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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 September 30, 2014

 

or

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-16817

FIVE STAR QUALITY CARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

04-3516029

(State of Incorporation)

(IRS Employer Identification No.)

 

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices) (Zip Code)

 

 

(Registrant’s Telephone Number, Including Area Code):  617-796-8387

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

 

 

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 registrants shares of common stock, $.01 par value, outstanding as of December 12, 2014:  48,661,042.

 

 


 

FIVE STAR QUALITY CARE, INC.

 

FORM 10-Q

 

SEPTEMBER 30, 2014

 

INDEX

 

 

 

 

PART I 

Financial Information

Page

 

 

 

Item 1. 

Condensed Consolidated Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2014 and December 31, 2013

1

 

 

 

 

Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2014 and 2013

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2014 and 2013

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4. 

Controls and Procedures

28

 

 

 

 

Warning Concerning Forward Looking Statements

29

 

 

 

PART II 

Other Information

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

Item 6. 

Exhibits

33

 

 

 

 

Signatures

34

 

As used herein the terms “we”, “us” or “our” mean Five Star Quality Care, Inc. and its consolidated subsidiaries unless the context otherwise requires.

 

 


 

Part I.   Financial Information

Item 1.  Condensed Consolidated Financial Statements

 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2014

    

2013

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,947 

 

$

23,628 

 

Accounts receivable, net of allowance of $3,959 and $4,281 at September 30, 2014 and December 31, 2013, respectively

 

 

35,732 

 

 

36,940 

 

Due from related persons

 

 

12,728 

 

 

11,659 

 

Investments in available for sale securities, of which $9,125 and $4,690 are restricted as of September 30, 2014 and December 31, 2013, respectively

 

 

24,177 

 

 

19,150 

 

Restricted cash

 

 

3,636 

 

 

9,003 

 

Prepaid and other current assets

 

 

39,491 

 

 

33,799 

 

Assets of discontinued operations

 

 

2,529 

 

 

16,705 

 

Total current assets

 

 

143,240 

 

 

150,884 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

354,081 

 

 

340,276 

 

Equity investment in an investee

 

 

6,806 

 

 

5,913 

 

Restricted cash

 

 

3,599 

 

 

9,795 

 

Restricted investments in available for sale securities

 

 

19,876 

 

 

11,905 

 

Goodwill and other intangible assets

 

 

26,573 

 

 

26,407 

 

Other long term assets

 

 

49,713 

 

 

45,003 

 

 

 

$

603,888 

 

$

590,183 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Revolving credit facility, secured, principally by real estate

 

$

25,000 

 

$

35,000 

 

Accounts payable and accrued expenses

 

 

72,079 

 

 

69,343 

 

Accrued compensation and benefits

 

 

43,344 

 

 

31,888 

 

Due to related persons

 

 

20,019 

 

 

20,587 

 

Mortgage notes payable

 

 

1,828 

 

 

1,159 

 

Accrued real estate taxes

 

 

14,453 

 

 

9,934 

 

Security deposits and current portion of continuing care contracts

 

 

7,234 

 

 

8,025 

 

Other current liabilities

 

 

22,343 

 

 

18,607 

 

Liabilities of discontinued operations

 

 

1,049 

 

 

3,985 

 

Total current liabilities

 

 

207,349 

 

 

198,528 

 

 

 

 

 

 

 

 

 

Long term liabilities:

 

 

 

 

 

 

 

Mortgage notes payable

 

 

50,246 

 

 

36,461 

 

Continuing care contracts

 

 

1,387 

 

 

1,531 

 

Accrued self-insurance obligations

 

 

40,364 

 

 

38,002 

 

Other long term liabilities

 

 

4,794 

 

 

5,283 

 

Total long term liabilities

 

 

96,791 

 

 

81,277 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, $.01 par value: 75,000,000 shares authorized, 48,661,042 and 48,613,442 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively

 

 

486 

 

 

486 

 

Additional paid in capital

 

 

356,519 

 

 

355,570 

 

Accumulated deficit

 

 

(60,654)

 

 

(48,996)

 

Accumulated other comprehensive income

 

 

3,397 

 

 

3,318 

 

Total shareholders’ equity

 

 

299,748 

 

 

310,378 

 

 

 

$

603,888 

 

$

590,183 

 

See accompanying notes.

1


 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

    

Nine Months Ended September 30,

 

 

    

2014

    

2013

 

2014

    

2013

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior living revenue

 

$

277,411 

 

$

269,845 

 

$

824,580 

 

$

807,984 

 

Management fee revenue

 

 

2,438 

 

 

2,290 

 

 

7,296 

 

 

6,873 

 

Reimbursed costs incurred on behalf of managed communities

 

 

54,490 

 

 

52,128 

 

 

163,673 

 

 

156,705 

 

Total revenues

 

 

334,339 

 

 

324,263 

 

 

995,549 

 

 

971,562 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior living wages and benefits

 

 

135,507 

 

 

131,026 

 

 

402,469 

 

 

394,309 

 

Other senior living operating expenses

 

 

71,217 

 

 

68,020 

 

 

214,368 

 

 

198,359 

 

Costs incurred on behalf of managed communities

 

 

54,490 

 

 

52,128 

 

 

163,673 

 

 

156,705 

 

Rent expense

 

 

49,481 

 

 

48,743 

 

 

147,758 

 

 

145,035 

 

General and administrative

 

 

17,865 

 

 

15,334 

 

 

54,187 

 

 

45,849 

 

Depreciation and amortization

 

 

8,278 

 

 

6,736 

 

 

23,529 

 

 

19,691 

 

Impairment of long-lived assets

 

 

589 

 

 

 —

 

 

589 

 

 

 —

 

Total operating expenses

 

 

337,427 

 

 

321,987 

 

 

1,006,573 

 

 

959,948 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(3,088)

 

 

2,276 

 

 

(11,024)

 

 

11,614 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, dividend and other income

 

 

214 

 

 

191 

 

 

623 

 

 

599 

 

Interest and other expense

 

 

(1,324)

 

 

(1,179)

 

 

(3,803)

 

 

(3,990)

 

Loss on early extinguishment of debt

 

 

 —

 

 

(599)

 

 

 —

 

 

(599)

 

Gain on sale of available for sale securities reclassified from other comprehensive (loss) income

 

 

23 

 

 

36 

 

 

349 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations before income taxes and equity in earnings of an investee

 

 

(4,175)

 

 

725 

 

 

(13,855)

 

 

7,630 

 

Benefit from (provision for) income taxes

 

 

1,763 

 

 

(164)

 

 

4,558 

 

 

(1,076)

 

Equity in earnings of an investee

 

 

38 

 

 

64 

 

 

59 

 

 

219 

 

(Loss) income from continuing operations

 

 

(2,374)

 

 

625 

 

 

(9,238)

 

 

6,773 

 

Loss from discontinued operations

 

 

(634)

 

 

(1,383)

 

 

(2,420)

 

 

(3,683)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(3,008)

 

$

(758)

 

$

(11,658)

 

$

3,090 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding—basic and diluted

 

 

48,020 

 

 

48,272 

 

 

48,012 

 

 

48,253 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (loss) income per share from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.05)

 

$

0.01 

 

$

(0.19)

 

$

0.14 

 

Discontinued operations

 

 

(0.01)

 

 

(0.03)

 

 

(0.05)

 

 

(0.07)

 

Net (loss) income per share—basic and diluted

 

$

(0.06)

 

$

(0.02)

 

$

(0.24)

 

$

0.07 

 

See accompanying notes.

 

 

2


 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2014

    

2013

 

2014

    

2013

 

Net (loss) income

 

$

(3,008)

 

$

(758)

 

$

(11,658)

 

$

3,090 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investments in available for sale securities, net of tax

 

 

(234)

 

 

108 

 

 

287 

 

 

(65)

 

Unrealized (loss) gain on equity investment in an investee

 

 

(33)

 

 

13 

 

 

 

 

(68)

 

Less: Realized gain on investments in available for sale securities reclassified and included in net (loss) income, net of tax

 

 

(14)

 

 

(22)

 

 

(216)

 

 

(4)

 

Other comprehensive (loss) income

 

 

(281)

 

 

99 

 

 

79 

 

 

(137)

 

Comprehensive (loss) income

 

$

(3,289)

 

$

(659)

 

$

(11,579)

 

$

2,953 

 

See accompanying notes.

 

 

3


 

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2014

    

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net (loss) income

 

$

(11,658)

 

$

3,090 

 

Adjustments to reconcile net (loss) income to cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,313 

 

 

20,589 

 

Loss on early extinguishment of debt

 

 

 —

 

 

599 

 

Loss from discontinued operations before income tax

 

 

3,927 

 

 

5,840 

 

Gain on sale of available for sale securities

 

 

(349)

 

 

(6)

 

Impairment of long-lived assets

 

 

589 

 

 

 —

 

Equity in earnings of an investee

 

 

(59)

 

 

(219)

 

Stock-based compensation

 

 

949 

 

 

792 

 

Deferred income taxes

 

 

(6,726)

 

 

(2,282)

 

Provision for losses on receivables

 

 

1,998 

 

 

4,414 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(790)

 

 

(3,435)

 

Prepaid expenses and other assets

 

 

(4,620)

 

 

4,690 

 

Accounts payable and accrued expenses

 

 

1,858 

 

 

(3,988)

 

Accrued compensation and benefits

 

 

11,456 

 

 

4,668 

 

Due (to) from related persons, net

 

 

(1,952)

 

 

209 

 

Other current and long term liabilities

 

 

9,347 

 

 

3,118 

 

Cash provided by operating activities

 

 

28,283 

 

 

38,079 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Payments into restricted cash and investment accounts, net

 

 

11,563 

 

 

1,617 

 

Acquisition of property and equipment

 

 

(39,189)

 

 

(37,267)

 

Acquisition of senior living community, net of liabilities assumed

 

 

(5,926)

 

 

 —

 

Purchase of available for sale securities

 

 

(21,349)

 

 

(13,416)

 

Investment in Affiliates Insurance Company

 

 

(825)

 

 

 —

 

Proceeds from sale of property and equipment to Senior Housing Properties Trust

 

 

23,776 

 

 

19,934 

 

Proceeds from sale of available for sale securities

 

 

8,737 

 

 

5,925 

 

Cash used in investing activities

 

 

(23,213)

 

 

(23,207)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings on credit facilities

 

 

10,000 

 

 

60,000 

 

Repayments of borrowings on credit facilities

 

 

(20,000)

 

 

(50,000)

 

Purchase and retirement of convertible senior notes

 

 

 —

 

 

(24,872)

 

Repayments of mortgage notes payable

 

 

(1,064)

 

 

(813)

 

Cash used in financing activities

 

 

(11,064)

 

 

(15,685)

 

 

 

 

 

 

 

 

 

Cash flows from discontinued operations:

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

7,020 

 

 

(4,314)

 

Net cash provided by investing activities

 

 

293 

 

 

7,603 

 

Net cash used in financing activities

 

 

 —

 

 

(7,534)

 

Net cash flows provided by (used in) discontinued operations

 

 

7,313 

 

 

(4,245)

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

1,319 

 

 

(5,058)

 

Cash and cash equivalents at beginning of period

 

 

23,628 

 

 

24,638 

 

Cash and cash equivalents at end of period

 

$

24,947 

 

$

19,580 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,562 

 

$

2,656 

 

Cash paid for income taxes, net

 

$

1,041 

 

$

1,775 

 

 

 

 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

 

 

Issuance of common stock

 

$

189 

 

$

182 

 

Real estate acquisition

 

$

(15,518)

 

$

 —

 

Assumption of mortgage note payable

 

$

15,518 

 

$

 —

 

See accompanying notes.

 

 

4


 

Table of Contents

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Note 1.  Basis of Presentation and Organization

General

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and its subsidiaries, which we refer to as we, us or our, are unaudited.  Certain information and disclosures required by U.S. generally accepted accounting principles for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, 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, 2013, 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.  Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.

 

We operate senior living communities, including independent living communities, assisted living communities and skilled nursing facilities, or SNFs.  As of September 30, 2014, we operated 256 senior living communities located in 31 states containing 30,114 living units, including 225 primarily independent and assisted living communities with 27,292 living units and 31 SNFs with 2,822 living units.  As of September 30, 2014, we owned and operated 31 communities (3,061 living units), we leased and operated 181 communities (20,002 living units) and we managed 44 communities (7,051 living units).  These 256 senior living communities included 10,464 independent living apartments, 14,440 assisted living suites and 5,210 skilled nursing units.  The foregoing numbers exclude: (i) 38 living units in one assisted living community that has been temporarily closed for a major renovation; (ii) one assisted living community with 32 living units that we own which is being offered for sale and is classified as a discontinued operation; and (iii) four SNFs and three assisted living communities with a total of 480 living units that we lease from Senior Housing Properties Trust or its subsidiaries, or SNH, that are being offered for sale and are classified as discontinued operations.

 

Revisions to Prior Period Financial Statements 

 

As discussed further in the notes to our financial statements contained in our Annual Report, we identified errors related to our accounts payable and certain other matters that affected previously reported interim periods in 2013. We have revised the prior year’s condensed consolidated financial statements to correct for these errors in the periods in which they occurred.

Segment Information

We have two operating segments: senior living communities and rehabilitation and wellness. In the senior living community segment, we operate for our own account or manage for the account of SNH independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents. Our rehabilitation and wellness operating segment does not meet any of the quantitative thresholds for a reportable segment as prescribed under Financial Accounting Standards Board, or FASB, Accounting Standards Codification TM, or ASC, Topic 280 and therefore we have determined that our business is comprised of one reportable segment, senior living. All of our operations and assets are located in the United States, except for the operations of our captive insurance company subsidiary, which participates in our workers’ compensation, professional liability and automobile insurance programs, that is organized in the Cayman Islands.

Note 2. Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The update requires an entity to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue

5


 

Table of Contents

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances.  The update is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter with early adoption permitted.  The implementation of this update is not expected to cause any significant changes to our condensed consolidated financial statements.

Note 3. Property and Equipment

Property and equipment consists of the following:

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2014

 

2013

 

Land

 

$

24,172 

 

$

22,214 

 

Buildings and improvements

 

 

303,565 

 

 

286,467 

 

Furniture, fixtures and equipment

 

 

131,301 

 

 

114,765 

 

Property and equipment, at cost

 

 

459,038 

 

 

423,446 

 

Accumulated depreciation

 

 

(104,957)

 

 

(83,170)

 

Property and equipment, net

 

$

354,081 

 

$

340,276 

 

 

We recorded depreciation expense of $7,504 and $6,442 for the three months ended September 30, 2014 and 2013, respectively, and $21,787 and $18,824 for the nine months ended September 30, 2014 and 2013, respectively, relating to our property and equipment.

 

We review the carrying value of intangibles and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication that the carrying value of an asset is not recoverable, we determine the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value.  As a result of our intangibles and long-lived assets impairment review, we recorded $589 and $186 of impairment charges to our long-lived assets in continuing operations as of September 30, 2014 and December 31, 2013, respectively.

 

As of September 30, 2014, we had $5,595 of assets included in our property and equipment associated with certain senior living communities that we lease from SNH that we typically request that SNH purchase from us for an increase in future rent; however, we are not obligated to make these sales and SNH is not obligated to fund such amounts.  See Note 10.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Note 4. Accumulated Other Comprehensive Income

The following table details the changes in accumulated other comprehensive income, net of tax, for the nine months ended September 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

    

Equity Investment in an Investee

    

Investments in Available for Sale Securities

    

 

Accumulated Other Comprehensive Income

Balance at January 1, 2014

 

$

48 

 

$

3,270 

 

$

3,318 

Unrealized gain on investments, net of  tax

 

 

 —

 

 

253 

 

 

253 

Equity interest in an investee’s unrealized gain on investments

 

 

19 

 

 

 —

 

 

19 

Reclassification adjustment:

 

 

 

 

 

 

 

 

 

Realized gain on investments, net of tax

 

 

 —

 

 

(194)

 

 

(194)

Balance at March 31, 2014

 

 

67 

 

 

3,329 

 

 

3,396 

Unrealized gain on investments, net of  tax

 

 

 —

 

 

268 

 

 

268 

Equity interest in an investee’s unrealized gain on investments

 

 

22 

 

 

 —

 

 

22 

Reclassification adjustment:

 

 

 

 

 

 

 

 

 

Realized gain on investments, net of tax

 

 

 —

 

 

(8)

 

 

(8)

Balance at June 30, 2014

 

$

89 

 

$

3,589 

 

$

3,678 

Unrealized loss on investments, net of  tax

 

 

 —

 

 

(234)

 

 

(234)

Equity interest in an investee’s unrealized loss on investments

 

 

(33)

 

 

 —

 

 

(33)

Reclassification adjustment:

 

 

 

 

 

 

 

 

 

Realized gain on investments, net of tax

 

 

 —

 

 

(14)

 

 

(14)

Balance at September 30, 2014

 

$

56 

 

$

3,341 

 

$

3,397 

 

Accumulated other comprehensive income represents the unrealized appreciation of our investments, net of tax, and our share of other comprehensive income of Affiliates Insurance Company, or AIC.

Note 5.  Income Taxes

For the nine months ended September 30, 2014, we recognized a net tax benefit from continuing operations of $4,558.  We also recognized a tax benefit from discontinued operations of $1,426.  As of December 31, 2013, our federal net operating loss carry forward, which begins to expire in 2026 if unused, was approximately $81,583. This includes $278 of federal net operating losses that are attributable to unvested stock grants which will be recorded as an increase to additional paid in capital once they are realized in accordance with FASB ASC Topic 718. As of December 31, 2013, our tax credit carry forward, which begins to expire in 2022 if unused, was approximately $15,235.  Our net operating loss carry forwards and tax credit carry forwards are subject to possible audit and adjustments by the Internal Revenue Service.

 

We maintain a partial valuation allowance against certain deferred tax assets related to impaired investments and certain state net operating loss carry forwards.  When we believe that we will more likely than not realize the benefit of these deferred tax assets, we will record deferred tax assets as an income tax benefit in our condensed consolidated statement of operations, which will affect our results of operations.

Note 6.  Earnings Per Share

We computed basic earnings per common share, or EPS, for the three and nine months ended September 30, 2014 and 2013 using the weighted average number of shares of our common stock, $.01 par value per share, or our common shares, outstanding during the periods.  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 and nine months ended September 30, 2013, respectively, 145 and 1,318 potentially dilutive common shares related to our former convertible senior notes due in 2026, or the Notes,  were not included in the computation of diluted EPS because to do so would have been antidilutive.

 

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

The following table provides a reconciliation of income (loss) from continuing operations and loss from discontinued operations and the number of common shares used in the calculations of diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

2014

 

2013

 

 

    

Income

    

 

    

Per

    

Income

    

 

    

Per

 

 

 

(loss)

 

Shares

 

Share

 

(loss)

 

Shares

 

Share

 

(Loss) income from continuing operations

 

$

(2,374)

 

48,020 

 

$

(0.05)

 

$

625 

 

48,272 

 

$

0.01 

 

Effect of the Notes

 

 

 —

 

 —

 

 

 

 

 

 —

 

 —

 

 

 

 

Diluted (loss) income from continuing operations

 

$

(2,374)

 

48,020 

 

$

(0.05)

 

$

625 

 

48,272 

 

$

0.01 

 

Diluted loss from discontinued operations

 

$

(634)

 

48,020 

 

$

(0.01)

 

$

(1,383)

 

48,272 

 

$

(0.03)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

 

    

Income

    

 

    

Per

    

Income

    

 

    

Per

 

 

 

(loss)

 

Shares

 

Share

 

(loss)

 

Shares

 

Share

 

(Loss) income from continuing operations

 

$

(9,238)

 

48,012 

 

$

(0.19)

 

$

6,773 

 

48,253 

 

$

0.14 

 

Effect of the Notes

 

 

 —

 

 —

 

 

 

 

 

 —

 

 —

 

 

 

 

Diluted (loss) income from continuing operations

 

$

(9,238)

 

48,012 

 

$

(0.19)

 

$

6,773 

 

48,253 

 

$

0.14 

 

Diluted loss from discontinued operations

 

$

(2,420)

 

48,012 

 

$

(0.05)

 

$

(3,683)

 

48,253 

 

$

(0.07)

 

 

 

Note 7.  Fair Values of Assets and Liabilities

Our assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with FASB ASC Topic 820. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels.

 

Level 1 inputs are 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 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets.

 

Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

 

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Recurring Fair Value Measures

The tables below present the assets measured at fair value at September 30, 2014 and December 31, 2013 categorized by the level of inputs used in the valuation of each asset.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2014

 

    

 

 

    

Quoted Prices in

    

 

 

    

 

 

 

 

 

 

 

Active Markets

 

Significant Other

 

Significant

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

Description

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

Cash equivalents(1)

 

$

6,625 

 

$

6,625 

 

$

 

$

Available for sale securities:(2)

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

Financial services industry

 

 

4,000 

 

 

4,000 

 

 

 

 

REIT industry

 

 

453 

 

 

453 

 

 

 

 

Other

 

 

3,626 

 

 

3,626 

 

 

 

 

Total equity securities

 

 

8,079 

 

 

8,079 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

International bond fund(3)

 

 

2,373 

 

 

 

 

2,373 

 

 

High yield fund(4)

 

 

2,399 

 

 

 

 

2,399 

 

 

Industrial bonds

 

 

6,539 

 

 

 

 

6,539 

 

 

Government bonds

 

 

12,354 

 

 

6,832 

 

 

5,522 

 

 

Financial bonds

 

 

2,685 

 

 

 

 

2,685 

 

 

Other

 

 

9,624 

 

 

 

 

9,624 

 

 

Total debt securities

 

 

35,974 

 

 

6,832 

 

 

29,142 

 

 

Total available for sale securities

 

 

44,053 

 

 

14,911 

 

 

29,142 

 

 

Total

 

$

50,678 

 

$

21,536 

 

$

29,142 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

    

 

 

    

Quoted Prices in

    

 

 

    

 

 

 

 

 

 

 

Active Markets

 

Significant Other

 

Significant

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

Description

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

Cash equivalents(1)

 

$

14,866 

 

$

14,866 

 

$

 

$

Available for sale securities:(2)

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

Financial services industry

 

 

3,668 

 

 

3,668 

 

 

 

 

REIT industry

 

 

704 

 

 

704 

 

 

 

 

Other

 

 

3,875 

 

 

3,875 

 

 

 

 

Total equity securities

 

 

8,247 

 

 

8,247 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

International bond fund(3)

 

 

2,329 

 

 

 

 

2,329 

 

 

High yield fund(4)

 

 

2,309 

 

 

 

 

2,309 

 

 

Industrial bonds

 

 

5,234 

 

 

 

 

5,234 

 

 

Government bonds

 

 

7,075 

 

 

4,558 

 

 

2,517 

 

 

Financial bonds

 

 

1,154 

 

 

 

 

1,154 

 

 

Other

 

 

4,706 

 

 

 

 

4,706 

 

 

Total debt securities

 

 

22,807 

 

 

4,558 

 

 

18,249 

 

 

Total available for sale securities

 

 

31,054 

 

 

12,805 

 

 

18,249 

 

 

Total

 

$

45,920 

 

$

27,671 

 

$

18,249 

 

$


(1)

Cash equivalents, consisting of money market funds held principally for obligations arising from our self-insurance programs. Cash equivalents are reported on our balance sheet as cash and cash equivalents and current and long term restricted cash.  Cash equivalents include $4,943 and $13,181 of balances that are restricted at September 30, 2014 and December 31, 2013, respectively.

 

(2)

Investments in available for sale securities are reported on our balance sheet as current and long term investments in available for sale securities and are reported at fair value of $24,177 and $19,876, respectively, at September 30, 2014 and $19,150 and $11,905, respectively, at December 31, 2013. Our investments in available for sale securities had amortized costs of $42,012 and $29,127 as of September 30, 2014 and December

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

31, 2013, respectively, had unrealized gains of $2,304 and $2,185 as of September 30, 2014 and December 31, 2013, respectively, and had unrealized losses of $263 and $257 as of September 30, 2014 and December 31, 2013, respectively. At September 30, 2014, 42 of the securities we hold, with a fair value of $13,986, have been in a loss position for less than 12 months and 12 of the securities we hold, with a fair value of $1,548, have been in a loss position for greater than 12 months. We do not believe these securities are impaired primarily because they have not been in a loss position for an extended period of time, the financial conditions of the issuers of these securities remain strong with solid fundamentals, or we intend to hold these securities until recovery, and other factors that support our conclusion that the loss is temporary. During the nine months ended September 30, 2014 and 2013, we received gross proceeds of $8,737 and $5,925, respectively, in connection with the sales of available for sale securities and recorded gross realized gains totaling $399 and $314, respectively, and gross realized losses totaling $50 and $308, respectively.  We record gains and losses on the sales of our available for sale securities using the specific identification method.

 

(3)

The investment strategy of this fund is to invest principally in fixed income securities. The fund invests in such securities or investment vehicles as it considers appropriate to achieve the fund’s investment objective, which is to provide an above average rate of total return while attempting to limit investment risk by investing in a diversified portfolio of U.S. dollar investment grade fixed income securities. There are no unfunded commitments and the investment can be redeemed weekly.

 

(4)

The investment strategy of this fund is to invest principally in fixed income securities. The fund invests in such securities or investment vehicles as it considers appropriate to achieve the fund’s investment objective, which is to provide an above average rate of total return while attempting to limit investment risk by investing in a diversified portfolio of primarily fixed income securities issued by companies with below investment grade ratings. There are no unfunded commitments and the investment can be redeemed weekly.

 

During the nine months ended September 30, 2014, we did not change the type of inputs used to determine the fair value of any of our assets and liabilities that we measure at fair value.  Accordingly, there were no transfers of assets or liabilities between levels of the fair value hierarchy during the nine months ended September 30, 2014.

 

The carrying values of accounts receivable and accounts payable approximate fair value as of September 30, 2014 and December 31, 2013.  The carrying value and fair value of our mortgage notes payable were $52,074 and $55,551, respectively, as of September 30, 2014 and $37,620 and $41,113, respectively, as of December 31, 2013, and are categorized in Level 3 of the fair value hierarchy in their entirety.  We estimate the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market terms as of the measurement date.  Because these Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.  We measured the fair value of our equity investment in AIC, an Indiana insurance company that we owned at September 30, 2014 in equal proportion with each of the other six shareholders of that company (see Note 10), categorized in Level 2 of the fair value hierarchy in its entirety, by considering, among other things, the individual assets and liabilities held by AIC, AIC’s overall financial condition and earning trends, and the financial condition and prospects for the insurance industry generally.

 

Non-Recurring Fair Value Measures

 

We evaluate the recoverability of goodwill assets in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that goodwill or other intangible assets may be impaired.  As of October 1, 2013, we evaluated our goodwill for impairment and determined that the fair value of our reporting units exceeded their carrying values on that date.  As of September 30, 2014, no events or changes in circumstances had occurred that would trigger the need for an additional impairment review.

 

Goodwill was valued primarily using discounted cash flow models that incorporate assumptions for each reporting unit’s short and long term revenue growth rates, operating margins, and discount rates, which represent our best estimates of current and forecasted market conditions, current cost structure, and the implied rate of return that management believes a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.

 

We review the carrying value of intangibles and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication that the carrying value of an asset is not recoverable, we determine the amount of impairment loss, if any, by comparing the

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Table of Contents

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

historical carrying value of the asset to its estimated fair value.  As a result of our intangibles and long-lived assets impairment review, we recorded $589 and $186 of impairment charges to our long-lived assets in continuing operations as of September 30, 2014 and December 31, 2013, respectively.  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 asset or asset groups are expected to generate.  The fair values of the impaired assets were $478 and $137 as of September 30, 2014 and December 31, 2013, respectively, and are considered to be a Level 3 fair value measurement.

  

The fair value of assets held for sale is determined based on the use of appraisals, input from market participants, our experience selling similar assets and/or internally developed cash flow models, all of which are considered to be Level 3 fair value measurements.

 

See Note 11 for discussion of fair value measurements related to an acquisition that occurred during the second quarter of 2014.

Note 8.  Indebtedness

We have a $25,000 revolving secured line of credit, or our Credit Agreement, that is available for general business purposes, including acquisitions.  The maturity date of our Credit Agreement is March 18, 2016.  Borrowings under our Credit Agreement typically bear interest at LIBOR plus a premium of 250 basis points, or 2.65% as of September 30, 2014.  We are also required to pay a quarterly commitment fee of 0.35% per annum on the unused part of our borrowing availability under our Credit Agreement. We may draw, repay and redraw funds under our Credit Agreement until maturity, and no principal repayment is due until maturity.  We made no borrowings under our Credit Agreement during the nine months ended September 30, 2014 and 2013.  As of September 30, 2014, we had no amounts outstanding under our Credit Agreement.  We incurred interest expense and other associated costs related to our Credit Agreement of $48 and $35 for the three months ended September 30, 2014 and 2013, respectively, and $144 and $277 for the nine months ended September 30, 2014 and 2013, respectively.

 

We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and certain related collateral. Our Credit Agreement provides for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes termination of our business management and shared services agreement, or our business management agreement, with Reit Management & Research LLC, or RMR.

 

We also have a $150,000 secured revolving credit facility, or our Credit Facility, that is available for general business purposes, including acquisitions.  The maturity date of our Credit Facility is April 13, 2015, and, subject to the payment of extension fees and meeting certain other conditions, our Credit Facility includes options for us to extend its stated maturity date for two consecutive one-year periods.  Borrowings under our Credit Facility typically bear interest at LIBOR plus a premium of 250 basis points, or 2.65% as of September 30, 2014.  We are also required to pay a quarterly commitment fee of 0.35% per annum on the unused part of our borrowing availability under our Credit Facility.  We may draw, repay and redraw funds under our Credit Facility until maturity, and no principal repayment is due until maturity.  The weighted average interest rate for borrowings under our Credit Facility was 2.76% and 3.15% for the nine months ended September 30, 2014 and 2013, respectively.  As of September 30, 2014, we had $25,000 outstanding under our Credit Facility.  We incurred interest expense and other associated costs related to our Credit Facility of $552 and $542 for the three months ended September 30, 2014 and 2013, respectively, and $1,687 and $1,442 for the nine months ended September 30, 2014 and 2013, respectively.

 

We are the borrower under our Credit Facility, and certain of our subsidiaries guarantee our obligations under our Credit Facility, which is secured by real estate mortgages on 15 senior living communities with 1,549 living units owned by our guarantor subsidiaries and our guarantor subsidiaries’ accounts receivable and certain related collateral.  Our Credit

11


 

Table of Contents

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Facility provides for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as a change of control of us.

 

Our Credit Agreement and our Credit Facility contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to pay dividends or make other distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth.  Our Credit Agreement and Credit Facility require that we deliver quarterly and annual financial statements within the time periods specified within those agreements.  The lenders under each of our Credit Agreement and Credit Facility have waived until December 31, 2014 any default resulting from our not timely delivering our financial statements for the quarters ended March 31, 2014, June 30, 2014, and September 30, 2014 as required under those agreements.  Our condensed consolidated financial statements for the quarters ended March 31, 2014, June 30, 2014, and September 30, 2014, are being delivered to our lenders contemporaneously with the filing of this Quarterly Report on Form 10-Q and the filing of our Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2014, and June 30, 2014, which are being filed substantially concurrently with this Quarterly Report.

 

In October 2006, we issued $126,500 principal amount of the Notes.  Our net proceeds from this issuance were approximately $122,600.  The Notes bore interest at a rate of 3.75% per annum and were convertible into our common shares at any time.  The conversion rate, which was subject to adjustment, was 76.9231 common shares per $1 principal amount of the Notes, which represented a conversion price of $13.00 per share.  The Notes were guaranteed by certain of our wholly owned subsidiaries.  The Notes were scheduled to mature on October 15, 2026.  We were entitled to prepay the Notes at any time and the holders were entitled to require us to purchase all or a portion of these Notes on each of October 15, 2013, 2016 and 2021 at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest.  We periodically repurchased Notes in open market transactions or in privately negotiated transactions, and, on July 8, 2013, we redeemed all of the $24,872 principal amount of the Notes then outstanding at a redemption price equal to the principal amount, plus accrued and unpaid interest.  We incurred interest expense and other associated costs related to the Notes of $21 and $511 for the three and nine months ended September 30, 2013, respectively.

 

At September 30, 2014, five of our senior living communities were encumbered by mortgage notes with an aggregate outstanding principal balance of $52,074 :  (1) two of our communities were encumbered by a Federal National Mortgage Association, or FNMA, mortgage note and (2) three of our communities were encumbered by Federal Home Loan Mortgage Corporation, or FMCC, mortgage notes.  These mortgages contain FNMA and FMCC, respectively, standard mortgage covenants.  We recorded mortgage premiums in connection with our assumption of the FNMA and FMCC mortgage notes at the time of our acquisitions of the encumbered communities in order to record the assumed mortgage notes at their estimated fair value.  We are amortizing the mortgage premiums as a reduction of interest expense until the maturity of the respective mortgage notes.  The weighted average interest rate on these five notes was 6.77% as of September 30, 2014.  Payments of principal and interest are due monthly under these mortgage notes until maturities at varying dates ranging from June 2018 to September 2032.  We incurred mortgage interest expense, including premium amortization, of $709 and $581 for the three months ended September 30, 2014 and 2013, respectively, and $1,957 and $2,425 for the nine months ended September 30, 2014 and 2013, respectively, and including some interest expense recorded in discontinued operations.  Our mortgages require monthly payments into escrows for taxes, insurance and property replacement funds; withdrawals from these escrows require applicable lender approvals.  As of September 30, 2014, we believe we were in compliance with all applicable covenants under these mortgages.

Note 9. Off Balance Sheet Arrangements 

We have pledged certain of our assets, including our accounts receivable with a carrying value, as of September 30, 2014, of $13,767, arising from our operation of 26 properties owned by SNH and leased to us to secure SNH’s borrowings from its lender, FNMA.  As of September 30, 2014, we had no other off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition,

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Table of Contents

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Note 10. Related Person Transactions

We were formerly a 100% owned subsidiary of SNH, SNH is our largest landlord and our largest stockholder and we manage senior living communities for SNH.  In 2001, SNH distributed substantially all of our then outstanding common shares to its shareholders.  As of September 30, 2014, SNH owned 4,235 of our common shares, or approximately 8.7% of our outstanding common shares.  One of our Managing Directors, Mr. Barry Portnoy, is a managing trustee of SNH.  Mr. Barry Portnoy’s son, Mr. Adam Portnoy, also serves as a managing trustee of SNH.

 

As of September 30, 2014, we leased 184 senior living communities (including seven that we have classified as discontinued operations) from SNH.  Under our leases with SNH, we pay SNH minimum rent plus percentage rent based on increases in gross revenues at certain properties.  Our total minimum annual rent payable to SNH as of September 30, 2014 was $191,375, excluding percentage rent.  Our total rent expense (which includes rent for all properties we lease from SNH, including properties that we have classified as discontinued operations) under all of our leases with SNH, net of lease inducement amortization, was $49,030 and $50,622 for the three months ended September 30, 2014 and 2013, respectively, and $146,611 and $152,089 for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014 and 2013, we had outstanding rent due and payable to SNH of $17,405 and $17,863, respectively.  During the nine months ended September 30, 2014, pursuant to the terms of our leases with SNH, we sold $23,776 of improvements made to properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $1,903.  As of September 30, 2014, our property and equipment included $5,595 for similar improvements we have made to properties we lease from SNH that we typically request that SNH purchase from us for an increase in future rent; however, we are not obligated to make these sales and SNH is not obligated to fund such amounts.

 

We and SNH previously agreed that SNH would offer for sale 11 senior living communities we lease from SNH, which we have classified as discontinued operations.  Our rent payable to SNH is reduced as these sales occur pursuant to terms set in our leases with SNH.  In August 2013, we and SNH sold one of these communities, a SNF located in Missouri with 112 living units, for a sale price of $2,550, and as a result of this sale, our annual minimum rent payable to SNH decreased by $255 in accordance with the terms of the applicable lease.  In January 2014, we and SNH sold one of these communities, an assisted living community located in Texas with 48 assisted living units, for a sale price of $2,400, and as a result of this sale, our annual minimum rent payable to SNH decreased by $210 in accordance with the terms of the applicable lease. In June 2014, we and SNH sold two of these communities, both of which are SNFs located in Wisconsin, with a combined total of 139 living units, for a sale price of $4,500, and as a result of this sale, our annual minimum rent payable to SNH decreased by $450 in accordance with the terms of the applicable lease. In October 2014, we and SNH sold one of these communities, an assisted living community in Virginia with 55 assisted living units, for a sale price of $2,850, and as a result of this sale, our annual minimum rent payable to SNH decreased by $285 in accordance with the terms of the