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Five Star Quality Care, Inc. Agrees to Transfer Operations of Two Hospitals



  Five Star Quality Care, Inc. Agrees to Transfer Operations of Two Hospitals

  Exiting Hospital Business Results in 100% Focus on Operating Senior Living
                                 Communities

Business Wire

NEWTON, Mass. -- September 20, 2013

Five Star Quality Care, Inc. (NYSE: FVE) today announced that it has entered
an agreement to transfer the operations of two rehabilitation hospitals to
entities affiliated with Reliant Hospital Partners, LLC (Reliant) of
Richardson, TX.

The two hospitals are New England Rehabilitation Hospital (198 licensed beds)
located in Woburn, MA and Braintree Rehabilitation Hospital (166 licensed
beds) located in Braintree, MA, plus several leased in-patient and out-patient
locations in eastern Massachusetts which are affiliated with these hospitals.
The hospitals are currently leased by FVE from Senior Housing Properties Trust
(NYSE: SNH). As part of this transaction, SNH has agreed to sell the hospitals
real estate assets to HSRE-TST III, LLC, a joint venture comprised of
affiliates of The Sanders Trust, LLC of Birmingham, AL and Harrison Street
Real Estate Capital, LLC of Chicago, IL (HSRE). Under the agreement among FVE,
SNH, Reliant and HSRE, the lease of the hospitals between FVE and SNH will be
canceled and the real estate will be transferred to affiliates of HSRE and the
hospital operations will be transferred to Reliant.

Bruce Mackey, President and Chief Executive Officer of FVE, made the following
statement concerning this transaction:

“Five Star began to operate these hospitals in 2006, during a more favorable
operating and regulatory environment than currently exists. Since then, we
have made adjustments in our business to counteract progressively more
restrictive payment formulas from the Centers for Medicare & Medicaid
Services. Throughout this period, our hospitals’ operations have produced
essentially break even financial results, periodically making or losing modest
amounts after paying capital costs, including rent.

“Five Star believes that the combination of capital investment required to
comply with recent Federal and State hospital regulations and the expectation
of continuing Medicare rate limitation pressures for the foreseeable future
mean that economies of scale are essential to produce financially successful
hospital operations. After carefully considering these factors, Five Star
determined to focus its future operations on expanding its private pay senior
living business and to transfer these hospitals’ operations to Reliant.

“In 2012, Five Star sold its institutional pharmacy business which was heavily
dependent upon Medicare revenues. The hospital operations to be transferred
are Five Star’s only hospital operations; and, like most hospitals, a large
majority of the revenues at these hospitals are paid by Medicare. The exit
from these hospital operations increases Five Star’s focus on its core
business of operating private pay senior living communities. After this
transfer is completed, Five Star’s continuing operations will be 100% focused
upon senior living communities, including its high quality independent and
assisted living communities and nursing homes, and the large majority
(approximately 77%) of Five Star’s total revenues will be from residents and
patients who pay for services with private resources.”

When the hospitals’ sale and operations transfer are completed, FVE expects to
realize cash proceeds of between $6.5 million and $7.5 million by retaining
its working capital investment in these hospitals. Also, upon completion of
this sale and transfer, FVE will be relieved of rent obligations totaling
approximately $11.5 million per year, including rents to SNH and rents to
third parties.

The transfer of the hospital operations described in this press release is
subject to various closing conditions, including Reliant’s obtaining
appropriate licenses and regulatory approvals to operate the rehabilitation
hospitals. FVE currently expects that this transaction may close in mid-2014.

Jefferies & Company, Inc., acted as a financial advisor in connection with
this sale.

Five Star Quality Care, Inc. is a senior living and healthcare services
company that operates and manages a total of 251 senior living communities
located throughout the country.

                 WARNING REGARDING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND OTHER SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED
UPON FVE’S CURRENT BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT GUARANTEED TO
OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS, INCLUDING SOME WHICH ARE BEYOND
FVE’S CONTROL. FOR EXAMPLE:

  * THIS PRESS RELEASE STATES THAT FVE HAS ENTERED INTO AN AGREEMENT TO
    TRANSER THE OPERATIONS OF TWO REHABILITATION HOSPITALS TO RELIANT AND FVE
    EXPECTS THE TRANSFER OF THE HOSPITALS’ OPERATIONS TO OCCUR IN MID-2014.
    THE TRANSFER IS SUBJECT TO COMPLETION OF SNH’S SALE OF THE HOSPITALS’ REAL
    ESTATE ASSETS AND VARIOUS OTHER CLOSING CONDITIONS, INCLUDING RELIANT’S
    OBTAINING APPROPRIATE LICENSES AND REGULATORY APPROVALS TO OPERATE THE
    REHABILITATION HOSPITALS. SOME OF THESE CONDITIONS MAY NOT BE MET; AND, AS
    A RESULT, THE TRANSACTION MAY NOT OCCUR, THE TRANSACTION MAY BE DELAYED OR
    THE TERMS MAY CHANGE.
  * THIS PRESS RELEASE STATES THAT FVE EXPECTS TO REALIZE CASH PROCEEDS OF
    BETWEEN $6.5 MILLION AND $7.5 MILLION BY RETAINING ITS WORKING CAPITAL
    INVESTMENT IN THE REHABILITATION HOSPITALS. THIS EXPECTED AMOUNT IS BASED
    ON AMOUNTS OF FVE WORKING CAPITAL INVESTMENTS IN THE HOSPITALS AS OF JUNE
    30, 2013. THE AMOUNT OF NET WORKING CAPITAL FVE RETAINS WILL DEPEND ON
    MANY FACTORS, INCLUDING THE FINANCIAL RESULTS OF THE OPERATIONS OF THE
    REHABILITATION HOSPITALS PRIOR TO TRANSFER. ACCORDINGLY, THE AMOUNT OF NET
    WORKING CAPITAL THAT MAY BE RETAINED BY FVE IS NOT ASSURED AND MAY BE LESS
    THAN $6.5 MILLION.
  * THIS PRESS RELEASE STATES THAT AFTER THE HOSPITAL OPERATIONS TRANSFER IS
    COMPLETED, A LARGE MAJORITY OF FVE’S TOTAL REVENUES (APPROXIMATELY 77%)
    WILL BE FROM RESIDENTS AND PATIENTS WHO PAY FOR SERVICES WITH PRIVATE
    RESOURCES. THIS MAY IMPLY THAT A LARGE MAJORITY OF FVE’S REVENUES WILL
    CONTINUE TO COME FROM RESIDENTS’ AND PATIENTS’ PRIVATE RESOURCES. HOWEVER,
    RESIDENTS AND PATIENTS WHO PAY FOR FVE’S SERVICES WITH THEIR PRIVATE
    RESOURCES MAY BECOME UNABLE TO AFFORD FVE’S SERVICES WHICH COULD RESULT IN
    DECREASED OCCUPANCY, DECREASED REVENUES AT FVE’S SENIOR LIVING COMMUNITIES
    OR INCREASED RELIANCE ON LOWER RATES FROM GOVERNMENT PAYERS. FURTHER, FVE
    MAY ACQUIRE OR OPERATE ADDITIONAL HEALTHCARE FACILITIES THAT HAVE A HIGHER
    PERCENTAGE OF THEIR REVENUES RECEIVED FROM THE MEDICARE AND MEDICAID
    PROGRAMS. IN ADDITION, THE MEDICAID AND MEDICARE PROGRAMS MAY BE CHANGED
    TO PROVIDE FOR PAYMENTS FOR ADDITIONAL RESIDENTS OR PATIENTS OF FVE
    OPERATED HEALTHCARE FACILITIES.
  * THIS PRESS RELEASE STATES THAT AFTER THE TRANSFER OF FVE’S HOSPITAL
    OPERATIONS IS COMPLETED, FVE’S CONTINUING OPERATIONS WILL BE 100% FOCUSED
    UPON SENIOR LIVING COMMUNITIES. THIS MAY IMPLY THAT FVE’S OPERATING
    RESULTS WILL IMPROVE. HOWEVER, THE HOSPITALS’ OPERATIONS ARE A SMALL PART
    OF FVE’S BUSINESS AND FVE MAY NOT REALIZE IMPROVED OPERATING RESULTS
    FOLLOWING THE TRANSFER OF THE HOSPITALS’ OPERATIONS. ALSO, FVE MAY
    CONSIDER OTHER INVESTMENTS AND BUSINESS OPPORTUNITIES IN THE FUTURE WHICH
    MAY RESULT IN FVE NOT HAVING ITS CONTINUING OPERATIONS 100% FOCUSED UPON
    SENIOR LIVING COMMUNITIES.

FOR THESE AND OTHER REASONS, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE UPON FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.

EXCEPT AS REQUIRED BY APPLICABLE LAW, FVE DOES NOT INTEND TO UNDERTAKE ANY
OBLIGATION TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE AS A
RESULT OF NEW INFORMATION WHICH MAY COME TO FVE’S ATTENTION, FUTURE EVENTS OR
OTHERWISE.

Contact:

Five Star Quality Care, Inc.
Timothy A. Bonang, (617) 796-8245
Vice President, Investor Relations
www.fivestarseniorliving.com
or
Elisabeth H. Olmsted, (617) 796-8245
Manager, Investor Relations
www.fivestarseniorliving.com
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