Five Star Quality Care, Inc. (FVE)

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Five Star Quality Care, Inc. (FVE)

Q3 2010 Earnings Call Transcript

October 27, 2010 5:00 pm ET

Executives

Tim Bonang – VP, IR

Bruce Mackey – President and CEO

Paul Hoagland – Treasurer and CFO

Analysts

Joel Ray – Davenport & Company

Jerry Doctrow – Stifel Nicolaus

Michael Demaray – Elevated Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Five Star Quality Care third quarter conference call. (Operator instructions) At this time, for opening remarks and introductions, I would like to turn the call over to Five Star’s Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Tim Bonang

Thank you Sandy, and good afternoon, everyone. Joining me on today's call are Bruce Mackey, Five Star's President and CEO; and Paul Hoagland, Five Star's CFO. The agenda for today's call includes a presentation by management followed by a question-and-answer session. I would also note that the recording and retransmission of today's conference call is strictly prohibited without prior written consent of Five Star.

Before we begin today's call, I would like to state that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Federal Securities Laws. These forward-looking statements are based on Five Star's present beliefs and expectations as of today, October 27, 2010.

The company undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

And now, I would like to turn the call over to Bruce Mackey.

Bruce Mackey

Great. Thanks, Tim. And thanks to everyone for joining us this afternoon. Just after market close, we reported net income from continuing operations of $0.16 per basic share and $0.15 per diluted share for the three months ended September 30, 2010. This compares with $0.13 per basic and diluted share that we reported for the same period a year ago.

However, income from continuing operations for the third quarter of 2009 included several items that in aggregate resulted in a positive impact of $0.12 per basic share and $0.10 per diluted share respectively. Paul will review those one-time items that occurred during 2009 in his prepared remarks.

So excluding non-recurring items, third quarter 2010 income from continuing operations was $0.16 per basic share, and $0.15 per diluted share, which was a substantial increase over third quarter 2009 income from continuing operations of $0.01 per basic share and diluted shares. As I stated last quarter, I think we stand together with our peers in looking for an upturn in occupancy. It is clear that Five Star stands alone among our peers when it comes to profitability.

Of the four largest publicly traded senior living operators in the United States, based on units, Five Star alone has achieved profitability in each and every one of the past seven quarters. Looking at things another way, our income from continuing operations for the past three quarters was $0.48 per diluted share, excluding all one-time items that in aggregate had a positive impact of $0.02 per share.

I would note that we recognized the importance of delivering consistent financial results to our shareholders. Over the past three quarters, we have established a consistent trend and we aim to continue on this path.

We think this best-in-class operating performance in a challenging market environment underscores Five Star’s value, differentiates us from our peers, and shows that Five Star is solidly positioned to benefit from occupancy increases in the future.

I would now like to give you some highlights from what was an active quarter. During the third quarter we repurchased $925,000 of our convertible senior notes at a 10% discount at par. We have $41.1 million of convertible senior notes currently left that can be put to us in October 2013.

In July, we prepaid $4.5 million of a HUD mortgage that bore an interest rate of 7.65%. As we discussed in our second quarter call, in August Five Star acquired 110-unit independent and assisted living community in Wisconsin for $14.7 million. This community is nearly 100% occupied and has a 12-acre campus that allows for the possibility of immediate expansion. We are currently in the process of evaluating an Alzheimer’s unit addition on this campus.

We continue to see signs of stabilization in our occupancy. Senior living occupancy for the third quarter of 2010 was 86.2% compared with 86.2% a quarter ago and 86.4% a year ago. Same-store occupancy for the third quarter of 2010 was 86.1% compared with 86.4% a year ago. Occupancy as of this past Friday was 86.1%.

We continue to see increased traffic to our buildings. By utilizing the lease tracking system put into place in late 2008, we can see the increase continue to trend in a positive direction. Our increase in the third quarter of 2010 increased about 9% over the second quarter of 2010.

In the third quarter of 2010, we took on about 920 deposits, which is up about 50 deposits from the second quarter of 2010.

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