Net Income for Five Star Quality Care Plummets 91% in Q1 to $369,000

Nursing home operator Five Star Quality Care, Inc. (NYSE:FVE) saw its net income plunge 91% in the first quarter ended March 31, 2012 to $369,000, compared to $4.1 million in the same period last year, due in part to Medicare reimbursement cuts that went into effect in October 2011. This represents a net income per diluted share of $0.01, down from $0.11 in the same quarter of 2011.

Income from continuing operations dropped to $746,000, a substantial decrease from 2011’s $5.9 million.

Revenues increased 13% to $346.1 million, derived mostly from senior living revenues totaling $276.2 million. Total operating expenses, at $343.6 million, rose 14% to $343.6 million. 


Five Star Quality Care added 13 communities to its leased and owned portfolio compared to the first quarter of 2011, bringing its number of units to 23,765. This represents a 7.2% growth, but the company hasn’t seen as many acquisition opportunities so far in 2012. 

“Compared to last year, our asset pipeline has been relatively slow,” said Bruce Mackey, Five Star’s president and CEO, during the first quarter earnings call. “As we haven’t seen many opportunities that fit our acquisition strategy which to remind you is focused on stabilized, well run, private pay senior living communities in areas where we have a geographic strength of operations.”

Occupancy rose 30 basis points to 85.9% in the first quarter of 2012 compared to the previous year, but was down 30 basis points from the previous quarter. However, based on data from the National Investment Center for the Seniors Housing & Care Industry (NIC), Five Star believes the upside potential for both itself and the industry is “compelling.” 


The operator’s senior living portfolio is mainly private pay, which represents 74.5% of its payor mix, while the remaining 25.5% of senior living revenue comes from Medicare and Medicaid. The Medicare portion decreased from 16% of revenues in 2011 to 13% in 2012. 

From its senior living portfolio, Five Star Quality Care got most of its revenue from its independent and assisted living communities, compared to its skilled nursing properties, at $223.1 million and $53.1 million, respectively. 

The company leases a majority of its assisted and independent living properties and all of its skilled nursing properties, but seeks to make strategic acquisitions when the opportunity arises, particularly for private pay communities. 

“Having experienced a significantly negative impact from the 11% skilled nursing Medicare rate reduction along with the industry, we’ve made up for most of the estimated $16 to $17 million of lost EBITDA to our growth,” said Paul Hoaglund, CFO, during the earnings call. “We disclosed on a new $150 million revolving credit facility which we will use to continue to increase our private payments.”

View the first quarter earnings report.

Written by Alyssa Gerace

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