Company Quick10K Filing
Five Star Senior Living
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-06
S-1 2019-09-27 Public Filing
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-06
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-03-21
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-03
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-04
10-K 2015-12-31 Filed 2016-03-02
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-16
10-Q 2014-06-30 Filed 2014-12-17
10-Q 2014-06-30 Filed 2014-12-17
10-Q 2014-03-31 Filed 2014-12-17
10-K 2013-12-31 Filed 2014-09-17
10-Q 2013-06-30 Filed 2013-07-31
10-Q 2013-03-31 Filed 2013-05-01
10-Q 2012-12-31 Filed 2014-04-16
10-K 2012-12-31 Filed 2013-02-19
10-Q 2012-09-30 Filed 2012-10-30
10-Q 2012-06-30 Filed 2012-08-01
10-Q 2012-03-31 Filed 2012-05-01
10-K 2011-12-31 Filed 2012-02-17
10-Q 2011-09-30 Filed 2011-10-28
10-Q 2011-06-30 Filed 2011-07-28
10-Q 2011-03-31 Filed 2011-04-28
10-K 2010-12-31 Filed 2011-02-23
10-Q 2010-09-30 Filed 2010-10-28
10-Q 2010-06-30 Filed 2010-07-29
10-Q 2010-03-31 Filed 2010-05-04
10-K 2009-12-31 Filed 2010-02-19
8-K 2020-06-09
8-K 2020-05-07
8-K 2020-03-02
8-K 2020-01-01
8-K 2019-11-06
8-K 2019-10-15
8-K 2019-09-30
8-K 2019-08-07
8-K 2019-06-11
8-K 2019-05-08
8-K 2019-04-01
8-K 2019-03-11
8-K 2019-03-06
8-K 2018-12-27
8-K 2018-12-18
8-K 2018-12-11
8-K 2018-12-11
8-K 2018-11-15
8-K 2018-11-14
8-K 2018-10-22
8-K 2018-08-09
8-K 2018-06-29
8-K 2018-05-17
8-K 2018-05-15
8-K 2018-03-21
8-K 2018-02-25
8-K 2018-01-19

FVE 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
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 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits
EX-31.1 a3312020-fveexhibit311.htm
EX-31.2 a3312020-fveexhibit312.htm
EX-32.1 a3312020-fveexhibit321.htm

Five Star Senior Living Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.91.51.10.80.40.02012201420172020
Assets, Equity
0.40.30.20.20.10.02012201420172020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12012201420172020
Ops, Inv, Fin

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 March 31, 2020  
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) 

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, $.01 par value, outstanding as of May 4, 2020:  31,541,833.  
 
 
 
 
 




FIVE STAR SENIOR LIVING INC.
FORM 10-Q
March 31, 2020
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.

“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)
 
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
36,641

 
$
31,740

Accounts receivable, net of allowance of $4,469 and $4,664, respectively
 
10,941

 
34,190

Due from related person
 
40,949

 
5,533

Debt and equity investments, of which $11,208 and $12,622 are restricted, respectively
 
19,544

 
21,070

Restricted cash and cash equivalents
 
24,290

 
23,995

Prepaid expenses and other current assets
 
16,245

 
17,286

Assets held for sale
 

 
9,554

          Total current assets
 
148,610

 
143,368

 
 
 
 
 
Property and equipment, net
 
164,274

 
167,247

Equity investment of an investee
 
298

 
298

Restricted cash and cash equivalents
 
1,438

 
1,244

Restricted debt and equity investments
 
7,697

 
7,105

Right of use assets
 
20,161

 
20,855

Other long-term assets
 
4,270

 
5,676

Total assets
 
$
346,748

 
$
345,793

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
20,098

 
$
30,440

Accrued expenses
 
15,216

 
53,683

Accrued compensation and benefits
 
19,449

 
35,629

Current portion of lease liabilities
 
2,925

 
2,872

Due to related persons
 
1,145

 
2,247

Mortgage note payable
 
369

 
362

Security deposits and current portion of continuing care contracts
 
429

 
434

Accrued self-insurance obligations and other current liabilities
 
24,326

 
26,089

Liabilities held for sale
 

 
12,544

          Total current liabilities
 
83,957

 
164,300

 
 
 
 
 
Long-term liabilities:
 
 
 
 
Mortgage note payable
 
7,076

 
7,171

Long-term portion of lease liabilities
 
18,925

 
19,671

Accrued self-insurance obligations
 
35,966

 
33,872

Other long-term liabilities
 
215

 
798

Total long-term liabilities
 
62,182

 
61,512

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
Common stock, par value $.01: 75,000,000 shares authorized, 31,542,335 and 5,154,892 shares issued and outstanding, respectively
 
316

 
52

Additional paid-in-capital
 
459,606

 
362,450

Accumulated deficit
 
(260,699
)
 
(245,184
)
Accumulated other comprehensive income
 
1,386

 
2,663

Total shareholders’ equity
 
200,609

 
119,981

Total liabilities and shareholders' equity
 
$
346,748

 
$
345,793

The accompanying notes are an integral part of these unaudited condensed 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,
 
 
2020
 
2019
REVENUES
 
 
 
 
Senior living
 
$
21,338

 
$
266,529

Management fees
 
17,051

 
3,983

Rehabilitation and wellness services
 
21,043

 
10,406

     Total management and operating revenues
 
59,432

 
280,918

Reimbursed community-level costs incurred on behalf of managed communities
 
232,016

 
74,605

Other reimbursed expenses
 
5,997

 

Total revenues
 
297,445

 
355,523

 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
Senior living wages and benefits
 
10,202

 
136,841

Other senior living operating expenses
 
3,294

 
75,737

Rehabilitation and wellness services expenses
 
16,566

 
7,820

Community-level costs incurred on behalf of managed communities
 
232,016

 
74,605

General and administrative
 
22,865

 
26,502

Rent
 
1,177

 
54,542

Depreciation and amortization
 
2,701

 
8,165

Long-lived asset impairment
 

 
3,148

Total operating expenses
 
288,821

 
387,360

 
 
 
 
 
Operating income (loss)
 
8,624

 
(31,837
)
 
 
 
 
 
Interest, dividend and other income
 
339

 
156

Interest and other expense
 
(382
)
 
(906
)
Unrealized (loss) gain on equity investments
 
(1,462
)
 
366

Realized (loss) gain on sale of debt and equity investments
 
(21
)
 
92

Loss on termination of leases
 
(22,899
)
 

 
 
 
 
 
Loss before income taxes and equity in earnings of an investee
 
(15,801
)
 
(32,129
)
Provision for income taxes
 
(1,408
)
 
(1,490
)
Equity in earnings of an investee
 

 
404

Net loss
 
$
(17,209
)
 
$
(33,215
)
 
 
 
 
 
Weighted average common shares outstanding (basic and diluted)
 
31,448

 
5,004

 
 
 
 
 
Net loss per share (basic and diluted)
 
$
(0.55
)
 
$
(6.64
)
 
The accompanying notes are an integral part of these unaudited condensed financial statements.



2


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


 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
Net loss
$
(17,209
)
 
$
(33,215
)
Other comprehensive income (loss):
 
 
 
Unrealized gain (loss) on debt investments, net of tax of $0 and $742, respectively
427

 
(205
)
Equity in unrealized gain of an investee, net of tax

 
65

Realized (gain) loss on debt investments reclassified and included in net loss, net of tax of $0 and $0, respectively
(10
)
 
4

Other comprehensive income (loss)
417

 
(136
)
Comprehensive loss
$
(16,792
)
 
$
(33,351
)

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



3


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



 
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, 2020
5,154,892

 
$
52

 
$
362,450

 
$
(245,184
)
 
$
2,663

 
$
119,981

Comprehensive 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

 

 

 
(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



 
Three Months Ended March 31, 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 FASB 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


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

4


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


 
 
Three Months Ended March 31,
 
 
2020
 
2019
CASH FLOW FROM OPERATING ACTIVITIES:
 
 
 
 
Net loss
 
$
(17,209
)
 
$
(33,215
)
Adjustments to reconcile net loss to cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
2,701

 
8,165

Unrealized loss (gain) on equity investments
 
1,462

 
(366
)
Realized loss (gain) on sale of debt and equity investments
 
21

 
(92
)
Loss on termination of leases
 
22,899

 

Long-lived asset impairment
 

 
3,148

Equity in earnings of an investee
 

 
(404
)
Share based compensation
 
80

 
97

Provision for losses on accounts receivable
 
510

 
1,045

Other non-cash expense adjustments, net
 
69

 
201

Changes in assets and liabilities:
 
 
 
 

Accounts receivable
 
22,739

 
(3,031
)
Due from related person
 
(15,391
)
 
(1,881
)
Prepaid expenses and other assets
 
2,276

 
1,062

Accounts payable
 
(10,342
)
 
(149
)
Accrued expenses
 
17,406

 
7,652

Accrued compensation and benefits
 
(16,180
)
 
7,783

Due to related persons
 
(1,102
)
 
17,583

Other current and long-term liabilities
 
(144
)
 
737

     Net cash provided by operating activities
 
9,795

 
8,335

 
 
 
 
 
CASH FLOW FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of property and equipment
 
(6,341
)
 
(12,056
)
Purchases of debt and equity investments
 
(1,588
)
 
(1,471
)
Proceeds from sale of property and equipment
 
2,725

 
22,578

Proceeds from sale of debt and equity investments
 
1,453

 
2,643

     Net cash (used in) provided by investing activities
 
(3,751
)
 
11,694

 
 
 
 
 
CASH FLOW FROM FINANCING ACTIVITIES:
 
 
 
 
Costs related to issuance of common stock
 
(559
)
 

Repayments of mortgage note payable
 
(95
)
 
(91
)
     Net cash used in financing activities
 
(654
)
 
(91
)
 
 
 
 
 
Change in cash and cash equivalents and restricted cash and cash equivalents
 
5,390

 
19,938

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
 
$
62,369

 
$
70,093

 
 
 
 
 
Reconciliation of cash and cash equivalents and restricted cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
 
$
36,641

 
$
49,699

Current restricted cash and cash equivalents
 
24,290

 
19,464

Other restricted cash and cash equivalents
 
1,438

 
930

Cash and cash equivalents and restricted cash and cash equivalents at end of period
 
$
62,369

 
$
70,093

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Interest paid
 
$
122

 
$
780

Income taxes (received) paid, net
 
$
(117
)
 
$
120

 
 
 
 
 
Non-cash financing activities:
 
 
 
 
Liabilities assumed and cash payments receivable related to issuance of our common stock
 
$
75,000

 
$


The accompanying notes are an integral part of these unaudited condensed 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, 2020, we managed or operated 268 senior living communities located in 32 states with 31,272 living units, including 257 primarily independent and assisted living communities with 30,008 living units and 11 primarily skilled nursing facilities, or SNFs, with 1,264 living units. As of March 31, 2020, we managed 244 of these senior living communities (28,960 living units), we owned and operated 20 of these senior living communities (2,108 living units) and we leased and operated four of these senior living communities (204 living units). Our 268 senior living communities, as of March 31, 2020, included 11,362 independent living apartments, 16,459 assisted living suites and 3,451 SNF units. The foregoing numbers exclude living units categorized as out of service.  

Our rehabilitation and wellness services division provides a comprehensive suite of services; for example, our Ageility Physical Therapy Solutions division, or Ageility, provides our residents and others with rehabilitation and wellness services at our senior living communities as well as at outpatient clinics located separately from our senior living communities. As of March 31, 2020, we operated 41 inpatient rehabilitation clinics in senior living communities of Diversified Healthcare Trust, or DHC, that are managed by us. As of March 31, 2020, we operated 203 outpatient rehabilitation clinics, of which 152 were located at our managed, leased and owned senior living communities and 51 were located within senior living communities not owned or leased by us or DHC.

Restructuring of Business Arrangements with DHC. On April 1, 2019, we entered into a transaction agreement, or the Transaction Agreement, with DHC to restructure our business arrangements with DHC, pursuant to which, effective as of January 1, 2020, or the Conversion Time:

our five then existing master leases with DHC as well as our then existing management and pooling agreements with DHC were terminated and replaced with new management agreements for all of these senior living communities, together with a related omnibus agreement, or collectively, the New Management Agreements;

we issued 10,268,158 of our common shares to DHC and an aggregate of 16,118,849 of our common shares to DHC’s shareholders of record as of December 13, 2019, or, together, the Share Issuances; and

as consideration for the Share Issuances, DHC provided to us $75,000 by assuming certain of our working capital liabilities and through cash payments. Such consideration, the Conversion and the Share Issuances are collectively referred to as the Restructuring Transactions.

As of January 1, 2020, we reorganized our business to focus on the different services we offer older adults. In connection with our reorganization, we changed our reporting structure and the composition of our reporting units. As a result, we have reclassified certain prior year amounts to conform to the current year’s presentation. See Note 4 for more information regarding our segment reporting.

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.

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, 2019, 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 financial statements in conformity with GAAP requires us to make estimates and assumptions that may affect the amounts reported in these financial statements and related notes. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements relate to revenue recognition, including contractual allowances, the allowance of doubtful accounts, self-insurance reserves, long-lived assets, and estimates concerning our provisions for income taxes.

Recently Adopted Accounting Pronouncements. On January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement (Topic 820) issued by the Financial Accounting Standards Board, or FASB, which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

On January 1, 2020, we adopted ASU No. 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40) issued by the FASB, using the prospective transition method, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies certain requirements under Topic 740, including eliminating the exception to intraperiod tax allocation when there is a loss from continuing operations and income from other sources, such as other comprehensive income or discontinued operations. We adopted this ASU on January 1, 2020. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted. In June 2016, the FASB issued 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 available for sale security other-than-temporary impairment model for 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 and clarifies that receivables arising from operating leases are not in the scope of this ASU. 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 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 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 are assessing the potential impact that this ASU will have on our consolidated financial statements.
    
3. Revenue Recognition

We recognize revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers, or 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 condensed consolidated financial statements would not differ materially from applying the guidance to

7


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

each individual contract within the respective portfolio or our performance obligations within such portfolio. The five-step model defined by ASC Topic 606 requires us to: (i) identify our contracts with customers; (ii) identify our performance obligations under those contracts; (iii) determine the transaction prices of those contracts; (iv) allocate the transaction prices to our performance obligations in those contracts; and (v) recognize revenue when each performance obligation under those contracts is satisfied. Revenue recognition occurs 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.

Senior Living and Rehabilitation and Wellness Services Revenues. A substantial portion of our revenue from our independent living and assisted living communities relates to contracts with residents for housing services that are generally short term in nature and initially are subject to ASC Topic 842, Leases, or ASC Topic 842. As noted above, 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. We also provide our residents and others with rehabilitation and wellness services at our senior living communities as well as at outpatient clinics located separately from our senior living communities. 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 are generally when the services are provided over time.

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 condensed consolidated financial statements. Some of our senior living communities require payment of an upfront 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 condensed consolidated balance sheets. These deferred amounts are then amortized on a straight-line basis into revenue over the term of the resident's agreement. When the resident no longer resides within our community, the remaining deferred non-refundable fees are recognized in revenue. Revenue recorded and deferred in connection with community fees is not material to our condensed consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.

Rehabilitation and wellness services revenues at our Ageility clinics consist of charges for clinically-based rehabilitation services, including physical therapy, speech therapy and occupational therapy, as well as other service-based programs and therapies. Revenue for these services is recognized in accordance with ASC Topic 606 and is recorded when the services are provided.
    
Management Fee Revenues and Reimbursed Community-Level Costs Incurred on Behalf of Managed Communities. We manage senior living communities for the account of DHC 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 support such communities. Although there are various management and operational activities performed by us under the agreements, we have determined that all community operations management activities constitute a single performance obligation, which is satisfied over time as the services are rendered. We earn management fees equal to 5% of gross revenues realized and 3% of construction costs for construction projects we manage at the senior living communities we manage. We recognize management fee revenues in accordance with ASC Topic 606 in the same period that we provide the management services to DHC, generally monthly. Our estimate of the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred.

Commencing with the 2021 calendar year, we may also earn incentive fees from DHC under the management agreements, which are payable in cash and are contingent performance based fees recognized only when earned at the end of each respective measurement period. Incentive management fees are excluded from the transaction price until it becomes probable that there will not be a significant reversal of cumulative revenue recognized. The incentive fee is equal to 15% of the amount by which the annual earnings before interest, taxes, depreciation and amortization, or EBITDA, of all the managed communities on a combined basis exceeds target EBITDA for those communities on a combined basis for such calendar year,

8


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

provided that in no event shall the incentive fee be greater than 1.5% of the gross revenues realized at all the managed communities on a combined basis for such calendar year.

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 DHC. Such revenue is included in community-level costs incurred on behalf of managed communities in our condensed consolidated statements of operations. The related costs are included in reimbursed community-level costs incurred on behalf of managed communities in our condensed consolidated statements of operations. Amounts due from DHC related to management fees and reimbursed community-level costs incurred on behalf of managed communities are included in due from related persons in our condensed consolidated balance sheets.

Other reimbursed expenses. Other reimbursed expenses include reimbursements that arise from certain centralized services we provide pursuant to our management agreements, a significant portion of which are charged or passed through to and are paid by our customers. We have determined that we control the services provided by third parties for our customers and therefore, we account for the cost of these services and the related reimbursement revenue on a gross basis. We recognized other reimbursed expenses reflecting corresponding amounts in revenue and expense of $5,997 for the three months ended March 31, 2020. We did not recognize other reimbursed expenses for the three months ended March 31, 2019.

The following tables present revenue from contracts 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, 2020
 
Senior Living
 
Rehabilitation and Wellness Services
 
Total
Private payer
$
20,501

 
$
804

 
$
21,305

Medicare and Medicaid programs
716

 
9,570

 
10,286

Other third-party payer programs
121

 
10,669

 
10,790

Management fees
17,051

 

 
17,051

Reimbursed community-level costs incurred on behalf of managed communities
232,016

 

 
232,016

Other reimbursed expenses
5,997

 

 
5,997

Total revenues
$
276,402

 
$
21,043

 
$
297,445



 
Three Months Ended March 31, 2019
 
Senior Living
 
Rehabilitation and Wellness Services
 
Total
Private payer
$
198,875

 
$
526

 
$
199,401

Medicare and Medicaid programs
59,586

 
5,443

 
65,029

Other third-party payer programs
8,068

 
4,437

 
12,505

Management fees
3,983

 

 
3,983

Reimbursed community-level costs incurred on behalf of managed communities
74,605

 

 
74,605

Total revenues
$
345,117

 
$
10,406

 
$
355,523



4. Segment Information

Segment Information. Operating segments are components of an enterprise that engages in business activities and for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-

9


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

making group, in determining the allocation of resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer.

Effective as of January 1, 2020, we reorganized our business to focus on the different services we offer. As a result of the reorganization, our chief operating decision maker changed the manner in which our performance is assessed and, therefore, we changed our reporting structure and the composition of our operating segments. As a result, we have reclassified certain prior year amounts to conform to the current year's presentation.

Subsequent to the reorganization, we operate in two reportable segments: senior living and rehabilitation and wellness services. In the senior living reportable segment, we manage for the account of others and operate for our own account, respectively, independent living communities, assisted living communities and SNFs that are subject to centralized oversight. In the rehabilitation and wellness services segment, we provide therapy and home health services, including physical, occupational, speech and other specialized therapy services, in the inpatient setting and in outpatient clinics, through our Ageility division. Corporate and other amounts excluded from our reportable segments' performance are separately stated below and include amounts related to functional areas such as finance, information technology, legal, human resources and our captive insurance company subsidiary, which participates in our workers' compensation, professional and general liability and certain automobile insurance programs. All of our operations and assets are located in the United States, except for the operations of our captive insurance company subsidiary, which is organized in the Cayman Islands.

We do not allocate assets to operating segments and, therefore, no asset information is provided for reportable segments. 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, 2020
 
Senior
 Living
 
Rehabilitation and Wellness Services
 
Corporate and Other
 
Total
Total revenues
$
276,402

 
$
21,043

 
$

 
$
297,445

Operating income (loss)
20,328

 
3,881

 
(15,585
)
 
8,624

Income (loss) before income taxes and equity in earnings of an investee
4,735

 
2,828

 
(23,364
)
 
(15,801
)
Net income (loss)
4,735

 
2,828

 
(24,772
)
 
(17,209
)

 
Three Months Ended March 31, 2019
 
Senior
Living
 
Rehabilitation and Wellness Services
 
Corporate and Other
 
Total
Total revenues
$
345,117

 
$
10,406

 
$

 
$
355,523

Operating (loss) income
(7,658
)
 
2,228

 
(26,407
)
 
(31,837
)
(Loss) income before income taxes and equity in earnings of an investee
(26,821
)
 
1,190

 
(6,498
)
 
(32,129
)
Net (loss) income
(28,311
)
 
1,190

 
(6,094
)
 
(33,215
)



10


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

5. Property and Equipment, net

Property and equipment, net consist of the following:
 
 
March 31, 2020
 
December 31, 2019
Land
 
$
12,155

 
$
12,155

Buildings and improvements
 
202,417

 
201,447

Furniture, fixtures and equipment
 
57,932

 
59,174

Property and equipment, at cost
 
272,504

 
272,776

   Less: accumulated depreciation
 
(108,230
)
 
(105,529
)
   Property and equipment, net
 
$
164,274

 
$
167,247


 
We recorded depreciation expense relating to our property and equipment of $2,701 and $8,165 for the three months ended March 31, 2020 and 2019, respectively.
 
We review the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. If there is an indication that the carrying value of an asset or group of assets is not recoverable, we estimate the recoverability of these assets by comparing projected undiscounted cash flows associated with these assets to their respective historical carrying values. If we conclude that an impairment exists, we determine the amount of impairment loss by comparing the historical carrying value of the asset or group of assets to their estimated fair value. We determine estimated fair value based on input from market participants, our experience selling similar assets, market conditions and internally developed cash flow models that our assets or asset groups are expected to generate, and we consider these estimates to be a Level 3 fair value measurement. As a result of our long-lived assets impairment review, we recorded $3,148 of impairment charges to certain of our long-lived assets for the three months ended March 31, 2019. The fair value of the impaired assets was $4,520 as of March 31, 2019. No impairment charges were recorded for the three months ended March 31, 2020.

As of December 31, 2019, we had $4,813 of net property and equipment classified as held for sale and presented separately in our condensed consolidated balance sheets in connection with the Transaction Agreement. As of March 31, 2020, we did not have net property and equipment classified as held for sale.

6. Accumulated Other Comprehensive Income

The following tables detail the changes in accumulated other comprehensive income, net of tax, for the three months ended March 31, 2020 and 2019:
 
 
Three Months Ended March 31, 2020
 
 
Equity
Investment of an
Investee
 
Investments
 
Accumulated
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 loss on debt investments reclassified and included in net loss, net of tax
 

 
(10
)
 
(10
)
Balance at March 31, 2020
 
$
(175
)
 
$
1,561

 
$
1,386


 

11


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

 
 
Three Months Ended March 31, 2019
 
 
Equity
Investment of an
Investee
 
Investments
 
Accumulated
Other
Comprehensive
Income
Balance at January 1, 2019
 
$
(266
)
 
$
2,008

 
$
1,742

Unrealized loss on debt investments, net of tax
 

 
(205
)
 
(205
)
Equity in unrealized gain of an investee, net of tax
 
65

 

 
65

Realized gain on debt investments reclassified and included in net loss, net of tax
 

 
4

 
4

Balance at March 31, 2019
 
$
(201
)
 
$
1,807

 
$
1,606



Accumulated other comprehensive income represents the unrealized gains and losses of our debt investments, net of tax, and our share of other comprehensive income of Affiliates Insurance Company, or AIC. The cost of debt investments sold and for which realized gains and losses are reclassified and included in net loss, net of tax are determined on a specific identification basis. See Note 13 for more information regarding our arrangements with AIC. AIC dissolved on February 13, 2020.

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 $1,408 and $1,490 for the three months ended March 31, 2020 and 2019, respectively. 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. The provision for income taxes for the three months ended March 31, 2019, is due to state income taxes, partially offset by the intraperiod tax allocation benefit related to unrealized gains on available for sale securities.

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.  Earnings Per Share

We calculated basic earnings per common share, or EPS, using the weighted average number of shares of our common shares outstanding during the periods. When applicable, diluted EPS reflects the more dilutive earnings per common share amount calculated using the two class method or the treasury stock method. For the three months ended March 31, 2020 and 2019, 123,660 and 108,210 unvested common shares, respectively, were not included in the calculation of diluted EPS because to do so would have been antidilutive.

9.  Fair Values of Assets and Liabilities

Our assets recorded at fair value have been categorized based on a fair value hierarchy in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels.
 
Level 1 - Inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 - Inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments and quoted prices in inactive markets.

12


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


Level 3 - Inputs are generated from model-based techniques that use significant assumptions that are not observable in the market.

Recurring Fair Value Measures

The tables below present certain of our assets measured at fair value at March 31, 2020 and December 31, 2019, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.
 
 
As of March 31, 2020