Five Star Quality Care, Inc. Reports Third Quarter 2010 Results

NEWTON, Mass.--(BUSINESS WIRE)-- Five Star Quality Care, Inc. (NYSE Amex: FVE) today announced its financial results for the quarter and nine months ended September 30, 2010.

Third Quarter 2010 Financial Highlights:

  • Total revenues for the third quarter of 2010 increased 6.7% to $315.1 million from $295.3 million for the same period last year.
  • Income from continuing operations for the third quarter of 2010 was $5.6 million compared to $4.4 million for the same period last year.
  • Income per share from continuing operations for the third quarter of 2010 was $0.16 and $0.15 per share, basic and diluted, respectively compared to $0.13 per basic and diluted share for the same period last year.
  • Income from continuing operations for the third quarter of 2010 included a gain on early extinguishment of debt that resulted in a positive impact of $66,000 to our earnings, but had no impact on our earnings per share from continuing operations. Income from continuing operations for the third quarter of 2009 included several items that, in aggregate, resulted in a positive impact of $4.0 million, or $0.12 and $0.10 per share, basic and diluted, respectively, to our earnings.
  • Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the third quarter of 2010 was $10.1 million compared to $9.4 million for the same period last year. As discussed above: EBITDA for the third quarter of 2010 included a gain on early extinguishment of debt of $66,000; and EBITDA for the third quarter of 2009 had items that, in aggregate, had a positive impact of $4.0 million. EBITDA excluding these items was $10.0 million in the third quarter 2010 compared with $5.4 million for the same period last year.
  • 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 September 30, 2010 and 2009 appears later in this press release.

Third Quarter 2010 Operating Highlights (Senior Living Communities):

  • Senior living occupancy for the third quarter of 2010 was 86.2% compared to 86.4% for the same period last year and 86.2% for the second quarter of 2010.
  • Senior living average daily rate for the third quarter of 2010 increased by 2.7% to $148.40 from $144.54 in the same period last year.
  • The percentage of senior living revenues derived from private and sources other than Medicare and Medicaid for the third quarter of 2010 increased to 70.1% from 69.7% for the same period last year.
  • For those senior living communities that we have operated continuously since July 1, 2009 (comparable communities), occupancy for the third quarter of 2010 was 86.1% compared to 86.4% for the same period last year and 86.1% for the second quarter of 2010.
  • The average daily rate at comparable communities for the third quarter of 2010 increased by 2.9% to $148.80 from $144.54 in the same period last year.

Year to Date Financial Highlights:

  • Total revenues for the nine months ended September 30, 2010 increased 6.0% to $935.3 million from $882.5 million for the same period last year.
  • Income from continuing operations for the nine months ended September 30, 2010 was $18.2 million compared to income from continuing operations of $38.9 million for the same period last year.
  • Income per share from continuing operations for the nine months ended September 30, 2010 was $0.51 and $0.50, basic and diluted, respectively, compared to $1.18 and $1.06, basic and diluted, respectively, for the same period last year.
  • Income from continuing operations for the nine months ended September 30, 2010 included several items that, in aggregate, resulted in a positive impact of $626,000, or $0.02 per share, basic and diluted, to our earnings. These items were a $4.9 million unrealized gain on our holdings of auction rate securities and a $484,000 gain on early extinguishment of debt, offset by a $4.7 million unrealized loss on our UBS put right related to auction rate securities. Income from continuing operations for the nine months ended September 30, 2009 included several items that, in aggregate, resulted in a positive impact of $32.8 million, or $1.00 and $0.85 per share, basic and diluted, respectively. These items included a $34.3 million gain on early extinguishment of debt, and a $3.4 million unrealized gain on our holdings of auction rate securities and a $795,000 gain on sale of available for sale securities held by our captive insurance company, offset by a $2.9 million loss due to the impairment of our investments in certain marketable securities held by our captive insurance company and a $2.8 million unrealized loss on our UBS put right related to auction rate securities.
  • EBITDA for the nine months ended September 30, 2010 was $32.4 million compared to $54.4 million for the same period last year. As discussed above: EBITDA for the first nine months of 2010 had items that, in aggregate, resulted in a positive impact of $626,000; and EBITDA for the first nine months of 2009 had items that, in aggregate, resulted in a positive impact of $32.8 million. EBITDA excluding these items was $31.8 million for the first nine months of 2010 compared with $21.6 million for the same period last year.
  • A reconciliation of income from continuing operations determined in accordance with GAAP to EBITDA and EBITDA excluding certain items for the nine months ended September 30, 2010 and 2009 appears later in this press release.

Other Highlights:

During July 2010, we repaid one of our United States Department of Housing and Urban Development, or HUD, insured mortgage notes, with a principal balance of $4.5 million. As a result, we recorded a $134,000 prepayment penalty.

During July 2010, at our request, our landlord Senior Housing Properties Trust, or SNH, sold four skilled nursing facilities located in Nebraska with aggregate 196 living units that we leased from SNH and our rent to SNH decreased by approximately $145,000 per year.

During the nine months ended September 30, 2010, we purchased and retired $8.6 million par value of our outstanding convertible senior notes due in 2026 for $7.8 million, plus accrued interest, and recorded a $618,000 gain, net of related unamortized costs, on this early extinguishment of debt. This gain was partially offset by the $134,000 related to the penalty to prepay the HUD insured mortgage note.

On August 2, 2010, we commenced operations at a continuing care retirement community with a total of 110 independent, assisted living and skilled nursing units that we acquired from an unrelated party.

Conference Call:

On October 27, 2010 at 5:00 p.m. Eastern Time, Bruce J. Mackey Jr., President and Chief Executive Officer, and Paul V. Hoagland, Treasurer and Chief Financial Officer, will host a conference call to discuss the third quarter financial results. Following the Company’s remarks, there will be a question and answer period.

The conference call telephone number is (800) 230-1059. Participants calling from outside the United States and Canada should dial (612) 234-9960. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Daylight Time Wednesday, November 3, 2010. To hear the replay, dial (320) 365-3844. The replay pass code is 169582.

A live audio webcast of the conference call will also be available in a listen only mode on the Company’s web site at www.fivestarqualitycare.com. Participants wanting to access the webcast should visit the Company’s web site about five minutes before the call. The archived webcast will be available for replay on the Company’s web site for about one week after the call.

About Five Star Quality Care, Inc.:

Five Star Quality Care, Inc. is a senior living and healthcare services company. Five Star owns or leases and operates 214 senior living communities with 22,774 living units located in 30 states. These communities include independent living, assisted living and skilled nursing communities. Five Star also operates five institutional pharmacies and two rehabilitation hospitals. Five Star is headquartered in Newton, Massachusetts.

Supplemental Information, page 1 of 7

FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share data)
(unaudited)
       
Three months ended

September 30,

Nine months ended

September 30,

2010 2009   2010 2009  
Revenues:
Senior living revenue $ 270,024 $ 251,795 $ 801,585 $ 752,024
Rehabilitation hospital revenue 24,756 24,641 73,917 75,008
Institutional pharmacy revenue   20,280     18,868     59,770     55,418  
Total revenues   315,060     295,304     935,272     882,450  
 
Operating expenses:
Senior living wages and benefits 135,810 128,851 402,364 382,957
Other senior living operating expenses 65,573 62,427 191,545 182,881
Rehabilitation hospital expenses 22,579 22,363 68,196 68,011
Institutional pharmacy expenses 19,717 18,296 58,223 54,957
Rent expense 47,628 44,468 142,162 132,929
General and administrative 13,751 13,465 40,975 38,914
Depreciation and amortization   4,248     3,993     12,495     12,415  
Total operating expenses   309,306     293,863     915,960     873,064  
 
Operating income 5,754 1,441 19,312 9,386
 
Interest, dividend and other income 322 479 1,623 2,394
Interest and other expense (690 ) (964 ) (2,388 ) (3,390 )
Gain (loss) on investments in trading securities - (238 ) 4,856 3,473
(Loss) gain on UBS put right related to

auction rate securities

- 455 (4,714 ) (2,832 )
Equity in income (losses) of Affiliates Insurance

Company

35 (23 ) (17 ) (132 )
Gain on early extinguishment of debt 66 3,031 484 34,262
Gain on sale of available for sale securities - 795 - 795
Impairment of investments in available for

sale securities

  -     -     -     (2,947 )
 
Income from continuing operations before

income taxes

5,487 4,976 19,156 41,009
Benefit (provision) for income taxes   123     (565 )   (930 )   (2,074 )
Income from continuing operations 5,610 4,411 18,226 38,935
Loss from discontinued operations   (452 )   (303 )   (830 )   (877 )
 
Net income $ 5,158   $ 4,108   $ 17,396   $ 38,058  
 
 
Weighted average shares outstanding - basic   35,724     34,219     35,698     32,890  
 
Weighted average shares outstanding - diluted   38,937     38,835     39,302     38,554  
 
Basic income per share from:
Continuing operations $ 0.16 $ 0.13 $ 0.51 $ 1.18
Discontinued operations   (0.01 )   (0.01 )   (0.02 )   (0.03 )
Net income per share - basic $ 0.15   $ 0.12   $ 0.49   $ 1.15  
 
Diluted income per share from:
Continuing operations $ 0.15 $ 0.13 $ 0.50 $ 1.06
Discontinued operations   (0.01 )   (0.01 )   (0.02 )   (0.02 )
Net income per share - diluted $ 0.14   $ 0.12   $ 0.48   $ 1.04  
 

Supplemental Information, page 2 of 7

  FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(in thousands, except share data)
(unaudited)
   
September 30,

2010

December 31,

2009

Assets
Current assets:
Cash and cash equivalents $ 36,709 $ 5,017
Accounts receivable, net of allowance 62,492 61,418
Investments in trading securities - 65,961
Investments in available for sale securities 12,323 11,893
Restricted cash 6,465 7,597
UBS put right related to auction rate securities - 8,322
Prepaid expenses and other current assets     18,586   20,162
Total current assets 136,575 180,370
 
Property and equipment, net 208,955 192,742
Equity investment in Affiliates Insurance Company 5,058 5,000
Restricted cash and investments 17,005 14,670
Goodwill and other long term assets     20,098   20,318
Total assets $   387,691 $ 413,100
 
Liabilities and Shareholders' Equity
Total current liabilities 141,019 178,204
 
Mortgage notes payable 7,724 12,284
Convertible senior notes 41,065 49,707
Other long term liabilities 38,543 33,590
Shareholders’ equity (35,723,814 and 35,668,814 shares issued

and outstanding at September 30, 2010 and December 31, 2009)

    159,340   139,315
$   387,691 $ 413,100
 

Supplemental Information, page 3 of 7

FIVE STAR QUALITY CARE, INC.
SENIOR LIVING COMMUNITY OPERATING DATA(1)
(dollars in thousands, except average daily rate)
         
 
Three months ended Nine months ended
  September 30, September 30,
2010 2009 2010 2009
 
Number of communities (end of period) 214 202 214 202
Number of living units (end of period) 22,774 21,722 22,774 21,722
Number of living units % growth 4.8 % 4.8 %
 
Occupancy 86.2 % 86.4 % 86.3 % 86.6 %
Average daily rate (ADR) $ 148.40 $ 144.54 $ 148.71 $ 145.24
ADR % growth 2.7 % 2.4 %
 
Percent breakdown of net senior living revenues:
Medicaid 16.1 % 16.2 % 15.7 % 16.0 %
Medicare 13.8 % 14.1 % 14.1 % 14.5 %
Private and other sources   70.1 %   69.7 %   70.2 %   69.5 %
Total   100.0 %   100.0 %   100.0 %   100.0 %
 
Senior living revenues $ 270,024 $ 251,795 $ 801,585 $ 752,024
Senior living revenues % growth 7.2 % 6.6 %
 
Senior living wages and benefits $ 135,810 $ 128,851 $ 402,364 $ 382,957
Senior living wages and benefits as a % of senior living

revenues

50.3 % 51.2 % 50.2 % 50.9 %
Other senior living operating expenses $ 65,573 $ 62,427 $ 191,545 $ 182,881
Other senior living operating expenses as a % of senior

living revenues

24.3 % 24.8 % 23.9 % 24.3 %
Community expenses(2)% growth 5.3 % 5.0 %
 

(1) Excludes data for institutional pharmacy, rehabilitation hospital operations and discontinued senior living operations.

(2) Community expenses equal senior living wages and benefits and other senior living operating expenses as shown on our consolidated statement of income.

 

 

Supplemental Information, page 4 of 7

FIVE STAR QUALITY CARE, INC.
COMPARABLE SENIOR LIVING COMMUNITY OPERATING DATA(1)
(dollars in thousands, except average daily rate)
           
Three months ended Nine months ended
September 30,(2) September 30,(3)
2010 2009 2010 2009
 
Number of communities (end of period) 202 202 202 202
Number of living units (end of period) 21,722 21,722 21,722 21,722
 
Occupancy

86.1%

 

86.4%

 

86.1%

 

86.6%

 

Average daily rate (ADR) $ 148.80 $ 144.54 $ 148.96 $ 145.24
ADR % growth

2.9%

 

2.6%

 

 
Percent breakdown of net senior living revenues:
Medicaid

16.4%

 

16.2%

 

16.0%

 

16.0%

 

Medicare

14.2%

 

14.1%

 

14.5%

 

14.5%

 

Private and other sources  

69.4%

 

 

69.7%

 

 

69.5%

 

 

69.5%

 

Total

 

100.0%

 

 

100.0%

 

 

100.0%

 

 

100.0%

 

 
Senior living revenues $ 258,439 $ 251,795 $ 767,976 $ 752,024
Senior living revenues % growth

2.6%

 

2.1%

 

 
Senior living wages and benefits $ 129,994 $ 128,851 $ 385,536 $ 382,957
Senior living wages and benefits as a % of senior living

revenues

50.3%

 

51.2%

 

50.2%

 

50.9%

 

Other senior living operating expenses $ 62,912 $ 62,427 $ 184,024 $ 182,881
Other senior living operating expenses as a % of senior living

revenues

24.3%

 

24.8%

 

24.0%

 

24.3%

 

Community expenses(4)% growth

0.9%

 

0.7%

 

 
 
(1)Excludes data for institutional pharmacy, rehabilitation hospital operations and discontinued senior living operations.
(2)Communities that we have operated continuously since July 1, 2009.
(3)Communities that we have operated continuously since January 1, 2009.

(4)Community expenses equal senior living wages and benefits and other senior living operating expenses as shown on our consolidated statement of income.

 

Supplemental Information, page 5 of 7

FIVE STAR QUALITY CARE, INC.
SENIOR LIVING COMMUNITY FINANCIAL DATA(1)
(dollars in thousands, except average daily rate)
         
Three months ended Nine months ended
  September 30, September 30,
  2010   2009 2010 2009
 
Independent and assisted living community revenue(2) $ 204,234 $ 187,538 $ 607,921 $ 558,787
Skilled nursing facility revenue   65,790   64,257   193,664   193,237
Total senior living revenue $ 270,024 $ 251,795 $ 801,585 $ 752,024
 
Independent and assisted living community wages and benefits $ 94,197 $ 87,391 $ 278,147 $ 257,966
Skilled nursing facility wages and benefits   41,613   41,460   124,217   124,991
Total senior living wages and benefits $ 135,810 $ 128,851 $ 402,364 $ 382,957
 
Independent and assisted living community operating expenses $ 49,475 $ 46,663 $ 145,162 $ 136,753
Skilled nursing facility operating expenses   16,098   15,764   46,383   46,128
Total other senior living operating expenses $ 65,573 $ 62,427 $ 191,545 $ 182,881
 
(1)Excludes data for discontinued senior living operations.
(2)Includes rehabilitation and other specialty service revenues provided at residential facilities and expenses associated with our captive

insurance company.

                           
 
COMPARABLE SENIOR LIVING COMMUNITY FINANCIAL DATA(1)
 
Three months ended Nine months ended
  September 30,(3) September 30,(4)
  2010   2009 2010 2009
 
Independent and assisted living community revenue(2) $ 192,649 $ 187,538 $ 574,312 $ 558,787
Skilled nursing facility revenue   65,790   64,257   193,664   193,237
Total senior living revenue $ 258,439 $ 251,795 $ 767,976 $ 752,024
 
Independent and assisted living community wages and benefits $ 88,381 $ 87,391 $ 261,319 $ 257,966
Skilled nursing facility wages and benefits   41,613   41,460   124,217   124,991

Total senior living wages and benefits

$ 129,994 $ 128,851 $ 385,536 $ 382,957
 
Independent and assisted living community operating expenses $ 46,814 $ 46,663 $ 137,641 $ 136,753
Skilled nursing facility operating expenses   16,098   15,764   46,383   46,128
Total other senior living operating expenses $ 62,912 $ 62,427 $ 184,024 $ 182,881
 
(1)Excludes data for discontinued senior living operations.

(2)Includes rehabilitation and other specialty service revenues provided at residential facilities and expenses associated with our captive
insurance company.

 

(3)Communities that we have continuously operated since July 1, 2009.
(4)Communities that we have continuously operated since January 1, 2009.
 

Supplemental Information, page 6 of 7

FIVE STAR QUALITY CARE, INC.
OTHER OPERATING DATA(1)
(dollars in thousands, except average daily rate)
         
Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
Number of senior living communities(2)(end of period):
Assisted and independent living communities, owned 24 23 24 23
Assisted and independent living communities, leased   147     136     147     136  
Total number of assisted and independent living communities   171     159     171     159  
 
 
Skilled nursing communities, owned 2 2 2 2
Skilled nursing communities, leased   41     41     41     41  
Total number of skilled nursing communities   43     43     43     43  
 
Total number of senior living communities   214     202     214     202  
 
Number of senior living units (end of period):
Assisted and independent living communities, owned 2,077 1,967 2,077 1,967
Assisted and independent living communities, leased(3)   16,645     15,703     16,645     15,703  
Total number of assisted and independent living units   18,722     17,670     18,722     17,670  
 
Skilled nursing communities, owned 271 271 271 271
Skilled nursing communities, leased(4)   3,781     3,781     3,781     3,781  
Total number of skilled nursing units   4,052     4,052     4,052     4,052  
 
Total number of senior living units   22,774     21,722     22,774     21,722  
 
Senior living revenues:
Assisted and independent living communities $ 201,729 $ 185,405 $ 600,824 $ 552,791
Skilled nursing communities 65,790 64,257 193,664 193,237
Other(5)   2,505     2,133     7,097     5,996  
Total senior living revenues $ 270,024   $ 251,795   $ 801,585   $ 752,024  
 
 
Senior living data:
Assisted and independent living communities occupancy 86.4 % 86.4 % 86.6 % 86.5 %
Assisted and independent living communities ADR $ 135.76 $ 131.98 $ 136.42 $ 132.43
Assisted and independent living communities ADR % growth 2.9 % 3.0 %
 
Skilled nursing communities occupancy 85.0 % 86.5 % 84.8 % 87.0 %
Skilled nursing communities ADR $ 207.70 $ 199.26 $ 206.45 $ 200.86
Skilled nursing communities ADR % growth 4.2 % 2.8 %
 
Rehabilitation hospital data:
Rehabilitation hospital units 321 321 321 321
Rehabilitation hospital occupancy 54.8 % 58.6 % 54.8 % 60.5 %
 
(1)Excludes data for institutional pharmacy operations and discontinued senior living operations.

(2)Communities are categorized by the type of living units which constitute a majority of the total living units at the community.

(3)Includes 2,025 and 1,885 skilled nursing units in communities where assisted living and independent living services are the predominant services

provided for the three and nine months ended September 30, 2010 and 2009, respectively.

(4)Includes 95 assisted living and independent living units in communities where skilled nursing services are the predominant services provided for the three and nine months ended September 30, 2010 and 2009.

 

(5)Other senior living revenues relates primarily to rehabilitation and other specialty service revenues provided at residential facilities and does not include revenues from institutional pharmacy or rehabilitation hospital operations.

 

 

Supplemental Information, page 7 of 7

FIVE STAR QUALITY CARE, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands, except per share data)

The reconciliation of income from continuing operations to earnings before interest, taxes, depreciation and amortization, or EBITDA, and EBITDA excluding certain items for the three and nine months ended September 30, 2010 is below. EBITDA and EBITDA excluding certain items are not financial measures determined according to U.S. generally accepted accounting principles, or GAAP. We consider EBITDA and EBITDA excluding certain items to be a meaningful disclosure because we believe that the inclusion of these non-GAAP financial measures may help investors to gain a better understanding of changes in our core operating results, and may also help investors who wish to make comparisons between us and other companies on both a GAAP and a non-GAAP basis. EBITDA and EBITDA excluding certain items as presented may not, however, always be comparable to amounts calculated by other companies. These non-GAAP financial measures are used by management to evaluate financial performance and resource allocation for our communities and for us as a whole and for comparing such performance to that of prior periods and to the performance of our competitors. This information should not be considered as an alternative to net income or any other financial operating or performance measure established by GAAP.

For the three months   For the nine months
ended September 30, ended September 30,
2010     2009   2010     2009
Income from continuing operations $ 5,610 $ 4,411 $ 18,226 $ 38,935
Add: interest and other expense 690 964 2,388 3,390
Add: income tax expense - 565 930 2,074
Add: depreciation and amortization 4,248 3,993 12,495 12,415
Less: income tax benefit (123 ) - - -
Less: interest, dividend and other income   (322 )   (479 )   (1,623 )   (2,394 )
EBITDA 10,103 9,454 32,416 54,420
Add: impairment of certain investments - - - 2,947
Add: unrealized loss on investments in trading

securities

- 238 - -
Add: unrealized loss on UBS put right related to

auction rate securities

- - 4,714 2,832
Less: unrealized gain on investments in trading

securities

- - (4,856 ) (3,473 )
Less: unrealized gain on UBS put right related

to auction rate securities

- (455 ) - -
Less: gain on sale of investments in available for

sale securities

- (795 ) - (795 )
Less: gain on early extinguishment of debt   (66 )   (3,031 )   (484 )   (34,262 )
EBITDA excluding certain items $ 10,037   $ 5,411   $ 31,790   $ 21,669  



CONTACT:

Five Star Quality Care, Inc.
Timothy A. Bonang, 617-796-8245
Vice President, Investor Relations
or
Elisabeth A. Heiss
Manager, Investor Relations
www.fivestarseniorliving.com

KEYWORDS:   United States  North America  Massachusetts

INDUSTRY KEYWORDS:   Seniors  Building Systems  Health  Hospitals  Other Health  Professional Services  REIT  Banking  Finance  Construction & Property  Commercial Building & Real Estate  Consumer  General Health

MEDIA:

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