Company Quick10K Filing
Quick10K
Five Star Senior Living
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.59 51 $30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
10-Q 2012-12-31 Quarter: 2012-12-31
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-06-11 Enter Agreement, Off-BS Arrangement, Shareholder Vote, Other Events, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-04-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-11 Enter Agreement, Exhibits
8-K 2018-12-27 Officers, Exhibits
8-K 2018-12-18 Enter Agreement, Exhibits
8-K 2018-12-11 Officers
8-K 2018-12-11 Officers, Exhibits
8-K 2018-11-15 Other Events
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-10-22
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-06-29 Exhibits
8-K 2018-05-17 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-02-25 Other Events, Exhibits
8-K 2018-01-19 M&A, Exhibits
T AT&T 221,710
TWLO Twilio 16,800
PBFX PBF Logistics 1,280
HAYN Haynes 413
VBIV VBI Vaccines 129
LMST Limestone Bancorp 114
SMRT Stein Mart 44
FFHL Fuwei Films 8
CRVW Careview Communications 0
ICOG Icon Leasing Fund Twelve 0
FVE 2019-06-30
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1. Basis of Presentation and Organization
Note 2. Summary of Significant Accounting Policies
Note 3. Property and Equipment
Note 4. Accumulated Other Comprehensive Income
Note 5. Income Taxes
Note 6. Earnings per Share
Note 7. Fair Values of Assets and Liabilities
Note 8. Indebtedness
Note 9. Leases with Snh and Hcp and Management Agreements with Snh
Note 10. Business Management Agreement with Rmr Llc
Note 11. Related Person Transactions
Note 12. Legal Proceedings and Claims
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information
Item 6. Exhibits
EX-10.3 a6302019-exhibit103.htm
EX-10.4 a6302019-exhibit104.htm
EX-10.5 a6302019-exhibit105.htm
EX-31.1 a6302019-exhibit311.htm
EX-31.2 a6302019-exhibit312.htm
EX-32.1 a6302019-exhibit321.htm

Five Star Senior Living Earnings 2019-06-30

FVE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 June 30, 2019  
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)
 
 
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) 

(Registrant’s Telephone Number, Including Area Code): 617-796-8387

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

Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Shares of 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, $.01 par value, outstanding as of August 6, 2019:  50,865,892.  
 
 
 
 
 




FIVE STAR SENIOR LIVING INC.
FORM 10-Q
JUNE 30, 2019
INDEX
 
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.





PART I.   Financial Information
Item 1.  Condensed Consolidated Financial Statements

FIVE STAR SENIOR LIVING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
 
 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
35,500

 
$
29,512

Accounts receivable, net of allowance of $3,998 and $3,422 at June 30, 2019 and December 31, 2018, respectively
 
36,619

 
37,758

Due from related persons
 
3,698

 
7,855

Investments, of which $12,008 and $11,285 are restricted at June 30, 2019 and December 31, 2018, respectively
 
21,275

 
20,179

Restricted cash
 
23,880

 
19,720

Prepaid expenses and other current assets
 
20,844

 
23,029

Assets held for sale
 
11,218

 

Total current assets
 
153,034

 
138,053

 
 
 
 
 
Property and equipment, net
 
165,382

 
243,873

Equity investment of an investee
 
9,303

 
8,633

Restricted cash
 
1,029

 
923

Restricted investments
 
6,267

 
8,073

Right of use assets
 
909,267

 

Other long term assets
 
5,739

 
6,069

Total assets
 
$
1,250,021

 
$
405,624

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Revolving credit facility
 
$

 
$
51,484

Accounts payable and accrued expenses
 
65,961

 
69,667

Current portion of lease liabilities
 
94,368

 

Accrued compensation and benefits
 
41,810

 
35,421

Due to related persons
 
18,359

 
18,883

Mortgage notes payable
 
350

 
339

Accrued real estate taxes
 
1,777

 
12,959

Security deposits and current portion of continuing care contracts
 
766

 
3,468

Other current liabilities
 
34,089

 
37,472

Liabilities held for sale
 
12,615

 

Total current liabilities
 
270,095

 
229,693

 
 
 
 
 
Long term liabilities:
 
 
 
 
Mortgage notes payable
 
7,355

 
7,533

Long term portion of lease liabilities
 
829,956

 

Accrued self insurance obligations
 
31,148

 
33,030

Deferred gain on sale and leaseback transaction
 

 
59,478

Other long term liabilities
 
1,721

 
4,721

Total long term liabilities
 
870,180

 
104,762

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
Common stock, par value $.01: 75,000,000 shares authorized, 50,865,892 and 50,853,452 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
 
508

 
508

Additional paid in capital
 
361,777

 
361,555

Accumulated deficit
 
(254,197
)
 
(292,636
)
Accumulated other comprehensive income
 
1,658

 
1,742

Total shareholders’ equity
 
109,746

 
71,169

 
 
$
1,250,021

 
$
405,624

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

1


FIVE STAR SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Senior living revenue
 
$
274,496

 
$
270,882

 
$
551,431

 
$
545,407

Management fee revenue
 
4,024

 
3,777

 
8,007

 
7,399

Reimbursed costs incurred on behalf of managed communities
 
77,219

 
68,439

 
151,824

 
135,809

Total revenues
 
355,739

 
343,098

 
711,262

 
688,615

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Senior living wages and benefits
 
145,249

 
140,713

 
288,879

 
276,882

Other senior living operating expenses
 
72,576

 
75,764

 
149,344

 
149,541

Costs incurred on behalf of managed communities
 
77,219

 
68,439

 
151,824

 
135,809

Rent expense
 
33,262

 
52,113

 
87,804

 
104,358

General and administrative expenses
 
20,548

 
18,477

 
47,050

 
38,440

Depreciation and amortization expense
 
2,941

 
8,977

 
11,106

 
17,837

Loss (gain) on sale of senior living communities
 
101

 
(1,509
)
 
101

 
(7,193
)
Long lived asset impairment
 
112

 
365

 
3,260

 
365

Total operating expenses
 
352,008

 
363,339

 
739,368

 
716,039

 
 
 
 
 
 
 
 
 
Operating income (loss)
 
3,731

 
(20,241
)
 
(28,106
)
 
(27,424
)
 
 
 
 
 
 
 
 
 
Interest, dividend and other income
 
415

 
218

 
571

 
385

Interest and other expense
 
(906
)
 
(604
)
 
(1,812
)
 
(1,307
)
Unrealized (loss) gain on equity investments
 
(38
)
 
44

 
328

 
(6
)
Realized gain (loss) on sale of debt and equity investments, net of tax
 
144

 
(42
)
 
236

 
(10
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes and equity in earnings of an investee
 
3,346

 
(20,625
)
 
(28,783
)
 
(28,362
)
Benefit (provision) for income taxes
 
705

 
(281
)
 
(785
)
 
(537
)
Equity in earnings of an investee, net of tax
 
130

 
12

 
534

 
56

Net income (loss)
 
$
4,181

 
$
(20,894
)
 
$
(29,034
)
 
$
(28,843
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding—basic
 
50,067

 
49,653

 
50,054

 
49,624

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding—diluted
 
51,422

 
49,653

 
50,054

 
49,624

 
 
 
 
 
 
 
 
 
Net income (loss) per share—basic
 
$
0.08

 
$
(0.42
)
 
$
(0.58
)
 
$
(0.58
)
 
 
 
 
 
 
 
 
 
Net income (loss) per share—diluted
 
$
0.08

 
$
(0.42
)
 
$
(0.58
)
 
$
(0.58
)
 
The accompanying notes are an integral part of these unaudited condensed financial statements.



2


FIVE STAR SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income (loss)
$
4,181

 
$
(20,894
)
 
$
(29,034
)
 
$
(28,843
)
Other comprehensive income:
 
 
 
 
 
 
 
Unrealized loss on investments, net of tax
(16
)
 
(43
)
 
(221
)
 
(440
)
Equity in unrealized gain (loss) of an investee, net of tax
71

 
10

 
136

 
(83
)
Realized (gain) loss on investments reclassified and included in net income (loss), net of tax
(3
)
 
70

 
1

 
67

Other comprehensive income (loss)
52

 
37

 
(84
)
 
(456
)
Comprehensive income (loss)
$
4,233

 
$
(20,857
)
 
$
(29,118
)
 
$
(29,299
)

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



3


FIVE STAR SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)


 
Three and Six Months Ended June 30, 2019
 
Number of
Shares
 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Balance at December 31, 2018
50,853,452

 
$
508

 
$
361,555

 
$
(292,636
)
 
$
1,742

 
$
71,169

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 
(33,215
)
 

 
(33,215
)
Unrealized loss on investments, net of tax

 

 

 

 
(205
)
 
(205
)
Realized loss on 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 retained earnings in connection with the adoption of FASB ASU No. 2016-02

 

 

 
67,473

 

 
67,473

Grants under share award plan and share based compensation

 

 
97

 

 

 
97

Repurchases and forfeitures under share award plan
(10,420
)
 

 

 

 

 

Balance at March 31, 2019
50,843,032

 
$
508

 
$
361,652

 
$
(258,378
)
 
$
1,606

 
$
105,388

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
4,181

 

 
$
4,181

Unrealized loss on investments, net of tax

 

 

 

 
(16
)
 
(16
)
Realized gain on 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
62,500

 
 
123

 

 

 
123

Repurchases and forfeitures under share award plan
(39,640
)
 
 
2

 

 

 
2

Balance at June 30, 2019
50,865,892

 
$
508

 
$
361,777

 
$
(254,197
)
 
$
1,658

 
$
109,746


4


FIVE STAR SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)


 
Three and Six Months Ended June 30, 2018
 
Number of
Shares
 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Balance at December 31, 2017
50,524,424

 
$
505

 
$
360,942

 
$
(220,489
)
 
$
4,036

 
$
144,994

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Cumulative effect of reclassification of unrealized gain on equity investments in connection with the adoption of FASB ASU No. 2016-01

 

 

 
1,947

 
(1,947
)
 

Net loss

 

 

 
(7,949
)
 

 
(7,949
)
Unrealized loss on investments, net of tax

 

 

 

 
(397
)
 
(397
)
Realized gain on investments reclassified and included in net loss, net of tax

 

 

 

 
(3
)
 
(3
)
Equity in unrealized gain of an investee, net of tax

 

 

 

 
(93
)
 
(93
)
Total comprehensive loss

 

 

 
(6,002
)
 
(2,440
)
 
(8,442
)
Grants under share award plan and share based compensation
12,500

 

 
211

 

 

 
211

Balance at March 31, 2018
50,536,924

 
$
505

 
$
361,153

 
$
(226,491
)
 
$
1,596

 
$
136,763

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 
(20,894
)
 

 
(20,894
)
Unrealized loss on investments, net of tax

 

 

 

 
(43
)
 
(43
)
Realized gain on investments reclassified and included in net loss, net of tax

 

 

 

 
70

 
70

Equity in unrealized gain of an investee, net of tax

 

 

 

 
10

 
10

Total comprehensive loss

 

 

 
(20,894
)
 
37

 
(20,857
)
Grants under share award plan and share based compensation
62,500

 
1

 
72

 

 

 
73

Repurchases and forfeitures under share award plan
(11,340
)
 

 
207

 

 

 
207

Balance at June 30, 2018
50,588,084

 
$
506

 
$
361,432

 
$
(247,385
)
 
$
1,633

 
$
116,186


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


5


FIVE STAR SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(29,034
)
 
$
(28,843
)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization expense
 
11,106

 
17,837

Loss (gain) on sale of senior living communities
 
101

 
(7,193
)
Unrealized (gain) loss on equity securities
 
(328
)
 
6

Realized (gain) loss on sale of debt and equity investments
 
(236
)
 
10

Loss on disposal of property and equipment
 
86

 
209

Long lived asset impairment
 
3,260

 
365

Equity in earnings of an investee, net of tax
 
(534
)
 
(56
)
Stock based compensation
 
222

 
491

Provision for losses on receivables
 
2,092

 
2,637

Amortization of non-cash rent adjustments
 
(472
)
 
(3,305
)
Other noncash expense adjustments, net
 
62

 
96

Changes in assets and liabilities:
 
 
 
 

Accounts receivable
 
(953
)
 
187

Prepaid expenses and other assets
 
3,110

 
4,766

Accounts payable and accrued expenses
 
(5,123
)
 
(11,165
)
Accrued compensation and benefits
 
6,389

 
2,742

Due from (to) related persons, net
 
16,486

 
(1,798
)
Other current and long term liabilities
 
293

 
(302
)
Cash provided by (used in) operating activities
 
6,527

 
(23,316
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Acquisition of property and equipment
 
(24,427
)
 
(23,680
)
Purchases of investments
 
(2,234
)
 
(2,682
)
Proceeds from sale of property and equipment
 
78,920

 
8,529

Proceeds from sale of communities
 

 
31,853

Proceeds from sale of investments
 
4,446

 
4,981

Cash provided by investing activities
 
56,705

 
19,001

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings on revolving credit facility
 

 
5,000

Repayments of borrowings on revolving credit facility
 
(51,484
)
 
(5,000
)
Repayments of mortgage notes payable
 
(181
)
 
(343
)
Payment of deferred financing fees
 
(1,271
)
 

Cash used in financing activities
 
(52,936
)
 
(343
)
 
 
 
 
 
Change in cash and cash equivalents and restricted cash
 
10,296

 
(4,658
)
Cash and cash equivalents and restricted cash at beginning of period
 
50,155

 
48,478

Cash and cash equivalents and restricted cash at end of period
 
$
60,451

 
$
43,820

 
 
 
 
 
Reconciliation of cash and cash equivalents and restricted cash:
 
 
 
 
Cash and cash equivalents
 
$
35,500

 
$
22,137

Restricted cash
 
24,909

 
21,683

Restricted cash presented in assets held for sale
 
42

 

Cash and cash equivalents and restricted cash at end of period
 
$
60,451

 
$
43,820

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
1,565

 
$
1,002

Cash (received) paid for income taxes, net
 
$
(1,491
)
 
$
348

 
 
 
 
 
Non-cash activities:
 
 
 
 
Initial recognition of right of use assets
 
$
1,478,958

 
$

Initial recognition of lease liabilities
 
$
1,478,958

 
$

Real estate sale
 
$

 
$
33,364

Mortgage notes assumed by purchaser in real estate sale
 
$

 
$
33,364


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


6


FIVE STAR SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)



Note 1.  Basis of Presentation and Organization

General

The accompanying condensed consolidated financial statements of Five Star Senior Living Inc. and its subsidiaries, or we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, 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, 2018, 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. Certain reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation.

We operate senior living communities, including independent living communities, assisted living communities and skilled nursing facilities, or SNFs. As of June 30, 2019, we operated 282 senior living communities located in 33 states with 31,996 living units, including 256 primarily independent and assisted living communities with 29,768 living units and 26 SNFs with 2,228 living units. As of June 30, 2019, we owned and operated 20 of these senior living communities (2,108 living units), we leased and operated 185 of these senior living communities (19,804 living units) and we managed 77 of these senior living communities (10,084 living units). Our 282 senior living communities, as of June 30, 2019, included 11,134 independent living apartments, 16,470 assisted living suites and 4,392 SNF units. The foregoing numbers exclude living units categorized as out of service.  

Going Concern

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which accordingly assumes, among other things, the realization of assets and the satisfaction of liabilities in the ordinary course of business.

We previously determined that, as of May 8, 2019, a substantial doubt existed regarding our ability to continue as a going concern. We had made this determination based on the following factors, among others: we face increased competition across the senior living industry, including in specific markets in which we operate senior living communities; medical advances and healthcare services allow some potential residents to defer the time when they require the special services available at our communities; low unemployment in the United States combined with a competitive labor market within our industry are increasing our employment costs; we have a significant accumulated deficit and we have incurred operating losses in each of the last three fiscal years; we did not expect to be able to pay our full rent obligations during the first quarter of 2019, absent rent relief from Senior Housing Properties Trust, or, together with its subsidiaries, SNH; and our then existing $54,000 secured revolving credit facility, or our prior credit facility, was fully drawn and scheduled to expire on June 28, 2019. Since March 31, 2019, we have taken significant actions to address our operating and liquidity challenges. As a result, even though challenging conditions in the senior living industry continue to exist, there no longer exists a substantial doubt about our ability to continue as a going concern for the next 12 months.

We currently operate 258 senior living communities under lease and management arrangements with SNH, or approximately 91.5% of the total communities we operate. In order to address our ongoing operating and liquidity challenges, on April 1, 2019, we entered into a transaction agreement with SNH, or the Transaction Agreement, pursuant to which we and SNH agreed to modify our existing business arrangements, subject to certain conditions and the receipt of various approvals. As part of these modifications, (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by us under our master leases with SNH was reduced to $11,000, and, as our stockholders approved the issuances of our common shares to SNH and SNH’s shareholders pursuant to the Transaction Agreement, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated, and (2) no additional rent is payable to SNH by us from February 1, 2019 to January 1, 2020 (or January 1, 2021, if extended under the Transaction Agreement), or the Conversion Time, subject to possible extension. Also on April 1, 2019, pursuant to the Transaction Agreement, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH's

7


FIVE STAR SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)


senior living communities leased and operated by us, which amount was subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement. SNH also extended to us a $25,000 line of credit that matures on January 1, 2020, subject to extension. As of June 30, 2019 and August 6, 2019, we had no borrowings outstanding under this line of credit. Other significant pending transactions are also contemplated by the Transaction Agreement. For more information regarding the Transaction Agreement and related agreements and the transactions contemplated thereby, see Note 9.

On June 12, 2019, we entered into a second amended and restated credit agreement with Citibank, N.A., as administrative agent and lender, and a syndicate of other lenders, or our credit agreement, pursuant to which we have a $65,000 secured revolving credit facility, or our credit facility, that is available for general business purposes. Our credit facility replaced our prior credit facility, which was scheduled to expire on June 28, 2019. During June 2019, we repaid, in aggregate, $51,484 of outstanding borrowings under our credit facility. As of June 30, 2019 and August 6, 2019, we had no borrowings outstanding under our credit facility. For more information regarding our credit agreement, our credit facility and our prior credit facility, see Note 8.

Segment Information

As of June 30, 2019, we have two operating segments: senior living communities and rehabilitation and wellness. In the senior living community segment, we operate for our own account or manage for the account of others independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents. In the rehabilitation and wellness operating segment we provide therapy services, including physical, occupational, speech and other specialized therapy services, in the inpatient setting and in outpatient clinics. We have determined that our two operating segments meet the aggregation criteria as prescribed under Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or ASC, Topic 280, Segment Reporting, and we have therefore determined that our business is comprised of one reportable segment, senior living. All of our operations and assets are located in the United States, except for the operations of our Cayman Islands organized captive insurance company subsidiary, which participates in our workers’ compensation, professional and general liability and certain automobile insurance programs.

Note 2. Summary of Significant Accounting Policies

Leases

On January 1, 2019, we adopted FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, we elected the practical expedients within FASB Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU No. 2016-02, that allow an entity to not reassess as of January 1, 2019 its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs.

In accordance with ASC Topic 842, at inception of a contract, we, as lessee, evaluate and determine whether such contract is or contains a lease based on whether such contract conveys the right to control the use of the identified asset. We apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. We have elected to apply the portfolio approach where possible in assessing our leases and performed an assessment of all our leases. In addition, we have elected the practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. As lessee, we lease senior living communities and our headquarters, and enter into contracts for the use and maintenance of various pieces of equipment that contain a lease. We have determined that none of these leases have met any of the criteria to be classified as a finance lease and, therefore, we have accounted for all of these leases as operating leases.

We have determined that our leases for the use and maintenance of equipment are short term leases. In accordance with ASC Topic 842, we have made an accounting policy election for our leases, which are determined to be short term leases, whereby we recognize the lease payments on a straight line basis over the lease term and variable lease payments in the period in which the obligations for those payments are incurred. Expense related to these leases is recognized in the statement of operations in other senior living operating expenses and is not material to our condensed consolidated financial statements.

We have determined that our leases for senior living communities and our headquarters are long term leases. In accordance with ASC Topic 842, a lessee is required to record a right of use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Accordingly, we have recorded a right of use asset and lease liability for all of our leased communities and our headquarters. We determined that the discount rate implicit in the leases was not readily available,

8


FIVE STAR SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)


and therefore, in accordance with ASC Topic 842, we determined our incremental borrowing rate, or IBR, to calculate the right of use assets and lease liabilities. For purposes of determining the lease term, we concluded that it is not reasonably certain that our lease extensions will be exercised and, therefore, we included payments required to be made under the committed lease term in calculating the right of use assets and lease liabilities. Expense related to these leases is recognized in the statement of operations in rent expense, except for the expense related to our headquarters, which is recorded in general and administrative expenses. We recognize variable lease payments primarily relating to percentage rent paid under our leases with SNH, and operating costs such as insurance and real estate taxes, in the statement of operations in the period in which the obligations for those payments are incurred.

We have not capitalized any initial direct costs related to our leases as these costs are not material to our condensed consolidated financial statements.

ASC Topic 842 provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. In addition, ASC Topic 842 clarifies which ASC Topic (Topic 842 or FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606) applies for the combined component. Specifically, if the non-lease components associated with the lease component are the predominant component of the combined components, the lessor should account for the combined component in accordance with ASC Topic 606. Otherwise, the lessor should account for the combined component as an operating lease in accordance with ASC Topic 842. We have elected this practical expedient and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the leases and, therefore, we recognize revenue for these agreements under ASC Topic 606.

Revenue Recognition

We recognize revenue from contracts with customers in accordance with ASC Topic 606 using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within that portfolio. The five step model defined by ASC Topic 606 requires us to: (1) identify our contracts with customers; (2) identify our performance obligations under those contracts; (3) determine the transaction prices of those contracts; (4) allocate the transaction prices to our performance obligations in those contracts; and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

A substantial portion of our revenue at our independent living and assisted living communities relates to contracts with residents for housing services that are generally short term in nature and initially is subject to ASC Topic 842. As previously discussed, we have concluded that the non-lease components of these agreements are the predominant components of the contracts; therefore, we recognize revenue for these agreements under ASC Topic 606. Our contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short term in nature. We have determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when our performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.

Senior Living Revenue. Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services being provided are not material to our consolidated financial statements. Some of our senior living communities require payment of an entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in other current liabilities in our consolidated balance sheets. These deferred amounts then are amortized on a straight line basis into revenue over the term of the resident agreement. Revenue recorded and deferred in connection with community fees is not material to our consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in

9


FIVE STAR SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)


accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.

In our SNFs and certain of our independent and assisted living communities where we provide SNF services, we are paid fixed daily rates from governmental and contracted third party payers, and we charge a predetermined fixed daily rate for private pay residents. These fixed daily rates and certain other fees are billed monthly in arrears. Although there are complex regulatory compliance rules governing fixed daily rates, we have no episodic payments or capitation arrangements. We currently use the “most likely amount” technique to estimate revenue in accordance with ASC Topic 606, although rates are generally known and considered fixed prior to services being performed, whether included in the resident agreement or contracted with governmental or third party payers. Rate adjustments from Medicare or Medicaid are recorded when known (without regard to when the assessment is paid or withheld), and subsequent adjustments to these amounts are recorded in revenues when known. Billings under certain of these programs are subject to audit and possible retroactive adjustment, and related revenue is recorded at the amount we ultimately expect to receive, which is inclusive of the estimated retroactive adjustments or refunds, if any, under reimbursement programs. Retroactive adjustments are recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Revenue is recognized when performance obligations are satisfied by transferring control of the service provided to the resident, which is generally when services are provided over the duration of care. We derived approximately 22.4% and 22.8% of our senior living revenues for the three months ended June 30, 2019 and 2018, respectively, and 23.0% and 23.2% for the six months ended June 30, 2019 and 2018, respectively, from payments under Medicare and Medicaid programs.

Management Fee Revenue and Reimbursed Costs Incurred on Behalf of Managed Communities. We manage senior living communities for the account of SNH pursuant to long term management agreements which provide for periodic management fee payments to us and reimbursement for our direct costs and expenses related to such communities. Management fees are determined by an agreed upon percentage of gross revenues (as defined) and recognized in accordance with ASC Topic 606 in the same period that we provide the management services to SNH, generally monthly. FASB ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. Where we are the primary obligor and therefore control the transfer of the goods and services with respect to any such operating expenses incurred in connection with the management of these communities, we recognize revenue when the goods have been delivered or the service has been rendered and we are due to be reimbursed from SNH. Such revenue is included in reimbursed costs incurred on behalf of managed communities in our consolidated statements of operations. The related costs are included in costs incurred on behalf of managed communities in our consolidated statements of operations. Amounts due from SNH related to management fees and reimbursed costs incurred on behalf of managed communities are included in due from related persons in our consolidated balance sheets.

The following table presents revenue disaggregated by type of contract and payer:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue from contracts with customers:
 
 
 
 
 
 
 
Basic housing and support services (1)
$
163,615

 
$
161,778

 
$
326,390

 
$
323,882

Medicare and Medicaid programs (1)
61,443

 
61,824

 
126,764

 
126,427

Additional requested services, and private pay and other third party payer SNF services (1)
49,438

 
47,280

 
98,277

 
95,098

Management fee revenue
4,024

 
3,777

 
8,007

 
7,399

Reimbursed costs incurred on behalf of managed communities
77,219

 
68,439

 
151,824

 
135,809