Five Star Quality Care, Inc. Announces Third Quarter 2016 Results

Five Star Quality Care, Inc. (Nasdaq: FVE) today announced its financial results for the quarter and nine months ended September 30, 2016.

Financial Results for the quarter ended September 30, 2016:
  • Senior living revenue for the third quarter of 2016 decreased 0.8% to $277.4 million from $279.7 million for the same period in 2015. The decline in senior living revenue is a result of decreases in occupancy, partially offset by an increase in average monthly rates to residents who pay privately for services. Management fee revenue for the third quarter of 2016 increased 22.8% to $3.3 million from $2.7 million for the same period in 2015. Growth in management fees was primarily due to the previously disclosed modifications to Five Star's management and pooling arrangements with Senior Housing Properties Trust, or SNH, which took effect on July 1, 2016, an increase in the number of managed communities compared to the 2015 period and an increase in average monthly rates to private pay residents at comparable managed communities, partially offset by a decrease in occupancy at comparable managed communities.
  • Loss from continuing operations for the third quarter of 2016 was $5.8 million, or $0.12 per diluted share, compared to loss from continuing operations of $26.3 million, or $0.54 per diluted share, for the same period in 2015. Loss from continuing operations for the third quarter of 2016 included benefits from income taxes of $0.9 million, or $0.02 per diluted share, related to a reduction of previously accrued estimated state tax expense resulting primarily from the previously disclosed June 2016 sale and leaseback transaction with SNH. Loss from continuing operations for the third quarter of 2015 included a non-cash charge for goodwill impairment of $25.3 million, or $0.52 per diluted share, and compliance costs and professional fees of $0.9 million, or $0.02 per diluted share, resulting primarily from the previously disclosed Medicare compliance assessment at one of Five Star's skilled nursing facilities, or the Compliance Assessment.
  • Net loss for the third quarter of 2016 was $5.9 million, or $0.12 per diluted share, compared to net loss of $27.5 million, or $0.57 per diluted share, for the same period in 2015.
  • Earnings from continuing operations before interest, taxes, depreciation and amortization, or EBITDA, for the third quarter of 2016 was $3.3 million compared to $(17.2) million for the same period in 2015. EBITDA, excluding certain items noted in the supplemental information provided below, or Adjusted EBITDA, was $4.3 million and $9.2 million for the third quarters of 2016 and 2015, respectively. Adjusted EBITDA excluding rent, or Adjusted EBITDAR, was $54.9 million and $59.0 million for the third quarters of 2016 and 2015, respectively. A reconciliation of loss from continuing operations determined in accordance with U.S. generally accepted accounting principles, or GAAP, to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the quarters ended September 30, 2016 and 2015 appears later in this press release.

Operating Results for the quarter ended September 30, 2016 (continuing operations):
  • Occupancy at owned and leased senior living communities for the third quarter of 2016 was 83.8%. For the quarter ended September 30, 2016, the calculation of occupancy includes only living units categorized as in service; occupancy calculations for periods prior to 2016 included certain living units categorized as out of service.
  • The average monthly rate at owned and leased senior living communities for the third quarter of 2016 increased 0.9% to $4,608 from $4,567 for the same period in 2015.
  • The percentage of revenue derived from residents' private resources at owned and leased senior living communities for the third quarter of 2016 increased 60 basis points to 78.6% from 78.0% for the same period in 2015.

Year to Date Financial Results:
  • Senior living revenue for the nine months ended September 30, 2016 increased 0.4% to $836.5 million from $832.8 million for the same period in 2015. Growth in senior living revenue was the result of increases in average monthly rates to residents who pay privately for services, a $1.0 million reversal in revenue reserves recorded in 2016 as a result of the final settlement amount with the United States Department of Health and Human Services Office of the Inspector General for the Compliance Assessment being less than the previously estimated amount, and a revenue reserve recorded in 2015 of $2.4 million related to the Compliance Assessment, partially offset by a decrease in occupancy at comparable senior living communities. Management fee revenue for the nine months ended September 30, 2016 increased by 12.8% to $9.0 million from $7.9 million for the same period in 2015. Growth in management fees was primarily due to the previously disclosed modifications to Five Star's management and pooling arrangements with SNH which took effect on July 1, 2016, an increase in the number of managed communities compared to the 2015 period and an increase in average monthly rates to private pay residents at comparable managed communities, partially offset by a decrease in occupancy at comparable managed communities.
  • Loss from continuing operations for the nine months ended September 30, 2016 was $16.1 million, or $0.33 per diluted share, compared to loss from continuing operations of $34.4 million, or $0.71 per diluted share, for the same period in 2015. Loss from continuing operations for the nine months ended September 30, 2016 included a $1.5 million, or $0.03 per diluted share, reversal in revenue reserves and accrued liability for estimated penalties related to the Compliance Assessment and a provision for income taxes of $2.8 million, or $0.06 per diluted share, resulting primarily from state tax expense related to the June 2016 sale and leaseback transaction with SNH. Five Star did not recognize any federal tax expense for the 2016 period because its federal taxable income and expense were offset by its federal net operating loss carry forwards and tax credit carry forwards. Loss from continuing operations for the nine months ended September 30, 2015 included a non-cash charge for goodwill impairment of $25.3 million, or $0.52 per diluted share, a revenue reserve of $2.4 million, or $0.05 per diluted share, and penalties, compliance costs and professional fees of $5.3 million, or $0.11 per diluted share, resulting primarily from the Compliance Assessment, partially offset by a gain on early extinguishment of debt of $0.7 million, or $0.01 per diluted share.
  • Net loss for the nine months ended September 30, 2016 was $16.2 million, or $0.33 per diluted share, compared to net loss of $36.7 million, or $0.76 per diluted share, for the same period in 2015.
  • EBITDA for the nine months ended September 30, 2016 was $18.8 million compared to $(6.6) million for the same period in 2015. Adjusted EBITDA was $19.3 million and $26.0 million for the nine months ended September 30, 2016 and 2015, respectively. Adjusted EBITDAR was $170.1 million and $175.0 million for the nine months ended September 30, 2016 and 2015, respectively. A reconciliation of loss from continuing operations determined in accordance with GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the nine months ended September 30, 2016 and 2015 appears later in this press release.

Acquisition and Disposition Activities:

In July 2016, Five Star began managing a senior living community SNH owns located in Alabama with 163 living units.

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