Five Star Quality Care, Inc. Announces Fourth Quarter and Year End 2016 Results and Corporate Name Change to Five Star Senior Living Inc.

Five Star Senior Living Inc. (Nasdaq: FVE) today announced its financial results for the quarter and year ended December 31, 2016.

Bruce Mackey, President and Chief Executive Officer of Five Star, made the following statement:

“During the quarter, we continued to make progress with our operating initiatives that are intended to improve occupancy, ancillary revenues and cash flows from our senior living communities. Despite the recent increased amount of competition in the senior living industry, we are pleased that our occupancy rate remained stable between the third and fourth quarters of 2016. Also during the quarter, we began operating seven new senior living communities with a combined 521 living units. Subsequent to the quarter's end, we entered into a new $100 million secured revolving credit facility which replaced our prior facility that was scheduled to expire in April 2017. This new credit facility adds liquidity to our already conservative balance sheet.

“In addition, we are pleased to announce we have changed our name to Five Star Senior Living Inc. In 2001 we started the company with a focus on clinical care, but we have evolved into a full service healthcare, hospitality and senior lifestyle services company. Our new name helps bring alignment to our evolved business.”

Financial Results for the quarter ended December 31, 2016:

• Senior living revenue for the fourth quarter of 2016 decreased 0.8% to $279.0 million from $281.2 million for 2015. The decline in senior living revenue is a result of decreases in occupancy, partially offset by an increase in average monthly rates to residents who pay privately for services. Management fee revenue for the fourth quarter of 2016 increased 21.7% to $3.4 million from $2.8 million for 2015. Growth in management fees was primarily due to the previously disclosed modifications to Five Star's management and pooling arrangements with Senior Housing Properties Trust, or SNH, that became effective on July 1, 2016 and to an increase in the number of Five Star's managed communities compared to 2015.
• Loss from continuing operations for the fourth quarter of 2016 was $6.0 million, or $0.12 per diluted share, compared to loss from continuing operations of $6.3 million, or $0.13 per diluted share, for 2015. Loss from continuing operations for the fourth quarter of 2016 included benefits from income taxes of $0.5 million, or $0.01 per diluted share, related to a reduction of previously accrued estimated state tax expense. Loss from continuing operations for the fourth quarter of 2015 included the previously disclosed litigation settlement charge of $4.2 million, or $0.09 per diluted share, and employee termination costs of $0.9 million, or $0.02 per diluted share.
• Net loss for the fourth quarter of 2016 was $5.6 million, or $0.11 per diluted share, compared to net loss of $6.4 million, or $0.13 per diluted share, for 2015. Net loss for the fourth quarter of 2016 included income from discontinued operations of $0.3 million. As of December 31, 2016, we have no senior living communities classified as held for sale.
• Earnings from continuing operations before interest, taxes, depreciation and amortization, or EBITDA, for the fourth quarter of 2016 was $3.5 million compared to $4.2 million for 2015. EBITDA, excluding certain items noted in the supplemental information provided below, or Adjusted EBITDA, was $3.5 million and $9.5 million for the fourth quarters of 2016 and 2015, respectively. A reconciliation of loss from continuing operations determined in accordance with U.S. generally accepted accounting principles, or GAAP, to EBITDA and Adjusted EBITDA for the quarters ended December 31, 2016 and 2015 appears later in this press release.

Operating Results for the quarter ended December 31, 2016:

• Occupancy at owned and leased senior living communities for the fourth quarter of 2016 was 83.9%. For the quarter ended December 31, 2016, the calculation of occupancy includes only living units categorized as in service; occupancy calculations for periods prior to 2016 included certain living units categorized as out of service.
• The average monthly rate at owned and leased senior living communities for the fourth quarter of 2016 increased 1.4% to $4,639 from $4,577 for 2015.
• The percentage of revenue derived from residents’ private resources at owned and leased senior living communities for the fourth quarter of 2016 decreased 40 basis points to 77.6% from 78.0% for 2015.

Financial Results for the year ended December 31, 2016:

• Senior living revenue for the year ended December 31, 2016 increased 0.1% to $1.12 billion from $1.11 billion for 2015. Growth in senior living revenue was the result of increases in average monthly rates to residents who pay privately for services, a $1.0 million reversal in revenue reserves recorded in 2016 as a result of the final settlement amount with the U.S. Department of Health and Human Services Office of the Inspector General resulting from the previously disclosed Medicare compliance assessment at one of Five Star's skilled nursing facilities, or the Compliance Assessment, being less than the previously estimated amount, a revenue reserve recorded in 2015 of $2.4 million related to the Compliance Assessment and the acquisition of two senior living communities during the fourth quarter of 2015, partially offset by a decrease in occupancy at comparable senior living communities. Management fee revenue for the year ended December 31, 2016 increased by 15.1% to $12.4 million from $10.7 million for 2015. Growth in management fees was primarily due to the previously disclosed modifications to Five Star's management and pooling arrangements with SNH that became effective on July 1, 2016 and to an increase in the number of Five Star's managed communities compared to 2015.
• Loss from continuing operations for the year ended December 31, 2016 was $22.0 million, or $0.45 per diluted share, compared to loss from continuing operations of $40.8 million, or $0.84 per diluted share, for 2015. Loss from continuing operations for the year ended December 31, 2016 included a $1.5 million, or $0.03 per diluted share, reversal in revenue reserves and accrued liability for estimated penalties related to the Compliance Assessment and a provision for income taxes of $2.4 million, or $0.05 per diluted share, resulting primarily from state tax expense. Loss from continuing operations for the year ended December 31, 2015 included a non-cash charge for goodwill impairment of $25.3 million, or $0.52 per diluted share, a revenue reserve of $2.4 million, or $0.05 per diluted share, and penalties, compliance costs and professional fees of $4.8 million, or $0.10 per diluted share, resulting primarily from the Compliance Assessment, a previously disclosed litigation settlement charge of $4.2 million, or $0.09 per diluted share, and employee termination costs of $0.9 million, or $0.02 per diluted share, partially offset by a gain on early extinguishment of debt of $0.7 million, or $0.01 per diluted share.
• Net loss for the year ended December 31, 2016 was $21.8 million, or $0.45 per diluted share, compared to net loss of $43.1 million, or $0.89 per diluted share, for 2015. Net loss for the years ended December 31, 2016 and 2015 included income from discontinued operations of $0.2 million and loss from discontinued operations of $2.3 million, respectively.
• EBITDA for the year ended December 31, 2016 was $22.3 million compared to negative $2.3 million for 2015. Adjusted EBITDA was $22.8 million and $35.5 million for the years ended December 31, 2016 and 2015, respectively. A reconciliation of loss from continuing operations determined in accordance with GAAP to EBITDA and Adjusted EBITDA for the years ended December 31, 2016 and 2015 appears later in this press release.

Expansion and Disposition Activities:

In October 2016, Five Star entered into an agreement to acquire an assisted living community, located in Illinois, with 63 living units for $7.9 million. Five Star terminated this agreement during the fourth quarter of 2016.

In December 2016, Five Star began leasing from SNH two senior living communities that SNH acquired, located in Illinois, with a combined 126 living units. These communities were added to one of Five Star's leases with SNH and Five Star's annual rent payable to SNH increased by $1.4 million in accordance with the terms of that lease.

In December 2016, Five Star began managing for the account of SNH five senior living communities that SNH owns, located in Georgia, with a combined 395 living units. Five Star and SNH entered into management agreements for each of these communities on terms substantially similar to those of existing management agreements between Five Star and SNH, and these management agreements were added to existing or new pooling agreements between Five Star and SNH.

Financing Activities:

In February 2017, Five Star entered into a new $100 million secured revolving credit facility with terms substantially similar to those of its previously existing secured revolving credit facility, which the new facility replaced. The new credit facility matures in February 2020, and, subject to Five Star’s payment of extension fees and meeting other conditions, Five Star has options to extend the stated maturity date of the new credit facility for two, one year periods. Five Star pays interest on borrowings under the new credit facility at an annual rate of LIBOR plus a premium of 250 basis points. The new credit facility is secured by real estate mortgages on 10 senior living communities with a combined 1,219 living units owned by Five Star's guarantor subsidiaries and those guarantor subsidiaries’ accounts receivable and related collateral.

Other:

Effective March 3, 2017, Five Star changed its name from “Five Star Quality Care, Inc.” to “Five Star Senior Living Inc.” This name change reflects Five Star's current business focus on not just providing high quality clinical care but also providing hospitality, various amenities and personalized services to enhance the lifestyle of its residents. Five Star's common shares will continue to trade on The NASDAQ Stock Market LLC under the symbol "FVE".

Conference Call:

On March 3, 2017, at 10:00 a.m. Eastern Time, Five Star will host a conference call to discuss its fourth quarter and full year 2016 results. Following management’s presentation, there will be a question and answer period.

The conference call telephone number is (877) 329-4332. Participants calling from outside the United States and Canada should dial (412) 317-5436. 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 Time on Thursday, March 9, 2017. To hear the replay, dial (412) 317-0088. The replay pass code is 10099970.

A live audio webcast of the conference call will also be available in a listen only mode on Five Star’s website at www.fivestarseniorliving.com. Participants wanting to access the webcast should visit Five Star’s website about five minutes before the call. The archived webcast will be available for replay on Five Star’s website for about one week after the call. The transcription, recording and retransmission in any way ofFive Star’s fourth quarter 2016 conference callare strictly prohibited without the prior written consent ofFive Star. Five Star’s website is not incorporated as part of this press release.

About Five Star Senior Living Inc.:

Five Star Senior Living Inc. is a senior living and healthcare services company. As of December 31, 2016, Five Star operated 283 senior living communities with 31,830 living units located in 32 states, including 215 communities (23,042 living units) that it owned or leased and 68 communities (8,788 living units) that it managed. These communities include independent living, assisted living, continuing care retirement communities and skilled nursing communities. Five Star is headquartered in Newton, Massachusetts.

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FIVE STAR SENIOR LIVING INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands)
(unaudited)

Non-GAAP financial measures are financial measures that are not determined in accordance with U.S. generally accepted accounting principles, or GAAP. Five Star considers these Non-GAAP financial measures to be meaningful supplemental disclosures because it believes that the presentation of these Non-GAAP financial measures may help investors to gain a better understanding of changes in Five Star’s operating results and its ability to pay rent or service debt, make capital expenditures and expand its business. These Non-GAAP financial measures also may help investors who wish to make comparisons between Five Star and other companies on both a GAAP and a non-GAAP basis.

The Non-GAAP financial measures presented are used by management to evaluate Five Star’s financial performance and for comparing Five Star’s performance over time and to the performance of its competitors. This supplemental information should not be considered as an alternative to income (loss) from continuing operations or net income (loss), as an indicator of Five Star’s operating performance or as a measure of Five Star’s liquidity. Non-GAAP financial measures as presented by Five Star may not be comparable to amounts calculated by other companies

Five Star believes that income (loss) from continuing operations is the most directly comparable financial measure determined according to GAAP to Five Star’s presentation of EBITDA and Adjusted EBITDA. The following table presents the reconciliation of these Non-GAAP financial measures to loss from continuing operations, the most directly comparable financial measure under GAAP reported in Five Star’s condensed consolidated financial statements, for the three months and years ended December 31, 2016 and 2015.

(1) Consists of a $0.3 million reversal of a previously accrued reserve related to the Compliance Assessment.
(2) Consists of a $1.5 million reversal in revenue reserves and accrued liability for estimated penalties related to the Compliance Assessment.
(3) Consists of $2.4 million revenue reserve and $4.8 million of estimated penalties, compliance costs and professional fees related to the Compliance Assessment.

(1) Excludes data for managed communities and discontinued operations.
(2) The number of owned and leased communities between January 1, 2015 and December 31, 2016 increased by three due to the acquisition of two senior living communities in November 2015 and the leasing of two additional senior living communities from SNH in December 2016, offset by the sale in September 2016 of one community we leased from SNH that was not classified as held for sale; separate comparable senior living community financial data is not presented because the differences between that data and the data for all owned and leased communities are not material.
(3) 2016 data presents the seven communities that were sold to SNH as part of the June 2016 sale and leaseback transaction as leased for the entire 2016 periods presented; 2015 data presents those communities as owned.
(4) Skilled nursing facility revenue for the year ended December 31, 2016 includes a $1.0 million reversal in revenue reserves related to the Compliance Assessment. Skilled nursing facility revenue for the year ended December 31, 2015 includes a $2.4 million revenue reserve related to the Compliance Assessment.
(5) Other senior living revenue and expenses primarily relate to rehabilitation and other specialty service revenues and expenses provided at owned and leased senior living communities.
(6) Continuing care retirement community other operating expenses for the three months and year ended December 31, 2015 includes a $4.2 million litigation settlement charge related to a litigation matter.
(7) Skilled nursing facility other operating expenses for the year ended December 31, 2016 includes a $0.5 million reversal in accrued liability for estimated penalties related to the Compliance Assessment. Skilled nursing facility other operating expenses for the three months and year ended December 31, 2015 includes a $0.3 million reversal of previously accrued reserve and $4.2 million expense, respectively, related to estimated penalties, compliance costs and professional fees for the Compliance Assessment.

(1) Excludes data for discontinued operations.
(2) Second, third and fourth quarter 2016 data presents the seven communities that were sold to SNH as part of the June 2016 sale and leaseback transaction as leased; data for all other periods presents those communities as owned.
(3) For 2016, the calculation of occupancy includes in service living units only; prior period occupancy calculations included certain living units categorized as out of service.
(4) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenues divided by occupied units during the period, and multiplying it by 30 days.
(5) Includes 1,916 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.
(6) Includes 69 assisted living and independent living units in communities where skilled nursing services are the predominant services provided.
(7) Includes 431 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.

(1) Excludes data for managed communities and discontinued operations.
(2) 2016 data presents the seven communities that were sold to SNH as part of the June 2016 sale and leaseback transaction as leased for the entire 2016 periods presented; 2015 data presents those communities as owned.

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