After Restructuring, Five Star Posts First Quarterly Profit Since 2013

Five Star Senior Living (Nasdaq: FVE) has regained financial stability and is driving forward with operational initiatives.

After posting a $33.2 million net loss in the first quarter of 2019, the Newton, Massachusetts-based senior living provider on Wednesday reported $4.2 million of net income in the second quarter, spurred by the completion of several transactions involving Senior Housing Properties Trust (Nasdaq: SNH) including a rent reduction, a new credit facility, a lease restructuring and sales of underperforming assets.

It was the first quarterly profit recorded by Five Star since the second quarter of 2013 and another sign that steps to restructure the company are taking root, CEO Katie Potter said during a Wednesday morning earnings call.


“There is no longer doubt that Five Star Senior Living will continue as a going concern,” she said.

Five Star is one of the nation’s largest senior living providers, with a portfolio of about 205 communities.

Positive movement

Five Star posted $274.5 million in revenues in Q2, a 1.3% increase over the same period last year, which Potter attributed to increases in occupancy and average monthly rates for residents who pay privately for services, as well as increases in revenues attributable to ancillary services, such as rehabilitation and wellness services.


Occupancy was 83% in Q2, a 160 basis point increase over the same period in 2018 and up 10 basis points from the previous quarter.

Average monthly rates increased 0.8% to $4,745 from $4,709, and the percentage of revenue derived from residents’ private resources at owned and leased senior living communities was 79.1% compared to 78.0% in Q2 2018.

Five Star’s expenses remained elevated in the second quarter, which Potter noted was by design as part of the company’s reinvestment in talent. Total wages and benefits increased 3.2% year-over-year to $145.2 million, and Five Star hired 19 new executive directors for its communities during the earnings period.

“We invested in our team members through increases in base pay and are already benefiting from this investment, through talented new hires,” she said.

Ageility, Five Star’s rehab and wellness division, continued to post strong numbers, which Potter attributed to capitalizing on growth opportunities in the 55-plus active adult market. The service line generated $11.1 million in revenue in the quarter, a 27% increase year-over-year. Five Star opened five new Ageility clinics in Q2, keeping the company on target for its goal of 30 new clinics in 2019.

Five Star also made solid strides in getting its communities certified through J.D. Power’s senior living certification program. Seventeen communities earned the certification in the second quarter, bringing the total number of Five Star properties with the designation to 22.

Success tied to Senior Housing Properties Trust

The foundation of Five Star’s success in the quarter can be traced back to its evolving relationship with SNH.

In April, the two companies agreed to a restructured lease and ownership agreement which included a rent reduction and a new credit facility. The agreement, which takes effect in January 2020, will increase SNH’s ownership stake in Five Star to 34.9%, and allow the provider to regain its footing after an extended period of operational troubles that weighed down the company’s bottom line and threatened the company from being delisted from Nasdaq.

When the new agreement takes effect, SNH shareholders will receive common shares in Five Star, so that all told, the REIT and its investors will maintain an 85% ownership stake in the provider. The deal was approved by Five Star’s board of directors.

SNH bought $50 million in unencumbered fixed assets from Five Star in April, and extended a $25 million line of credit to the provider, secured by six communities. The provider assumed operations for a 318-unit senior housing community in Oregon on behalf of SNH.

In non-SNH transactions, Five Star secured a $65 million revolving credit facility in June, announced a 1:10 reverse split of issued and outstanding shares of common stock before Sept. 30, which Potter believes will allow the company to regain compliance with Nasdaq listing standards.

On Tuesday, Five Star announced the hiring of Margaret Wigglesworth as Senior Vice President and COO, effective Aug. 12. Wigglesworth, who was most recently executive vice president of the International Council of Shopping Centers (ICSC), replaces Scott Herzig, who left the company Dec. 12, 2018.

Potter cited Wigglesworth’s hire as an example of Five Star reinvesting in its team members.

“Margaret is uniquely qualified to drive strategic prioritization and accountability within Five Star to achieve operational excellence. She joins an energetic and motivated team at the ideal time to capitalize on a number of opportunities as the senior living industry evolves,” she said.

Five Star stock increased nearly 14% in trading Wednesday, to $0.55 per share.

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