Five Star Books $74.1M Loss in 2018 as Viability Concerns Remain

Five Star Senior Living (Nasdaq: FVE) reported net losses for both the fourth quarter and fiscal 2018 amid uncertainty about its ability to continue as a going concern.

The losses came even as Five Star reported a slight uptick in occupancy in its service lines. The Newton, Mass.-based company operated 284 senior living communities in 32 states as of December 31, 2018; the communities — which consist of 208 owned or leased locations and 76 communities it managed — included 29 leased SNFs.

Five Star President and CEO Katherine Potter, who replaced Bruce Mackey at the end of December after serving as executive vice president and general counsel, maintained an upbeat tone on the company’s future, even as it reported a net loss of $23.7 million, or 47 cents per share, in the fourth quarter, and a net loss of $74.1 million, or $1.49 per share, for fiscal 2018.


“There is a strong foundation at Five Star, and we are well-positioned to capitalize on a number of opportunities as the senior living industry evolves,” she said in prepared remarks on the company’s fourth-quarter and year-end earnings call.

Five Star currently operates 260 senior living communities under lease and management agreements with Senior Housing Properties Trust (Nasdaq: SNH); these represent about 91.5% of the total communities operated by the company. Five Star’s independent directors and SNH’s independent trustees are assessing the agreements between the companies, with an eye toward a possible restructuring to help Five Star cope with its operating and liquidity challenges, Potter said.

“As a result, there may be changes to our agreements with SNH in the future,” she noted. “However, we cannot be sure that there will be any changes to our agreements to SNH, or whether Five Star will be able to continue as a going concern.”


Wage and benefit pressures had a major impact on the fourth quarter, with Five Star reporting a loss on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $12.9 million in the fourth quarter, compared with $2 million in the fourth quarter of last year. The increase in wages and benefits was primarily due to the use of contract labor and increased overtime costs, chief financial officer Rick Doyle said on the call.

“From a labor perspective, our main goal heading into 2019 is to decrease employee turnover and eliminate the use of contract labor,” Doyle said.

Five Star is currently evaluating options to refinance a credit facility that is scheduled to expire in June, but its ability to do that will likely depend on lenders’ faith that operations will improve, Doyle said.

The company announced some initiatives to try and turn its fortunes around this year, with a focus on employees. Management plans to work with marketing and information services company J.D. Power to expand the number of facilities that have received the latter’s senior living certification program; J.D. Power recognized three of Five Star’s senior living communities in February.

Another initiative involves enrolling all of Five Star’s facilities in its revenue management program, which is “used to continuously adjust pricing either up or down to match the demand for specific products in specific markets, with the goal of maximizing occupancy,” Potter said.

Occupancy has been a particular headache for Five Star throughout the year, but the company did see some upticks in the fourth quarter. Total occupancy rose 30 basis points from the year-ago period to 82.9%. Continuing care retirement communities (CCRCs) led the way, but all four segments — independent living, assisted living, CCRCs and skilled nursing — saw increases.

The company’s rehabilitation and wellness division, Ageility Physical Therapy Solutions, also showed promise, at least in terms of growth; revenue from this division increased 16% from the 2017 fourth quarter to $9.5 million in the fourth quarter. The group opened eight additional outpatient clinics in the quarter, three of which are not affiliated with existing Five Star buildings. The company operated a total of 128 outpatient clinics by the end of 2018, opening 36 last year.

“Our total externally contracted Ageility clinics was up to 18 by the end of the year, 12 of which opened in 2018,” Potter noted. “We continue to see high demand for this service amenity and will look to keep up the pace of new openings in 2019.”

Shares of Five Star closed at 98 cents on Wednesday.

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