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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 March 31, 2021
or
     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)
  
Maryland04-3516029
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockFVEThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 May 1, 2021: 31,675,843.



FIVE STAR SENIOR LIVING INC.
FORM 10-Q
March 31, 2021
Table of Contents
 
Page
 
 
 
 
 
 
 
 
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.

This Quarterly Report on Form 10-Q includes our trademarks, such as “Five Star Senior Living”, “Bridge to Rediscovery” and “Ageility Physical Therapy Solutions” which are our property and 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)
 March 31, 2021December 31, 2020
ASSETS  
Current assets:
Cash and cash equivalents$109,485 $84,351 
Restricted cash and cash equivalents23,717 23,877 
Accounts receivable, net of allowance of $3,248 and $3,149, respectively
9,558 9,104 
Due from related person86,204 96,357 
Debt and equity investments, of which $10,965 and $11,125 are restricted, respectively
19,528 19,961 
Prepaid expenses and other current assets22,376 28,658 
Total current assets270,868 262,308 
Property and equipment, net158,716 159,251 
Operating lease right-of-use assets27,040 18,030 
Finance lease right-of-use assets4,160 4,493 
Restricted cash and cash equivalents1,189 1,369 
Restricted debt and equity investments4,945 4,788 
Equity investment of an investee, net11 11 
Other long-term assets4,201 3,956 
Total assets$471,130 $454,206 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:
Accounts payable$24,401 $23,454 
Accrued expenses and other current liabilities45,190 41,843 
Accrued compensation and benefits73,675 70,543 
Accrued self-insurance obligations28,155 31,355 
Operating lease liabilities2,230 2,567 
Finance lease liabilities824 808 
Due to related persons3,859 6,585 
Mortgage note payable394 388 
Security deposits and current portion of continuing care contracts338 365 
Total current liabilities179,066 177,908 
Long-term liabilities:  
Accrued self-insurance obligations41,098 37,420 
Operating lease liabilities26,472 17,104 
Finance lease liabilities3,710 3,921 
Mortgage note payable6,682 6,783 
Other long-term liabilities474 538 
Total long-term liabilities78,436 65,766 
Commitments and contingencies
Shareholders’ equity:  
Common stock, par value $0.01: 75,000,000 shares authorized, 31,676,429 and 31,679,207 shares issued and outstanding, respectively
317 317 
Additional paid-in-capital460,113 460,038 
Accumulated deficit(247,824)(251,139)
Accumulated other comprehensive income1,022 1,316 
Total shareholders’ equity213,628 210,532 
Total liabilities and shareholders' equity$471,130 $454,206 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1


Five Star Senior Living Inc.
Condensed Consolidated Statements of Operations
(amounts in thousands, except per share amounts)
(unaudited)

 Three Months Ended March 31,
 20212020
REVENUES
Rehabilitation and wellness services$19,553 $21,384 
Senior living17,057 20,997 
Management fees13,850 17,051 
     Total management and operating revenues50,460 59,432 
Reimbursed community-level costs incurred on behalf of managed communities213,160 232,016 
Other reimbursed expenses5,480 5,997 
  Total revenues269,100 297,445 
Other operating income7,793  
OPERATING EXPENSES
Rehabilitation and wellness services expenses16,210 17,501 
Senior living wages and benefits12,013 9,800 
Other senior living operating expenses6,266 3,938 
Community-level costs incurred on behalf of managed communities213,160 232,016 
General and administrative22,641 22,865 
Depreciation and amortization2,940 2,701 
Total operating expenses273,230 288,821 
Operating income3,663 8,624 
Interest, dividend and other income84 339 
Interest and other expense(463)(382)
Unrealized gain (loss) on equity investments135 (1,462)
Realized gain (loss) on sale of debt and equity investments96 (21)
Loss on termination of leases (22,899)
Income (loss) before income taxes3,515 (15,801)
Provision for income taxes (200)(1,408)
Net income (loss)$3,315 $(17,209)
Weighted average shares outstanding—basic31,530 31,448 
Weighted average shares outstanding—diluted31,662 31,448 
Net income (loss) per share—basic$0.11 $(0.55)
Net income (loss) per share—diluted$0.10 $(0.55)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


2


Five Star Senior Living Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(dollars in thousands)
(unaudited)

 Three Months Ended March 31,
 20212020
Net income (loss)$3,315 $(17,209)
Other comprehensive income (loss):
Unrealized (loss) gain on debt investments, net of tax of $0
(294)427 
Realized loss on debt investments reclassified and included in net income (loss), net of tax of $0
 (10)
Other comprehensive (loss) income(294)417 
Comprehensive income (loss)$3,021 $(16,792)

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


3


Five Star Senior Living Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(dollars in thousands)
(unaudited)

Three Months Ended March 31, 2021
 Number of
Shares
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total Shareholders' Equity
Balance at January 1, 202131,679,207 $317 $460,038 $(251,139)$1,316 $210,532 
Comprehensive income (loss):
Net income— — — 3,315 — 3,315 
Unrealized loss on debt investments, net of tax— — — — (294)(294)
Total comprehensive income (loss)— — — 3,315 (294)3,021 
Grants under share award plan and share-based compensation— — 76 — — 76 
Repurchases under share award plan(2,778)— (1)— — (1)
Balance at March 31, 202131,676,429 $317 $460,113 $(247,824)$1,022 $213,628 

Three Months Ended March 31, 2020
Number of
Shares
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total Shareholders' Equity
Balance at January 1, 20205,154,892 $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 shares26,387,007 264 97,076 — — 97,340 
Grants under share award plan and share-based compensation4,000 — 81 — — 81 
Repurchases under share award plan(3,564)— (1)— — (1)
Balance at March 31, 202031,542,335 $316 $459,606 $(260,699)$1,386 $200,609 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


Five Star Senior Living Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)

 Three Months Ended March 31,
 20212020
CASH FLOW FROM OPERATING ACTIVITIES:  
Net income (loss)$3,315 $(17,209)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization2,940 2,701 
Unrealized (gain) loss on equity securities(135)1,462 
Realized (gain) loss on sale of debt and equity securities(96)21 
Loss on termination of leases 22,899 
Share-based compensation75 80 
Provision for losses on accounts receivables260 510 
Other non-cash expense adjustments, net157 69 
Changes in assets and liabilities:  
Accounts receivable(714)22,739 
Due from related person10,153 (15,391)
Prepaid expenses and other current assets5,870 2,276 
Accounts payable947 (10,342)
Accrued expenses and other current liabilities3,332 13,078 
Accrued compensation and benefits3,132 (16,180)
Due to related persons(2,726)(1,102)
Other current and long-term liabilities316 (144)
Net cash provided by operating activities26,826 5,467 
CASH FLOW FROM INVESTING ACTIVITIES:  
Acquisition of property and equipment(2,136)(2,013)
Purchases of debt and equity investments(130)(1,588)
Proceeds from sale of property and equipment 2,725 
Proceeds from sale of debt and equity investments337 1,453 
     Net cash (used in) provided by investing activities(1,929)577 
CASH FLOW FROM FINANCING ACTIVITIES:  
Costs related to issuance of common stock (559)
Repayments of mortgage notes payable(103)(95)
     Net cash used in financing activities(103)(654)
Increase in cash and cash equivalents and restricted cash and cash equivalents24,794 5,390 
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period109,597 56,979 
Cash and cash equivalents and restricted cash and cash equivalents at end of period$134,391 $62,369 
Reconciliation of cash and cash equivalents and restricted cash and cash equivalents:
Cash and cash equivalents$109,485 $36,641 
Current restricted cash and cash equivalents23,717 24,290 
Other restricted cash and cash equivalents1,189 1,438 
Cash and cash equivalents and restricted cash and cash equivalents at end of period$134,391 $62,369 
Supplemental cash flow information:  
Interest paid$203 $122 
Income taxes paid (refunded), net1 (117)
Non-cash investing and financing activities:
Liabilities assumed related to issuance of our common stock$ $51,547 
Change in accrued capital(20)4,326 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)

1. Basis of Presentation and Organization

General. The accompanying condensed consolidated financial statements of Five Star Senior Living Inc. and its subsidiaries are unaudited. Certain information and disclosures required by the rules and regulations of the Securities and Exchange Commission, or SEC, and U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted pursuant to SEC rules and regulations related to interim financial statements. We believe the disclosures made are adequate to make the information presented not misleading. 

As of March 31, 2021, we managed or operated 252 senior living communities located in 31 states with 29,265 living units, including 243 primarily independent and assisted living communities with 28,310 living units, which include 37 continuing care retirement communities, or CCRCs, with 8,573 living units, and 9 primarily skilled nursing facilities, or SNFs, with 955 living units. As of March 31, 2021, we managed 228 of these senior living communities (26,963 living units), we owned and operated 20 of these senior living communities (2,099 living units) and we leased and operated four of these senior living communities (203 living units). Our 252 senior living communities, as of March 31, 2021, included 10,979 independent living apartments, 15,329 assisted living suites (which includes 3,220 of our Bridge to Rediscovery memory care units) and 2,957 SNF units. The foregoing numbers exclude living units categorized as out of service.

Our rehabilitation and wellness services segment, which is primarily comprised of Ageility Physical Therapy Solutions, or Ageility, provides a comprehensive suite of rehabilitation and wellness services at our senior living communities as well as at outpatient clinics located at unaffiliated senior living communities. As of March 31, 2021, we operated 37 inpatient rehabilitation and wellness services clinics in senior living communities owned by Diversified Healthcare Trust, or DHC, which are managed by us. As of March 31, 2021, we operated 215 outpatient rehabilitation and wellness services clinics, of which 151 were located at our managed, leased and owned senior living communities and 64 were located within senior living communities not owned or leased by us or managed on behalf of DHC.

Strategic Plan. On April 9, 2021, we announced a new strategic plan, or the Strategic Plan, to reposition the Company's senior living management business to focus on larger independent living, assisted living and memory care communities as well as stand-alone independent living and active adult communities.

Pursuant to our Strategic Plan, we intend to, among other things, (i) amend our management arrangements with DHC to transition 108 senior living communities, with approximately 7,500 living units, that we currently manage for DHC, to new operators, (ii) close and reposition 27 skilled nursing units, with approximately 1,500 living units, in CCRCs that we will continue to manage for DHC and (iii) close 37 Ageility inpatient rehabilitation clinics in certain transitioning communities.

As part of our Strategic Plan, we have agreed to amend our management agreements with DHC. See Notes 11 and 16 for more information on our Strategic Plan and our business arrangements with DHC.

Reclassifications. We have made reclassifications to the financial statements of prior periods to conform to the current period presentation. These reclassifications had no effect on net income (loss) or shareholders’ equity.

The accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

6


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)
2. Summary of Significant Accounting Policies

Estimates and Assumptions. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that may affect the amounts reported in these condensed consolidated financial statements and related notes. Significant estimates in our condensed consolidated financial statements relate to revenue recognition, including contractual allowances, the allowance for doubtful accounts, self-insurance reserves and estimates concerning our provision for income taxes or valuation allowance related to deferred tax assets.

Our actual results could differ from our estimates. We periodically review estimates and assumptions and we reflect the effects of changes, if any, in the condensed consolidated financial statements in the period that they are determined.

Recently Issued Accounting Pronouncements Not Yet Adopted. In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current other-than-temporary impairment model for available for sale debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the transition and effective date for nonpublic entities and smaller reporting companies, such as us, and clarifies that receivables arising from operating leases are not in the scope of this ASU. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarifies guidance around how to report expected recoveries. Entities will apply the provisions of the ASU as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for smaller reporting companies for reporting periods beginning after December 15, 2022. We are assessing the potential impact that the adoption of this ASU (and the related clarifying guidance issued by the FASB) will have on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions on contract modifications meeting certain criteria to ease the financial reporting burdens of the expected market transition from the London Inter-bank Offered Rate, or LIBOR, and other interbank offered rates to the alternative reference rates. For a contract that meets the criteria, this ASU generally allows an entity to account for and present modifications as an event that does not require remeasurement at the modification date or reassessment of a previous accounting determination. This ASU was effective upon issuance and can be applied through December 31, 2022. We expect this ASU will not have a material impact on our condensed consolidated financial statements.
    
7


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)
3. Revenue and Other Operating Income

The following tables present revenue from contracts by segment with customers disaggregated by type of payer, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors:

Three Months Ended March 31, 2021
Senior
Living
Rehabilitation and Wellness Services(3)
Total
Private payer$16,787 $1,014 $17,801 
Medicare and Medicaid programs 270 11,549 11,819 
Other third-party payer programs 6,990 6,990 
Management fees13,850 
(1) (2)
 13,850 
Reimbursed community-level costs incurred on behalf of managed communities213,160 
(1)
 213,160 
Other reimbursed expenses5,480 
(1)
 5,480 
  Total revenues$249,547 $19,553 $269,100 
_______________________________________
(1)    Represents separate revenue streams earned from DHC.
(2)     As noted previously, in 2021 we intend to (i) transition 108 senior living communities managed on behalf of DHC with approximately 7,500 living units to new operators and (ii) close and reposition approximately 1,500 skilled nursing facility units in 27 CCRCs that we will continue to manage for DHC. The management fees we recognized related to these communities and units for the three months ended March 31, 2021 was $5,255. See Notes 11 and 16 for more information.
(3)    As noted previously we expect to close 37 Ageility inpatient rehabilitation clinics during 2021. Revenue related to these clinics for the three months ended March 31, 2021 was $5,441. See Note 16 for more information.

Three Months Ended March 31, 2020
Senior
Living
Rehabilitation and Wellness ServicesTotal
Private payer$20,281 $897 $21,178 
Medicare and Medicaid programs 716 9,570 10,286 
Other third-party payer programs 10,917 10,917 
Management fees17,051 
(1)
 17,051 
Reimbursed community-level costs incurred on behalf of managed communities232,016 
(1)
 232,016 
Other reimbursed expenses5,997 
(1)
 5,997 
  Total revenues$276,061 $21,384 $297,445 
_______________________________________
(1)    Represents separate revenue streams earned from DHC.

Other operating income. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law. Under the CARES Act, the U.S. Department of Health and Human Services, or HHS, established the Provider Relief Fund. The Provider Relief Fund was further supplemented on December 27, 2020 by the Consolidated Appropriations Act, 2021. Retention and use of the funds received under the CARES Act are subject to certain terms and conditions, including certain reporting requirements. Other operating income includes income recognized for funds we have received pursuant to the Provider Relief Fund of the CARES Act for which we have determined that we were in compliance with the terms and conditions of the Provider Relief Fund of the CARES Act. We recognize other operating income in our condensed consolidated statements of operations to the extent we estimate we have COVID-19 incurred losses or related costs for which provisions of the CARES Act is intended to compensate. The amount of income we recognize for these estimated losses and costs is limited to the amount of funds we received during the period in which the estimated losses and costs were recognized or incurred or, if funds were received subsequently, the period in which the funds were received. We recognized other operating income of $7,793 for the three months ended March 31, 2021. See Note 15 for more information.

4. Segment Information

We do not allocate assets to operating segments and, therefore, no asset information is provided for reportable segments. Certain of our general and administrative expenses incurred at our corporate office are deemed centralized services and allocated amongst operating segments. Centralized services are largely determined by job function and allocated by
8


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)
percentage of total revenue. Results of operations and selected financial information by reportable segment and the reconciliation to the condensed consolidated financial statements are as follows:

Three Months Ended March 31, 2021
Senior
Living(1)
Rehabilitation and Wellness Services(2)
Corporate and OtherTotal
Revenues$249,547 $19,553 $ $269,100 
Other operating income7,774 19  7,793 
Operating expenses237,957 16,338 18,935 273,230 
Operating income19,364 3,234 (18,935)3,663 
Allocated corporate and other costs(12,657)(978)13,635  
Other (loss), net(122) (26)(148)
Income (loss) before income taxes6,585 2,256 (5,326)3,515 
Provision for income taxes   (200)(200)
Net income (loss)$6,585 $2,256 $(5,526)$3,315 
_______________________________________
(1)    As noted previously, in 2021 we intend to (i) transition 108 senior living communities managed on behalf of DHC with approximately 7,500 living units to new operators and (ii) close and reposition approximately 1,500 skilled nursing facility units in 27 CCRCs that we will continue to manage for DHC. See Notes 11 and 16 for more information.
(2)    As noted previously, we expect to close 37 Ageility inpatient rehabilitation clinics during 2021. See Note 16 for more information.

Three Months Ended March 31, 2020
Senior
Living
Rehabilitation and Wellness ServicesCorporate and OtherTotal
Revenues$276,061 $21,384 $ $297,445 
Operating expenses255,619 17,616 15,586 288,821 
Operating income (loss)20,442 3,768 (15,586)8,624 
Allocated corporate and other costs(15,618)(1,068)16,686  
Other income (loss), net41  (24,466)(24,425)
Income (loss) before income taxes4,865 2,700 (23,366)(15,801)
Provision for income taxes  (1,408)(1,408)
Net income (loss)$4,865 $2,700 $(24,774)$(17,209)

5. Property and Equipment, net

Property and equipment, net consist of the following:

 March 31, 2021December 31, 2020
Land$12,155 $12,155 
Buildings, construction in process and improvements203,646 202,679 
Furniture, fixtures and equipment61,902 60,713 
Property and equipment, at cost277,703 275,547 
   Less: accumulated depreciation(118,987)(116,296)
   Property and equipment, net$158,716 $159,251 
 
We recorded depreciation expense relating to our property and equipment of $2,691 and $2,701 for the three months ended March 31, 2021 and 2020, respectively.
 
9


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)
6. Accumulated Other Comprehensive Income

The following tables detail the changes in accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021
 Equity
Investment of an
Investee
InvestmentsAccumulated
Other
Comprehensive
Income
Balance at January 1, 2021$(175)$1,491 $1,316 
Unrealized loss on debt investments, net of tax (294)(294)
Balance at March 31, 2021$(175)$1,197 $1,022 
 
Three Months Ended March 31, 2020
 Equity
Investment of an
Investee
InvestmentsAccumulated
Other
Comprehensive
Income
Balance at January 1, 2020$(175)$2,838 $2,663 
Cumulative effect adjustment to beginning accumulated deficit and accumulated other comprehensive income in connection with a reclassification of equity investments previously classified as debt investments (1,694)(1,694)
Unrealized gain on debt investments, net of tax 427 427 
Realized gain on debt investments reclassified and included in net loss, net of tax (10)(10)
Balance at March 31, 2020$(175)$1,561 $1,386 

Accumulated other comprehensive income represents the unrealized gains and losses of our debt investments, net of tax, and our share of other comprehensive income (loss) relating to our former investment in Affiliates Insurance Company, or AIC, which dissolved on February 13, 2020. The cost of debt investments sold and for which realized gains and losses are reclassified and included in net income are determined on a specific identification basis.

As of January 1, 2020, we reclassified certain of our investments from debt investments to equity investments to reflect the nature of the investment rather than the nature of the securities held by the investment. As a result, we reclassified the related unrealized gain of $1,694 from accumulated other comprehensive income to accumulated deficit on January 1, 2020. See Note 9 for more information regarding these investments.

7. Income Taxes

We recognized a provision for income taxes of $200 and $1,408 for the three months ended March 31, 2021 and 2020, respectively. The provision for income taxes for the three months ended March 31, 2021 is related to state income taxes. The provision for income taxes for the three months ended March 31, 2020 is related to federal income taxes, partially offset by a federal alternative minimum tax, or AMT, credit refund benefit and a federal benefit related to lease termination expense, plus state income taxes, including a state valuation allowance. See Note 15 for more information regarding the impact of certain provisions of the CARES Act relating to income and other taxes.

We previously determined it was more likely than not that a majority of our net deferred tax assets would not be realized and concluded that a valuation allowance was required, which eliminated the majority of our net deferred tax assets recorded in our condensed consolidated balance sheets. In the future, if we believe that we will more likely than not realize the benefit of these deferred tax assets, we will adjust our valuation allowance and recognize an income tax benefit, which may affect our results of operations.

8. Net Income (Loss) Per Share

Basic net income per share is calculated by dividing net income (loss) by the weighted average number of outstanding common shares outstanding during the period. When applicable, net income (loss) per share—diluted reflects the more dilutive
10


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)
earnings per share using the weighted average number of our common shares calculated using the two-class method, or the treasury stock method.

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted net income (loss) per share (in thousands):

Three Months Ended March 31,
20212020
Weighted average shares outstanding—basic31,530 31,448 
Effect of dilutive securities: unvested share awards132  
Weighted average shares outstanding—diluted (1)
31,662 31,448 
_______________________________________
(1)    For the three months ended March 31, 2020, 124 of our unvested common shares were not included in the calculation of net loss per share—diluted because to do so would have been anti-dilutive.

9. Fair Values of Assets and Liabilities

Recurring Fair Value Measures

The tables below present certain of our assets measured at fair value at March 31, 2021 and December 31, 2020, categorized by the level of input used in the valuation of each asset.

 As of March 31, 2021
DescriptionTotalQuoted Prices in
Active Markets
for Identical
 Assets
(Level 1)
Significant 
Other
Observable
 Inputs
(Level 2)
Significant
Unobservable 
Inputs
(Level 3)
Cash equivalents (1)
$26,231 $26,231 $ $ 
Investments:    
Equity investments (2)
    
High yield fund (3)
3,162  3,162  
International bond fund (4)
2,781  2,781  
Financial services industry1,376 1,376   
Healthcare492 492   
Technology801 801   
Other3,851 3,851   
Total equity investments12,463 6,520 5,943  
Debt investments (5)
    
Industrial bonds529  529  
Technology bonds1,443  1,443  
Government bonds7,123 7,123   
Energy bonds478  478  
Financial bonds1,330  1,330  
Other1,107  1,107  
Total debt investments12,010 7,123 4,887  
Total investments24,473 13,643 10,830  
Total$50,704 $39,874 $10,830 $ 
11


Five Star Senior Living Inc.
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
(unaudited)
 As of December 31, 2020
DescriptionTotalQuoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant 
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents (1)
$26,291 $26,291 $ $ 
Investments:
Equity investments (2)
    
High yield fund (3)
3,156  3,156  
International bond fund (4)
2,818  2,818  
Financial services industry1,348 1,348   
Healthcare477 477   
Technology765 765   
Other3,875 3,875