Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-16817

FIVE STAR SENIOR LIVING INC.

(Exact Name of Registrant as Specified in Its Charter)




Maryland	04-3516029
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices) (Zip Code)

617-796-8387

(Registrant’s Telephone Number, Including Area Code):

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	FVE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

Number of registrant’s shares of common stock, $0.01 par value, outstanding as of November 2, 2020: 31,571,897.

FIVE STAR SENIOR LIVING INC.

FORM 10-Q

September 30, 2020

Table of Contents



PART I	Financial Information	Page
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets – September 30, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2020 and 2019	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2020 and 2019	3
	Condensed Consolidated Statements of Shareholders' Equity – Three and Nine Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
	Warning Concerning Forward-Looking Statements	45
PART II	Other Information	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 6.	Exhibits	50
	Signatures	52

References in this Quarterly Report on Form 10-Q to the Company, Five Star, we, us or our include Five Star Senior Living Inc. and its consolidated subsidiaries, unless otherwise expressly stated or the context indicates otherwise.

“Five Star Senior Living”, “Bridge to Rediscovery” and “Ageility Physical Therapy Solutions” are protected under applicable intellectual property laws. Solely for convenience, these trademarks referred to in this Quarterly Report on Form 10-Q may appear without the ^TM symbol, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks.

PART I. Financial Information

Item 1. Financial Statements

Five Star Senior Living Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

(unaudited)



	September 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	95,779		$	31,740
Restricted cash and cash equivalents	23,842			23,995
Accounts receivable, net of allowance of $3,535 and $4,664, respectively	9,755			34,190
Due from related person	79,807			5,533
Debt and equity investments, of which $11,013 and $12,622 are restricted, respectively	20,465			21,070
Prepaid expenses and other current assets	21,006			17,286
Assets held for sale	—			9,554
Total current assets	250,654			143,368

Property and equipment, net	160,741			167,247
Equity investment of an investee, net	11			298
Restricted cash and cash equivalents	821			1,244
Restricted debt and equity investments	4,975			7,105
Operating lease right of use assets	18,748			20,855
Finance lease right of use assets	4,515			—
Other long-term assets	3,844			5,676
Total assets	$	444,309		$	345,793

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	21,543		$	30,440
Accrued expenses and other current liabilities	49,960			55,981
Accrued compensation and benefits	67,725			35,629
Accrued self-insurance obligations	28,567			23,791
Operating lease liabilities	2,773			2,872
Finance lease liabilities	386			—
Due to related persons	199			2,247
Mortgage note payable	381			362
Security deposits and current portion of continuing care contracts	375			434
Liabilities held for sale	—			12,544
Total current liabilities	171,909			164,300

Long-term liabilities:
Accrued self-insurance obligations	35,985			33,872
Operating lease liabilities	17,636			19,671
Finance lease liabilities	4,129			—
Mortgage note payable	6,882			7,171
Other long-term liabilities	207			798
Total long-term liabilities	64,839			61,512

Commitments and contingencies

Shareholders’ equity:
Common stock, par value $0.01: 75,000,000 shares authorized, 31,573,289 and 5,154,892 shares issued and outstanding, respectively	316			52
Additional paid-in-capital	459,851			362,450
Accumulated deficit	(253,982		)	(245,184		)
Accumulated other comprehensive income	1,376			2,663
Total shareholders’ equity	207,561			119,981
Total liabilities and shareholders' equity	$	444,309		$	345,793

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Five Star Senior Living Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share amounts)

(unaudited)



	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	2020			2019			2020			2019
REVENUES
Senior living	$	18,525		$	257,600		$	59,112		$	786,771
Management fees	15,302			4,053			48,058			12,060
Rehabilitation and wellness services	21,124			12,447			61,776			34,707
Total management and operating revenues	54,951			274,100			168,946			833,538
Reimbursed community-level costs incurred on behalf of managed communities	233,783			80,909			689,903			232,733
Other reimbursed expenses	6,589			—			19,003			—
Total revenues	295,323			355,009			877,852			1,066,271

Other operating income	—			—			1,499			—

OPERATING EXPENSES
Senior living wages and benefits	11,128			137,916			30,633			411,553
Other senior living operating expenses	6,717			76,929			18,290			223,896
Rehabilitation and wellness services expenses	16,124			10,412			48,595			28,031
Community-level costs incurred on behalf of managed communities	233,783			80,909			689,903			232,733
General and administrative	19,916			20,094			66,348			67,144
Rent	1,282			33,169			3,837			120,973
Depreciation and amortization	2,680			2,818			8,084			13,924
Loss on sale of senior living communities	—			749			—			850
Long-lived asset impairment	—			18			—			3,278
Total operating expenses	291,630			363,014			865,690			1,102,382

Operating income (loss)	3,693			(8,005		)	13,661			(36,111		)

Interest, dividend and other income	104			414			625			985
Interest and other expense	(379		)	(384		)	(1,170		)	(2,196		)
Unrealized gain (loss) on equity investments	435			148			(160		)	476
Realized gain (loss) on sale of debt and equity investments	327			(9		)	422			227
Loss on termination of leases	—			—			(22,899		)	—

Income (loss) before income taxes and equity in earnings of an investee	4,180			(7,836		)	(9,521		)	(36,619		)
(Provision) benefit for income taxes	(465		)	687			(971		)	(98		)
Equity in earnings of an investee	—			83			—			617
Net income (loss)	$	3,715		$	(7,066	)	$	(10,492	)	$	(36,100	)

Weighted average shares outstanding—basic	31,486			5,012			31,465			5,007
Weighted average shares outstanding—diluted	31,563			5,012			31,465			5,007

Net income (loss) per share—basic	$	0.12		$	(1.41	)	$	(0.33	)	$	(7.21	)
Net income (loss) per share—diluted	$	0.12		$	(1.41	)	$	(0.33	)	$	(7.21	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Five Star Senior Living Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019

Net income (loss)	$	3,715		$	(7,066	)	$	(10,492	)	$	(36,100	)
Other comprehensive income (loss):
Unrealized (loss) gain on debt investments, net of tax of $0 and ($915), and $0 and $251, respectively	(20		)	1,085			710			864
Equity in unrealized (loss) gain of an investee, net of tax of $0 and $0, and $0 and $0, respectively	—			(46		)	—			90
Realized gain on debt investments reclassified and included in net income, net of tax of $0 and $0, and $0 and $0, respectively	(290		)	(1		)	(303		)	—
Other comprehensive (loss) income	(310		)	1,038			407			954
Comprehensive income (loss)	$	3,405		$	(6,028	)	$	(10,085	)	$	(35,146	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Five Star Senior Living Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

(unaudited)



	Three and Nine Months Ended September 30, 2020
	Number of Shares		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders' Equity
Balance at January 1, 2020	5,154,892		$	52	$	362,450		$	(245,184	)	$	2,663		$	119,981
Comprehensive income (loss):
Net loss	—		—		—			(17,209		)	—			(17,209		)
Unrealized gain on debt investments, net of tax	—		—		—			—			427			427
Realized gain on debt investments reclassified and included in net loss, net of tax	—		—		—			—			(10		)	(10		)
Total comprehensive (loss) income	—		—		—			(17,209		)	417			(16,792		)
Cumulative effect adjustment to beginning accumulated deficit and accumulated other comprehensive income in connection with a reclassification of equity investments previously classified as debt investments	—		—		—			1,694			(1,694		)	—
Issuance of common shares	26,387,007		264		97,076			—			—			97,340
Grants under share award plan and share-based compensation	4,000		—		81			—			—			81
Repurchases under share award plan	(3,564	)	—		(1		)	—			—			(1		)
Balance at March 31, 2020	31,542,335		$	316	$	459,606		$	(260,699	)	$	1,386		$	200,609
Comprehensive income (loss):
Net income	—		—		—			3,002			—			3,002
Unrealized gain on debt investments, net of tax	—		—		—			—			303			303
Realized gain on debt investments reclassified and included in net income, net of tax	—		—		—			—			(3		)	(3		)
Total comprehensive income	—		—		—			3,002			300			3,302
Grants under share award plan and share-based compensation	35,000		—		199			—			—			199
Repurchases under share award plan	(2,836	)	—		(4		)	—			—			(4		)
Balance at June 30, 2020	31,574,499		$	316	$	459,801		$	(257,697	)	$	1,686		$	204,106
Comprehensive income (loss):
Net income	—		—		—			3,715			—			3,715
Unrealized loss on debt investments, net of tax	—		—		—			—			(20		)	(20		)
Realized gain on debt investments reclassified and included in net income, net of tax	—		—		—			—			(290		)	(290		)
Total comprehensive income (loss)	—		—		—			3,715			(310		)	3,405
Grants under share award plan and share-based compensation	—		—		53			—			—			53
Repurchases under share award plan	(1,210	)	—		(3		)	—			—			(3		)
Balance at September 30, 2020	31,573,289		$	316	$	459,851		$	(253,982	)	$	1,376		$	207,561

Five Star Senior Living Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

(unaudited)



	Three and Nine Months Ended September 30, 2019
	Number of Shares		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders' Equity
Balance at January 1, 2019	5,085,345		$	51	$	362,012		$	(292,636	)	$	1,742		$	71,169
Comprehensive loss:
Net loss	—		—		—			(33,215		)	—			(33,215		)
Unrealized loss on debt investments, net of tax	—		—		—			—			(205		)	(205		)
Realized loss on debt investments reclassified and included in net loss, net of tax	—		—		—			—			4			4
Equity in unrealized gain of an investee, net of tax	—		—		—			—			65			65
Total comprehensive loss	—		—		—			(33,215		)	(136		)	(33,351		)
Cumulative effect adjustment to beginning accumulated deficit in connection with the adoption of ASC Topic 842	—		—		—			67,473			—			67,473
Grants under share award plan and share-based compensation	—		—		97			—			—			97
Repurchases under share award plan	(1,042	)	—		—			—			—			—
Balance at March 31, 2019	5,084,303		$	51	$	362,109		$	(258,378	)	$	1,606		$	105,388
Comprehensive income:
Net income	—		—		—			4,181			—			4,181
Unrealized loss on debt investments, net of tax	—		—		—			—			(16		)	(16		)
Realized gain on debt investments reclassified and included in net income, net of tax	—		—		—			—			(3		)	(3		)
Equity in unrealized gain of an investee, net of tax	—		—		—			—			71			71
Total comprehensive income	—		—		—			4,181			52			4,233
Grants under share award plan and share-based compensation	6,250		—		123			—			—			123
Repurchases under share award plan	(3,964	)	—		2			—			—			2
Balance at June 30, 2019	5,086,589		$	51	$	362,234		$	(254,197	)	$	1,658		$	109,746
Comprehensive (loss) income:
Net loss	—		—		—			(7,066		)	—			(7,066		)
Unrealized gain on debt investments, net of tax	—		—		—			—			1,085			1,085
Realized gain on debt investments reclassified and included in net loss, net of tax	—		—		—			—			(1		)	(1		)
Equity in unrealized loss of an investee, net of tax	—		—		—			—			(46		)	(46		)
Total comprehensive (loss) income	—		—		—			(7,066		)	1,038			(6,028		)
Repurchase of fractional shares	(515	)	—		—			—			—			—
Grants under share award plan and share-based compensation	—		—		82			—			—			82
Repurchases under share award plan	(3,740	)	—		(2		)	—			—			(2		)
Balance at September 30, 2019	5,082,334		$	51	$	362,314		$	(261,263	)	$	2,696		$	103,798

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Five Star Senior Living Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)



	Nine Months Ended September 30,
	2020			2019
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(10,492	)	$	(36,100	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	8,084			13,924
Loss on sale of senior living communities	—			850
Unrealized loss (gain) on equity securities	160			(476		)
Realized gain on sale of debt and equity investments	(422		)	(227		)
Loss on termination of leases	22,899			—
Long-lived asset impairment	—			3,278
Equity in earnings of an investee	—			(617		)
Share-based compensation	325			302
Provision for losses on accounts receivables	1,315			3,232
Amortization of non-cash rent adjustments	—			(944		)
Other non-cash expense adjustments, net	175			206
Changes in assets and liabilities:
Accounts receivable	23,120			(1,558		)
Due from related person	(54,249		)	15,515
Prepaid expenses and other current assets	(2,393		)	(4,939		)
Accounts payable	(8,897		)	(421		)
Accrued expenses and other current liabilities	46,126			9,107
Accrued compensation and benefits	32,096			9,205
Due to related persons	(2,048		)	461
Other current and long-term liabilities	6,241			1,279
Net cash provided by operating activities	62,040			12,077

CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(4,132		)	(37,433		)
Purchases of debt and equity investments	(5,688		)	(2,897		)
Proceeds from sale of property and equipment	2,725			90,822
Proceeds from sale of communities	—			(749		)
Distributions in excess of earnings from Affiliates Insurance Company	287			—
Proceeds from sale of debt and equity investments	9,078			5,042
Net cash provided by investing activities	2,270			54,785

CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings on revolving credit facility	—			5,000
Repayments of borrowings on revolving credit facility	—			(56,484		)
Costs related to issuance of common stock	(559		)	—
Repayments of mortgage notes payable	(288		)	(272		)
Payment of deferred financing fees	—			(1,271		)
Net cash used in financing activities	(847		)	(53,027		)

Change in cash and cash equivalents and restricted cash and cash equivalents	63,463			13,835
Restricted cash included in held for sale assets	—			(42		)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	56,979			50,155
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	120,442		$	63,948

Reconciliation of cash and cash equivalents and restricted cash and cash equivalents:
Cash and cash equivalents	$	95,779		$	39,423
Current restricted cash and cash equivalents	23,842			23,047
Other restricted cash and cash equivalents	821			1,478
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	120,442		$	63,948

Supplemental cash flow information:
Interest paid	$	363		$	1,691
Income taxes received, net	$	40		$	1,366

Non-cash investing and financing activities:
Liabilities assumed related to issuance of our common stock	$	51,547		$	—
Right of use assets obtained in exchange for finance lease liabilities	$