Five Star Quality Care, Inc. (FVE)

FVE 
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Five Star Quality Care Inc. (FVE)

Q4 2010 Earnings Call

February 22, 2011 5:00 PM ET

Executives

Tim Bonang – Vice President, Investor Relations,

Bruce Mackey – President and CEO

Paul Hoagland – Chief Financial Officer

Analysts

Jerry Doctrow – Stifel Nicolaus

Presentation

Operator

Good day. And welcome to the Five Star Quality Care Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead.

Tim Bonang

Thank you, 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, February 22, 2011. The company undertakes no obligation to revise or publicly release the result of any revisions of 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 to not place undo reliance upon any forward-looking statements.

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

Bruce Mackey

Great. Thanks, Tim. And thanks everyone for joining us this afternoon. Just after market closed, we reported net income from continuing operations of $0.18 per basic share and $0.17 per diluted share for the three months ended December 31, 2010. This compares with $0.02 per basic and diluted share that we reported for the same period a year ago.

However, income from continuing operations for the fourth quarter of 2010 and 2009 includes several items that in aggregate resulted in a positive impact of approximately $1 million and $412,000, respectively. Paul will review those one-time items in his prepared remarks.

So, excluding non-recurring items, fourth quarter 2010 income from continuing operation was $0.15 per basic and diluted share, which is a substantial increase from a fourth quarter of 2009 income from continuing operations of $0.01 per basic and dilutive shares.

While Five Star looks for occupancy to improve we do so from a position of strength and solid profitability, which is unique to the industry. Of the four largest publicly traded senior living operated in the United States based on unit, Five Star alone has achieved profitable in each and every one over the past eight quarters.

Looking at things under the way, our income from continuing operations for the year was $0.63 per diluted share, excluding all one-time items. I would note that we recognize the importance of delivering consistent financial results to our shareholders. Over the past four quarters, we’ve established a consistent trend and we aim to continue on its path in 2011.

We think this best-in-class operating performance in a challenging marketing environment underscores Five Star’s value, differentiate 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 some highlights from the quarter. Senior living occupancy for the fourth quarter of 2010 was 85.9%, compared to 86.2% a quarter ago and 86.2% a year ago. Same-store occupancy for the fourth quarter 2010 was 85.8%, compared with 86.2% a year ago. Occupancy as of this past Friday was at 85.7%.

The biggest occupancy challenge during the fourth quarter came from our skilled nursing business. This drop was somewhat in line with the fourth quarter of NIC MAP data that was released a few weeks ago and it consistent what we see in years past. People typically don’t have elective surgeries around the year-end holidays and that seem the case for us this year.

After year end, we saw our skilled nursing business pick up, but as an offset by a slight decrease in our private pay business. We noted a slowdown in our [inquiry and deposit] after Thanksgiving and are moving to now keep pace with our move-outs in January. I’m pleased to report that this trend is going to reversed in February.

Same-store inquiries in the fourth quarter of 2010 increased about 12% over the fourth quarter 2009, but were down about 20% from last quarter. Same-store deposits were up in the fourth quarter of 2010, approximately 18%, compared to the fourth quarter of 2009, but again were down about 18% when compared to deposits in the third quarter of 2010.

Given the seasonality of our business, a decrease in these activities between the third and fourth quarter isn’t uncommon. Some good news here is that our inquiry and deposit activity picked up in January 2011. We had 467 more inquiries in January compared to our monthly average of 3,550 in the fourth quarter of 2010. We also saw an increase in deposits as well. In January we took on 290 deposits which compares favorably to our monthly average of 265 deposits in the fourth quarter of 2010.

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