Five Star Quality Care, Inc. (NYSE: FVE) today announced that it has
entered an agreement to transfer the operations of two rehabilitation
hospitals to entities affiliated with Reliant Hospital Partners, LLC
(Reliant) of Richardson, TX.
The two hospitals are New England Rehabilitation Hospital (198 licensed
beds) located in Woburn, MA and Braintree Rehabilitation Hospital (166
licensed beds) located in Braintree, MA, plus several leased in-patient
and out-patient locations in eastern Massachusetts which are affiliated
with these hospitals. The hospitals are currently leased by FVE from
Senior Housing Properties Trust (NYSE: SNH). As part of this
transaction, SNH has agreed to sell the hospitals real estate assets to
HSRE-TST III, LLC, a joint venture comprised of affiliates of The
Sanders Trust, LLC of Birmingham, AL and Harrison Street Real Estate
Capital, LLC of Chicago, IL (HSRE). Under the agreement among FVE, SNH,
Reliant and HSRE, the lease of the hospitals between FVE and SNH will be
canceled and the real estate will be transferred to affiliates of HSRE
and the hospital operations will be transferred to Reliant.
Bruce Mackey, President and Chief Executive Officer of FVE, made the
following statement concerning this transaction:
“Five Star began to operate these hospitals in 2006, during a more
favorable operating and regulatory environment than currently exists.
Since then, we have made adjustments in our business to counteract
progressively more restrictive payment formulas from the Centers for
Medicare & Medicaid Services. Throughout this period, our hospitals’
operations have produced essentially break even financial results,
periodically making or losing modest amounts after paying capital costs,
including rent.
“Five Star believes that the combination of capital investment required
to comply with recent Federal and State hospital regulations and the
expectation of continuing Medicare rate limitation pressures for the
foreseeable future mean that economies of scale are essential to produce
financially successful hospital operations. After carefully considering
these factors, Five Star determined to focus its future operations on
expanding its private pay senior living business and to transfer these
hospitals’ operations to Reliant.
“In 2012, Five Star sold its institutional pharmacy business which was
heavily dependent upon Medicare revenues. The hospital operations to be
transferred are Five Star’s only hospital operations; and, like most
hospitals, a large majority of the revenues at these hospitals are paid
by Medicare. The exit from these hospital operations increases Five
Star’s focus on its core business of operating private pay senior living
communities. After this transfer is completed, Five Star’s continuing
operations will be 100% focused upon senior living communities,
including its high quality independent and assisted living communities
and nursing homes, and the large majority (approximately 77%) of Five
Star’s total revenues will be from residents and patients who pay for
services with private resources.”
When the hospitals’ sale and operations transfer are completed, FVE
expects to realize cash proceeds of between $6.5 million and $7.5
million by retaining its working capital investment in these hospitals.
Also, upon completion of this sale and transfer, FVE will be relieved of
rent obligations totaling approximately $11.5 million per year,
including rents to SNH and rents to third parties.
The transfer of the hospital operations described in this press release
is subject to various closing conditions, including Reliant’s obtaining
appropriate licenses and regulatory approvals to operate the
rehabilitation hospitals. FVE currently expects that this transaction
may close in mid-2014.
Jefferies & Company, Inc., acted as a financial advisor in connection
with this sale.
Five Star Quality Care, Inc. is a senior living and healthcare services
company that operates and manages a total of 251 senior living
communities located throughout the country.
WARNING REGARDING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. THESE FORWARD LOOKING
STATEMENTS ARE BASED UPON FVE’S CURRENT BELIEFS AND EXPECTATIONS, BUT
THEY ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS,
INCLUDING SOME WHICH ARE BEYOND FVE’S CONTROL. FOR EXAMPLE:
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THIS PRESS RELEASE STATES THAT FVE HAS ENTERED INTO AN AGREEMENT TO
TRANSER THE OPERATIONS OF TWO REHABILITATION HOSPITALS TO RELIANT AND
FVE EXPECTS THE TRANSFER OF THE HOSPITALS’ OPERATIONS TO OCCUR IN
MID-2014. THE TRANSFER IS SUBJECT TO COMPLETION OF SNH’S SALE OF THE
HOSPITALS’ REAL ESTATE ASSETS AND VARIOUS OTHER CLOSING CONDITIONS,
INCLUDING RELIANT’S OBTAINING APPROPRIATE LICENSES AND REGULATORY
APPROVALS TO OPERATE THE REHABILITATION HOSPITALS. SOME OF THESE
CONDITIONS MAY NOT BE MET; AND, AS A RESULT, THE TRANSACTION MAY NOT
OCCUR, THE TRANSACTION MAY BE DELAYED OR THE TERMS MAY CHANGE.
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THIS PRESS RELEASE STATES THAT FVE EXPECTS TO REALIZE CASH PROCEEDS OF
BETWEEN $6.5 MILLION AND $7.5 MILLION BY RETAINING ITS WORKING CAPITAL
INVESTMENT IN THE REHABILITATION HOSPITALS. THIS EXPECTED AMOUNT IS
BASED ON AMOUNTS OF FVE WORKING CAPITAL INVESTMENTS IN THE HOSPITALS
AS OF JUNE 30, 2013. THE AMOUNT OF NET WORKING CAPITAL FVE RETAINS
WILL DEPEND ON MANY FACTORS, INCLUDING THE FINANCIAL RESULTS OF THE
OPERATIONS OF THE REHABILITATION HOSPITALS PRIOR TO TRANSFER.
ACCORDINGLY, THE AMOUNT OF NET WORKING CAPITAL THAT MAY BE RETAINED BY
FVE IS NOT ASSURED AND MAY BE LESS THAN $6.5 MILLION.
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THIS PRESS RELEASE STATES THAT AFTER THE HOSPITAL OPERATIONS TRANSFER
IS COMPLETED, A LARGE MAJORITY OF FVE’S TOTAL REVENUES (APPROXIMATELY
77%) WILL BE FROM RESIDENTS AND PATIENTS WHO PAY FOR SERVICES WITH
PRIVATE RESOURCES. THIS MAY IMPLY THAT A LARGE MAJORITY OF FVE’S
REVENUES WILL CONTINUE TO COME FROM RESIDENTS’ AND PATIENTS’ PRIVATE
RESOURCES. HOWEVER, RESIDENTS AND PATIENTS WHO PAY FOR FVE’S SERVICES
WITH THEIR PRIVATE RESOURCES MAY BECOME UNABLE TO AFFORD FVE’S
SERVICES WHICH COULD RESULT IN DECREASED OCCUPANCY, DECREASED REVENUES
AT FVE’S SENIOR LIVING COMMUNITIES OR INCREASED RELIANCE ON LOWER
RATES FROM GOVERNMENT PAYERS. FURTHER, FVE MAY ACQUIRE OR OPERATE
ADDITIONAL HEALTHCARE FACILITIES THAT HAVE A HIGHER PERCENTAGE OF
THEIR REVENUES RECEIVED FROM THE MEDICARE AND MEDICAID PROGRAMS. IN
ADDITION, THE MEDICAID AND MEDICARE PROGRAMS MAY BE CHANGED TO PROVIDE
FOR PAYMENTS FOR ADDITIONAL RESIDENTS OR PATIENTS OF FVE OPERATED
HEALTHCARE FACILITIES.
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THIS PRESS RELEASE STATES THAT AFTER THE TRANSFER OF FVE’S HOSPITAL
OPERATIONS IS COMPLETED, FVE’S CONTINUING OPERATIONS WILL BE 100%
FOCUSED UPON SENIOR LIVING COMMUNITIES. THIS MAY IMPLY THAT FVE’S
OPERATING RESULTS WILL IMPROVE. HOWEVER, THE HOSPITALS’ OPERATIONS ARE
A SMALL PART OF FVE’S BUSINESS AND FVE MAY NOT REALIZE IMPROVED
OPERATING RESULTS FOLLOWING THE TRANSFER OF THE HOSPITALS’ OPERATIONS.
ALSO, FVE MAY CONSIDER OTHER INVESTMENTS AND BUSINESS OPPORTUNITIES IN
THE FUTURE WHICH MAY RESULT IN FVE NOT HAVING ITS CONTINUING
OPERATIONS 100% FOCUSED UPON SENIOR LIVING COMMUNITIES.
FOR THESE AND OTHER REASONS, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE UPON FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.
EXCEPT AS REQUIRED BY APPLICABLE LAW, FVE DOES NOT INTEND TO UNDERTAKE
ANY OBLIGATION TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS PRESS
RELEASE AS A RESULT OF NEW INFORMATION WHICH MAY COME TO FVE’S
ATTENTION, FUTURE EVENTS OR OTHERWISE.
Copyright Business Wire 2013