rehabilitation Hospital (166 licensed beds) located in Braintree, MA, plus several leased in-patient and out-patient locations in eastern Massachusetts which are affiliated with these hospitals. The hospitals are currently leased by FVE from Senior Housing Properties Trust (NYSE: SNH). As part of this transaction, SNH has agreed to sell the hospitals real estate assets to HSRE-TST III, LLC, a joint venture comprised of affiliates of The Sanders Trust, LLC of Birmingham, AL and Harrison Street Real Estate Capital, LLC of Chicago, IL (HSRE). Under the agreement among FVE, SNH, Reliant and HSRE, the lease of the hospitals between FVE and SNH will be canceled and the real estate will be transferred to affiliates of HSRE and the hospital operations will be transferred to Reliant.

Bruce Mackey, President and Chief Executive Officer of FVE, made the following statement concerning this transaction:

“Five Star began to operate these hospitals in 2006, during a more favorable operating and regulatory environment than currently exists. Since then, we have made adjustments in our business to counteract progressively more restrictive payment formulas from the Centers for Medicare & Medicaid Services. Throughout this period, our hospitals’ operations have produced essentially break even financial results, periodically making or losing modest amounts after paying capital costs, including rent.

“Five Star believes that the combination of capital investment required to comply with recent Federal and State hospital regulations and the expectation of continuing Medicare rate limitation pressures for the foreseeable future mean that economies of scale are essential to produce financially successful hospital operations. After carefully considering these factors, Five Star determined to focus its future operations on expanding its private pay senior living business and to transfer these hospitals’ operations to Reliant.

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