Five Star Senior Living reported its first quarterly profit in six full years, realizing a net income of $4.2 million for the second quarter of 2019, President and CEO Katherine “Katie” Potter said Wednesday on the company’s second-quarter earnings call.
“There is no longer doubt that Five Star Senior Living will continue as a going concern,” she said.
The quarter’s net income was an increase of approximately $25.1 million compared with the same quarter of 2018, said Jeff Leer, executive vice president, chief financial officer and treasurer. The difference, he said, primarily was due to a previously announced agreement with real estate investment trust Senior Housing Properties Trust (SNH) that resulted in reduced monthly rent rates and SNH’s purchase of almost $50 million worth of fixed assets in April, which decreased depreciation expenses.
The second quarter was the first full quarter to reflect the change in rent payments, which were reduced from $17.4 million to $11 million effective Feb. 1, Potter said. And because SNH purchased most of the property, plant and equipment related to Five Star’s leased communities, she said, “any capital improvements made at the leased communities during the transition period April 1, 2019, to Jan. 1, 2020, are being funded by SNH.”
Five Star used proceeds from the purchases, Leer said, to pay off outstanding balances on the company’s revolving line of credit. At June 30, Five Star had $35.5 million of cash and cash equivalents, he said.
SNH also provided Five Star with a $25 million credit facility, secured by stakes in Five Star communities, Potter said. “This credit facility was intended to provide us liquidity while we work to refinance, extend or replace our prior credit facility,” she said, adding that in June, Five Star entered into a second amended and restated credit facility. “We now have a $65 million secured line of credit,” she said.
Calling 2019 a “transformational year” for the company, Potter said the restructuring of Five Star’s business arrangements with SNH “is only the first step in our transformation.”
A new chief operating officer, Margaret Wigglesworth, will begin Aug. 12, the CEO announced.
“With the addition of our new COO, I am confident in our ability to continue to make great progress toward our initiatives while securing financial stability for the future,” she said. Wigglesworth also will be a senior vice president.
Among those initiatives are a partnership with J.D. Power and a collaboration with the MIT AgeLab.
Potter said Five Star will pilot initiatives through the MIT AgeLab C3 Connected Home Logistics Consortium in the fourth quarter. “We are focused on pioneering ways to help older adults lead rich and remarkable lives,” she said.
Seventeen additional Five Star communities received J.D. Power senior living certification in the second quarter, bringing the company’s total to 22, Potter said.
In other news, total occupancy in the second quarter was 83%, up 160 basis points compared with the same quarter of 2018 and up 10 basis points sequentially. Average monthly rate for all communities, leased and owned, marginally increased year-over-year.
“The combination of increased occupancy and average rate resulted in an increase in our senior living revenue for the fourth consecutive quarter and an increase in comparable-community senior living revenue of 3.2% [$8.4 million] compared to the same quarter last year,” Potter said. Revenue for the quarter was approximately $274.5 million, an increase of $3.6 million or 1.3% compared with the same period in 2018, Leer said.
Nineteen new executive directors were hired in the quarter, the CEO said.
“In addition, we hired a new director of employee engagement, completed our first comprehensive employee engagement survey, launched a new employee recognition program and are proceeding toward implementing a learning management system, all of which reaffirm our commitment to our team members,” she added.
Five new Ageility Physical Therapy Solutions clinics opened in the quarter, Potter said. Revenue from the rehabilitation and wellness division was $11.1 million, a 27% increase compared with the second quarter of last year. The company expects to open 30 clinics this year, Potter said. The division has expanded its target market and is evaluating growth potential via fitness offerings, she added.