Five Star Weighs Options as Financial, Operational Challenges Mount

Five Star Senior Living (Nasdaq: FVE) is considering a wide range of options to help it weather ongoing operational and financial woes.

The Newton, Massachusetts-based senior living provider needs to pursue a plan of action regarding projected cash needs for the year ahead, Five Star President and CEO Bruce Mackey said on a third-quarter earnings call Wednesday. Specifically, that means increasing revenues, reducing costs or pursuing other deals to fund the company’s operating and capital requirements and meet its debt obligations.

“There are conditions that raise substantial doubt about our ability to continue as a going concern,” Mackey said. “We do have options available to us to raise capital based on the strength of our balance sheet, including selling some of the senior living communities that we own.”


Five Star as of Sept. 30 owned, leased or managed 283 senior housing communities in 32 states. That total includes independent living and assisted living communities, continuing care retirement communities (CCRCs) and skilled nursing facilities (SNFs). Five Star is the No. 4 largest senior housing operator in the country by unit count, according to recent data from industry association Argentum.

Five Star is currently in preliminary discussions with its primary senior living community landlord, Senior Housing Properties Trust (NYSE: SNH), to find new ways to improve its long-term stability. But, those discussions may or may not bear fruit, Mackey noted. Whatever the case, the company must find a way to right the ship, he said.

“Despite having some success with recently implemented growth strategies, the impact of these strategies has not been enough to significantly improve our near-term financial performance,” Mackey said on Wednesday’s call. “We recognize that more needs to be done.”


Five Star’s management is also grappling with a cratering share value. The operator’s stock price averaged less than $1 per share over the most recent 30-day trading period this quarter, threatening its continued listing on Nasdaq.

“Five Star’s low share price has been a reflection of our low public float, coupled with industry headwinds and our resulting financial performance,” Mackey said on Wednesday’s call.

The company has at most 360 days to regain compliance by meeting or exceeding a $1 per common share price for a minimum of 10 consecutive business days.

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Five Star’s share price fell roughly 31% to 44 cents by the time the markets closed Wednesday.

Challenging quarter

Ongoing operational and financial woes have put a damper on Five Star’s bottom line this year. In particular, fierce memory care competition and skilled nursing woes have stymied revenue growth and helped lead to net losses in previous quarters.

The operator’s senior living revenue shrank to $272.7 million for the third quarter of 2018, a 2.5% decrease from its reported $279.7 million for the third quarter last year — though that decrease was partially due to the sale of six senior living communities and one SNF in the past year or so, the company said.

Specifically, Five Star saw a 1.7% decrease in skilled nursing revenue, a 5.2% decrease in memory care revenue and a 1.5% increase in independent living revenue compared with the previous year’s third-quarter results.

Occupancy at Five Star’s owned and leased senior living communities was 82% for the third quarter of 2018, a 100-basis-point decrease from the 83% occupancy rate it logged during the same period in 2017. Skilled nursing was again the hardest-hit segment of the operator’s portfolio this quarter, with occupancy at Five Star’s leased SNFs falling 320 basis points, year-over-year, to 76.9% — and similar trends are playing out in the operator’s CCRC skilled nursing units, Mackey said.

“It is an ongoing initiative of ours to recognize and serve the ongoing demand changes in our markets,” he explained. “Accordingly, we are evaluating all of our skilled units within our CCRCs and examining the feasibility or profitability of repurposing some or all of these units.”

Memory care also continues to be a sore spot for the operator this quarter, with revenues down $1.4 million on a comparable-community basis compared to the same quarter last year. But, some of that lost ground was made up by rate increases in the operator’s independent living segment.

Overall, the operator posted a net loss of $21.6 million for the third quarter of 2018, compared to a net loss of only $6.6 million for the third quarter of 2017.

Bright spots

Despite difficulties elsewhere, Five Star’s burgeoning Ageility Physical Therapy Solutions rehab and wellness division continues to expand.

Ageility revenues for the third quarter were $8.6 million, representing a $1 million increase compared with the third quarter of 2017. Ageility services were added to nine new outpatients clinics during that period, bringing Five Star’s grand total to 120 outpatient clinics nationwide.

“We continue to see high demand for the service amenity and look to add more outpatient clinics to our platform,” Mackey said.

Five Star is also seeing success with its new revenue management program, which was used by 135 — or just over half — of its private-pay communities at the end of October. If all goes according to plan, the operator should have all of its communities using the program by the end of the first quarter of 2019.

And, in November, Five Star took over management a 238-unit senior living community owned by Senior Housing Properties Trust in Colorado. The private-pay community should generate approximately $400,000 of additional annual maintenance fee revenues for the operator going forward.

Written by Tim Regan

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