10-Q

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 June 30, 2019  

or

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

Commission File Number 1-16817

FIVE STAR SENIOR LIVING INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	04-3516029
(State or Other Jurisdiction of Incorporation or Organization)	(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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Shares of Common Stock	FVE	The Nasdaq Stock Market LLC

 

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 every Interactive Data File required to be submitted 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 such files).     

Yes  ☒ No  ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

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 registrant’s shares of common stock, $.01 par value, outstanding as of August 6, 2019:  50,865,892.  

FIVE STAR SENIOR LIVING INC.

FORM 10-Q

JUNE 30, 2019

INDEX

PART I	Financial Information	Page
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets – June 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2019 and 2018	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Stockholders' Equity – Three and Six Months Ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
	Warning Concerning Forward-Looking Statements	38
PART II	Other Information	42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	44

References in this Quarterly Report on Form 10-Q to "the Company", "Five Star", "we", "us" or "our" include Five Star Senior Living Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

PART I.   Financial Information

Item 1.  Condensed Consolidated Financial Statements

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

	June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	35,500		$	29,512
Accounts receivable, net of allowance of $3,998 and $3,422 at June 30, 2019 and December 31, 2018, respectively	36,619			37,758
Due from related persons	3,698			7,855
Investments, of which $12,008 and $11,285 are restricted at June 30, 2019 and December 31, 2018, respectively	21,275			20,179
Restricted cash	23,880			19,720
Prepaid expenses and other current assets	20,844			23,029
Assets held for sale	11,218			—
Total current assets	153,034			138,053
Property and equipment, net	165,382			243,873
Equity investment of an investee	9,303			8,633
Restricted cash	1,029			923
Restricted investments	6,267			8,073
Right of use assets	909,267			—
Other long term assets	5,739			6,069
Total assets	$	1,250,021		$	405,624
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Revolving credit facility	$	—		$	51,484
Accounts payable and accrued expenses	65,961			69,667
Current portion of lease liabilities	94,368			—
Accrued compensation and benefits	41,810			35,421
Due to related persons	18,359			18,883
Mortgage notes payable	350			339
Accrued real estate taxes	1,777			12,959
Security deposits and current portion of continuing care contracts	766			3,468
Other current liabilities	34,089			37,472
Liabilities held for sale	12,615			—
Total current liabilities	270,095			229,693
Long term liabilities:
Mortgage notes payable	7,355			7,533
Long term portion of lease liabilities	829,956			—
Accrued self insurance obligations	31,148			33,030
Deferred gain on sale and leaseback transaction	—			59,478
Other long term liabilities	1,721			4,721
Total long term liabilities	870,180			104,762
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $.01: 75,000,000 shares authorized, 50,865,892 and 50,853,452 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	508			508
Additional paid in capital	361,777			361,555
Accumulated deficit	(254,197		)	(292,636		)
Accumulated other comprehensive income	1,658			1,742
Total shareholders’ equity	109,746			71,169
	$	1,250,021		$	405,624

The accompanying notes are an integral part of these unaudited condensed financial statements.

1

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Senior living revenue	$	274,496		$	270,882		$	551,431		$	545,407
Management fee revenue	4,024			3,777			8,007			7,399
Reimbursed costs incurred on behalf of managed communities	77,219			68,439			151,824			135,809
Total revenues	355,739			343,098			711,262			688,615
Operating expenses:
Senior living wages and benefits	145,249			140,713			288,879			276,882
Other senior living operating expenses	72,576			75,764			149,344			149,541
Costs incurred on behalf of managed communities	77,219			68,439			151,824			135,809
Rent expense	33,262			52,113			87,804			104,358
General and administrative expenses	20,548			18,477			47,050			38,440
Depreciation and amortization expense	2,941			8,977			11,106			17,837
Loss (gain) on sale of senior living communities	101			(1,509		)	101			(7,193		)
Long lived asset impairment	112			365			3,260			365
Total operating expenses	352,008			363,339			739,368			716,039
Operating income (loss)	3,731			(20,241		)	(28,106		)	(27,424		)
Interest, dividend and other income	415			218			571			385
Interest and other expense	(906		)	(604		)	(1,812		)	(1,307		)
Unrealized (loss) gain on equity investments	(38		)	44			328			(6		)
Realized gain (loss) on sale of debt and equity investments, net of tax	144			(42		)	236			(10		)
Income (loss) before income taxes and equity in earnings of an investee	3,346			(20,625		)	(28,783		)	(28,362		)
Benefit (provision) for income taxes	705			(281		)	(785		)	(537		)
Equity in earnings of an investee, net of tax	130			12			534			56
Net income (loss)	$	4,181		$	(20,894	)	$	(29,034	)	$	(28,843	)
Weighted average shares outstanding—basic	50,067			49,653			50,054			49,624
Weighted average shares outstanding—diluted	51,422			49,653			50,054			49,624
Net income (loss) per share—basic	$	0.08		$	(0.42	)	$	(0.58	)	$	(0.58	)
Net income (loss) per share—diluted	$	0.08		$	(0.42	)	$	(0.58	)	$	(0.58	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

2

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	4,181		$	(20,894	)	$	(29,034	)	$	(28,843	)
Other comprehensive income:
Unrealized loss on investments, net of tax	(16		)	(43		)	(221		)	(440		)
Equity in unrealized gain (loss) of an investee, net of tax	71			10			136			(83		)
Realized (gain) loss on investments reclassified and included in net income (loss), net of tax	(3		)	70			1			67
Other comprehensive income (loss)	52			37			(84		)	(456		)
Comprehensive income (loss)	$	4,233		$	(20,857	)	$	(29,118	)	$	(29,299	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

3

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

	Three and Six Months Ended June 30, 2019
	Number of Shares		Common Stock		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total
Balance at December 31, 2018	50,853,452		$	508	$	361,555	$	(292,636	)	$	1,742		$	71,169
Comprehensive loss:
Net loss	—		—		—		(33,215		)	—			(33,215		)
Unrealized loss on investments, net of tax	—		—		—		—			(205		)	(205		)
Realized loss on investments reclassified and included in net loss, net of tax	—		—		—		—			4			4
Equity in unrealized gain of an investee, net of tax	—		—		—		—			65			65
Total comprehensive loss	—		—		—		(33,215		)	(136		)	(33,351		)
Cumulative effect adjustment to beginning retained earnings in connection with the adoption of FASB ASU No. 2016-02	—		—		—		67,473			—			67,473
Grants under share award plan and share based compensation	—		—		97		—			—			97
Repurchases and forfeitures under share award plan	(10,420	)	—		—		—			—			—
Balance at March 31, 2019	50,843,032		$	508	$	361,652	$	(258,378	)	$	1,606		$	105,388
Comprehensive income:
Net income	—		—		—		4,181			—			$	4,181
Unrealized loss on investments, net of tax	—		—		—		—			(16		)	(16		)
Realized gain on investments reclassified and included in net income, net of tax	—		—		—		—			(3		)	(3		)
Equity in unrealized gain of an investee, net of tax	—		—		—		—			71			71
Total comprehensive income	—		—		—		4,181			52			4,233
Grants under share award plan and share based compensation	62,500		—		123		—			—			123
Repurchases and forfeitures under share award plan	(39,640	)	—		2		—			—			2
Balance at June 30, 2019	50,865,892		$	508	$	361,777	$	(254,197	)	$	1,658		$	109,746

4

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

	Three and Six Months Ended June 30, 2018
	Number of Shares		Common Stock		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total
Balance at December 31, 2017	50,524,424		$	505	$	360,942	$	(220,489	)	$	4,036		$	144,994
Comprehensive loss:
Cumulative effect of reclassification of unrealized gain on equity investments in connection with the adoption of FASB ASU No. 2016-01	—		—		—		1,947			(1,947		)	—
Net loss	—		—		—		(7,949		)	—			(7,949		)
Unrealized loss on investments, net of tax	—		—		—		—			(397		)	(397		)
Realized gain on investments reclassified and included in net loss, net of tax	—		—		—		—			(3		)	(3		)
Equity in unrealized gain of an investee, net of tax	—		—		—		—			(93		)	(93		)
Total comprehensive loss	—		—		—		(6,002		)	(2,440		)	(8,442		)
Grants under share award plan and share based compensation	12,500		—		211		—			—			211
Balance at March 31, 2018	50,536,924		$	505	$	361,153	$	(226,491	)	$	1,596		$	136,763
Comprehensive loss:
Net loss	—		—		—		(20,894		)	—			(20,894		)
Unrealized loss on investments, net of tax	—		—		—		—			(43		)	(43		)
Realized gain on investments reclassified and included in net loss, net of tax	—		—		—		—			70			70
Equity in unrealized gain of an investee, net of tax	—		—		—		—			10			10
Total comprehensive loss	—		—		—		(20,894		)	37			(20,857		)
Grants under share award plan and share based compensation	62,500		1		72		—			—			73
Repurchases and forfeitures under share award plan	(11,340	)	—		207		—			—			207
Balance at June 30, 2018	50,588,084		$	506	$	361,432	$	(247,385	)	$	1,633		$	116,186

The accompanying notes are an integral part of these unaudited condensed financial statements.

5

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(29,034	)	$	(28,843	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization expense	11,106			17,837
Loss (gain) on sale of senior living communities	101			(7,193		)
Unrealized (gain) loss on equity securities	(328		)	6
Realized (gain) loss on sale of debt and equity investments	(236		)	10
Loss on disposal of property and equipment	86			209
Long lived asset impairment	3,260			365
Equity in earnings of an investee, net of tax	(534		)	(56		)
Stock based compensation	222			491
Provision for losses on receivables	2,092			2,637
Amortization of non-cash rent adjustments	(472		)	(3,305		)
Other noncash expense adjustments, net	62			96
Changes in assets and liabilities:
Accounts receivable	(953		)	187
Prepaid expenses and other assets	3,110			4,766
Accounts payable and accrued expenses	(5,123		)	(11,165		)
Accrued compensation and benefits	6,389			2,742
Due from (to) related persons, net	16,486			(1,798		)
Other current and long term liabilities	293			(302		)
Cash provided by (used in) operating activities	6,527			(23,316		)
Cash flows from investing activities:
Acquisition of property and equipment	(24,427		)	(23,680		)
Purchases of investments	(2,234		)	(2,682		)
Proceeds from sale of property and equipment	78,920			8,529
Proceeds from sale of communities	—			31,853
Proceeds from sale of investments	4,446			4,981
Cash provided by investing activities	56,705			19,001
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facility	—			5,000
Repayments of borrowings on revolving credit facility	(51,484		)	(5,000		)
Repayments of mortgage notes payable	(181		)	(343		)
Payment of deferred financing fees	(1,271		)	—
Cash used in financing activities	(52,936		)	(343		)
Change in cash and cash equivalents and restricted cash	10,296			(4,658		)
Cash and cash equivalents and restricted cash at beginning of period	50,155			48,478
Cash and cash equivalents and restricted cash at end of period	$	60,451		$	43,820
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	35,500		$	22,137
Restricted cash	24,909			21,683
Restricted cash presented in assets held for sale	42			—
Cash and cash equivalents and restricted cash at end of period	$	60,451		$	43,820
Supplemental cash flow information:
Cash paid for interest	$	1,565		$	1,002
Cash (received) paid for income taxes, net	$	(1,491	)	$	348
Non-cash activities:
Initial recognition of right of use assets	$	1,478,958		$	—
Initial recognition of lease liabilities	$	1,478,958		$	—
Real estate sale	$	—		$	33,364
Mortgage notes assumed by purchaser in real estate sale	$	—		$	33,364

The accompanying notes are an integral part of these unaudited condensed financial statements.

6

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

Note 1.  Basis of Presentation and Organization

General

The accompanying condensed consolidated financial statements of Five Star Senior Living Inc. and its subsidiaries, or we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, 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, 2018, 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. Certain reclassifications have been made to the prior years’ 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 June 30, 2019, we operated 282 senior living communities located in 33 states with 31,996 living units, including 256 primarily independent and assisted living communities with 29,768 living units and 26 SNFs with 2,228 living units. As of June 30, 2019, we owned and operated 20 of these senior living communities (2,108 living units), we leased and operated 185 of these senior living communities (19,804 living units) and we managed 77 of these senior living communities (10,084 living units). Our 282 senior living communities, as of June 30, 2019, included 11,134 independent living apartments, 16,470 assisted living suites and 4,392 SNF units. The foregoing numbers exclude living units categorized as out of service.  

Going Concern

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which accordingly assumes, among other things, the realization of assets and the satisfaction of liabilities in the ordinary course of business.

We previously determined that, as of May 8, 2019, a substantial doubt existed regarding our ability to continue as a going concern. We had made this determination based on the following factors, among others: we face increased competition across the senior living industry, including in specific markets in which we operate senior living communities; medical advances and healthcare services allow some potential residents to defer the time when they require the special services available at our communities; low unemployment in the United States combined with a competitive labor market within our industry are increasing our employment costs; we have a significant accumulated deficit and we have incurred operating losses in each of the last three fiscal years; we did not expect to be able to pay our full rent obligations during the first quarter of 2019, absent rent relief from Senior Housing Properties Trust, or, together with its subsidiaries, SNH; and our then existing $54,000 secured revolving credit facility, or our prior credit facility, was fully drawn and scheduled to expire on June 28, 2019. Since March 31, 2019, we have taken significant actions to address our operating and liquidity challenges. As a result, even though challenging conditions in the senior living industry continue to exist, there no longer exists a substantial doubt about our ability to continue as a going concern for the next 12 months.

We currently operate 258 senior living communities under lease and management arrangements with SNH, or approximately 91.5% of the total communities we operate. In order to address our ongoing operating and liquidity challenges, on April 1, 2019, we entered into a transaction agreement with SNH, or the Transaction Agreement, pursuant to which we and SNH agreed to modify our existing business arrangements, subject to certain conditions and the receipt of various approvals. As part of these modifications, (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by us under our master leases with SNH was reduced to $11,000, and, as our stockholders approved the issuances of our common shares to SNH and SNH’s shareholders pursuant to the Transaction Agreement, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated, and (2) no additional rent is payable to SNH by us from February 1, 2019 to January 1, 2020 (or January 1, 2021, if extended under the Transaction Agreement), or the Conversion Time, subject to possible extension. Also on April 1, 2019, pursuant to the Transaction Agreement, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH's

7

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

senior living communities leased and operated by us, which amount was subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement. SNH also extended to us a $25,000 line of credit that matures on January 1, 2020, subject to extension. As of June 30, 2019 and August 6, 2019, we had no borrowings outstanding under this line of credit. Other significant pending transactions are also contemplated by the Transaction Agreement. For more information regarding the Transaction Agreement and related agreements and the transactions contemplated thereby, see Note 9.

On June 12, 2019, we entered into a second amended and restated credit agreement with Citibank, N.A., as administrative agent and lender, and a syndicate of other lenders, or our credit agreement, pursuant to which we have a $65,000 secured revolving credit facility, or our credit facility, that is available for general business purposes. Our credit facility replaced our prior credit facility, which was scheduled to expire on June 28, 2019. During June 2019, we repaid, in aggregate, $51,484 of outstanding borrowings under our credit facility. As of June 30, 2019 and August 6, 2019, we had no borrowings outstanding under our credit facility. For more information regarding our credit agreement, our credit facility and our prior credit facility, see Note 8.

Segment Information

As of June 30, 2019, 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 others independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents. In the rehabilitation and wellness operating segment we provide therapy services, including physical, occupational, speech and other specialized therapy services, in the inpatient setting and in outpatient clinics. We have determined that our two operating segments meet the aggregation criteria as prescribed under Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or ASC, Topic 280, Segment Reporting, and we have therefore 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 Cayman Islands organized captive insurance company subsidiary, which participates in our workers’ compensation, professional and general liability and certain automobile insurance programs.

Note 2. Summary of Significant Accounting Policies

Leases

On January 1, 2019, we adopted FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, we elected the practical expedients within FASB Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU No. 2016-02, that allow an entity to not reassess as of January 1, 2019 its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs.

In accordance with ASC Topic 842, at inception of a contract, we, as lessee, evaluate and determine whether such contract is or contains a lease based on whether such contract conveys the right to control the use of the identified asset. We apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. We have elected to apply the portfolio approach where possible in assessing our leases and performed an assessment of all our leases. In addition, we have elected the practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. As lessee, we lease senior living communities and our headquarters, and enter into contracts for the use and maintenance of various pieces of equipment that contain a lease. We have determined that none of these leases have met any of the criteria to be classified as a finance lease and, therefore, we have accounted for all of these leases as operating leases.

We have determined that our leases for the use and maintenance of equipment are short term leases. In accordance with ASC Topic 842, we have made an accounting policy election for our leases, which are determined to be short term leases, whereby we recognize the lease payments on a straight line basis over the lease term and variable lease payments in the period in which the obligations for those payments are incurred. Expense related to these leases is recognized in the statement of operations in other senior living operating expenses and is not material to our condensed consolidated financial statements.

We have determined that our leases for senior living communities and our headquarters are long term leases. In accordance with ASC Topic 842, a lessee is required to record a right of use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Accordingly, we have recorded a right of use asset and lease liability for all of our leased communities and our headquarters. We determined that the discount rate implicit in the leases was not readily available,

8

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

and therefore, in accordance with ASC Topic 842, we determined our incremental borrowing rate, or IBR, to calculate the right of use assets and lease liabilities. For purposes of determining the lease term, we concluded that it is not reasonably certain that our lease extensions will be exercised and, therefore, we included payments required to be made under the committed lease term in calculating the right of use assets and lease liabilities. Expense related to these leases is recognized in the statement of operations in rent expense, except for the expense related to our headquarters, which is recorded in general and administrative expenses. We recognize variable lease payments primarily relating to percentage rent paid under our leases with SNH, and operating costs such as insurance and real estate taxes, in the statement of operations in the period in which the obligations for those payments are incurred.

We have not capitalized any initial direct costs related to our leases as these costs are not material to our condensed consolidated financial statements.

ASC Topic 842 provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. In addition, ASC Topic 842 clarifies which ASC Topic (Topic 842 or FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606) applies for the combined component. Specifically, if the non-lease components associated with the lease component are the predominant component of the combined components, the lessor should account for the combined component in accordance with ASC Topic 606. Otherwise, the lessor should account for the combined component as an operating lease in accordance with ASC Topic 842. We have elected this practical expedient and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the leases and, therefore, we recognize revenue for these agreements under ASC Topic 606.

Revenue Recognition

We recognize revenue from contracts with customers in accordance with ASC Topic 606 using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within that portfolio. The five step model defined by ASC Topic 606 requires us to: (1) identify our contracts with customers; (2) identify our performance obligations under those contracts; (3) determine the transaction prices of those contracts; (4) allocate the transaction prices to our performance obligations in those contracts; and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

A substantial portion of our revenue at our independent living and assisted living communities relates to contracts with residents for housing services that are generally short term in nature and initially is subject to ASC Topic 842. As previously discussed, we have concluded that the non-lease components of these agreements are the predominant components of the contracts; therefore, we recognize revenue for these agreements under ASC Topic 606. Our contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short term in nature. We have determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when our performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.

Senior Living Revenue. Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services being provided are not material to our consolidated financial statements. Some of our senior living communities require payment of an entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in other current liabilities in our consolidated balance sheets. These deferred amounts then are amortized on a straight line basis into revenue over the term of the resident agreement. Revenue recorded and deferred in connection with community fees is not material to our consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in

9

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.

In our SNFs and certain of our independent and assisted living communities where we provide SNF services, we are paid fixed daily rates from governmental and contracted third party payers, and we charge a predetermined fixed daily rate for private pay residents. These fixed daily rates and certain other fees are billed monthly in arrears. Although there are complex regulatory compliance rules governing fixed daily rates, we have no episodic payments or capitation arrangements. We currently use the “most likely amount” technique to estimate revenue in accordance with ASC Topic 606, although rates are generally known and considered fixed prior to services being performed, whether included in the resident agreement or contracted with governmental or third party payers. Rate adjustments from Medicare or Medicaid are recorded when known (without regard to when the assessment is paid or withheld), and subsequent adjustments to these amounts are recorded in revenues when known. Billings under certain of these programs are subject to audit and possible retroactive adjustment, and related revenue is recorded at the amount we ultimately expect to receive, which is inclusive of the estimated retroactive adjustments or refunds, if any, under reimbursement programs. Retroactive adjustments are recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Revenue is recognized when performance obligations are satisfied by transferring control of the service provided to the resident, which is generally when services are provided over the duration of care. We derived approximately 22.4% and 22.8% of our senior living revenues for the three months ended June 30, 2019 and 2018, respectively, and 23.0% and 23.2% for the six months ended June 30, 2019 and 2018, respectively, from payments under Medicare and Medicaid programs.

Management Fee Revenue and Reimbursed Costs Incurred on Behalf of Managed Communities. We manage senior living communities for the account of SNH pursuant to long term management agreements which provide for periodic management fee payments to us and reimbursement for our direct costs and expenses related to such communities. Management fees are determined by an agreed upon percentage of gross revenues (as defined) and recognized in accordance with ASC Topic 606 in the same period that we provide the management services to SNH, generally monthly. FASB ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. Where we are the primary obligor and therefore control the transfer of the goods and services with respect to any such operating expenses incurred in connection with the management of these communities, we recognize revenue when the goods have been delivered or the service has been rendered and we are due to be reimbursed from SNH. Such revenue is included in reimbursed costs incurred on behalf of managed communities in our consolidated statements of operations. The related costs are included in costs incurred on behalf of managed communities in our consolidated statements of operations. Amounts due from SNH related to management fees and reimbursed costs incurred on behalf of managed communities are included in due from related persons in our consolidated balance sheets.

The following table presents revenue disaggregated by type of contract and payer:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue from contracts with customers:
Basic housing and support services (1)	$	163,615	$	161,778	$	326,390	$	323,882
Medicare and Medicaid programs (1)	61,443		61,824		126,764		126,427
Additional requested services, and private pay and other third party payer SNF services (1)	49,438		47,280		98,277		95,098
Management fee revenue	4,024		3,777		8,007		7,399
Reimbursed costs incurred on behalf of managed communities	77,219		68,439		151,824		135,809
Total revenues	$	355,739	$	343,098	$	711,262	$	688,615

(1) Included in senior living revenue in our consolidated statements of operations.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). This ASU also changes the accounting for sale and leaseback transactions, such as our sale and leaseback transaction with SNH in June 2016, and any

10

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

associated deferred gain. In accordance with ASC Topic 842, if a previous sale and leaseback transaction was accounted for as a sale and operating leaseback in accordance with FASB ASC Topic 840, Leases, or ASC Topic 840, any deferred gain or loss not resulting from off-market terms shall be recognized as a cumulative-effect adjustment to equity. This ASU is effective for reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, or ASU No. 2018-11, which works to improve on certain aspects of ASU No. 2016-02 identified by stakeholders as problematic or difficult to implement, including the adoption method. ASU No. 2018-11 provides for a transition method option, allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, rather than restating comparative periods being presented. ASU No. 2018-11 also provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. We adopted these ASUs as required effective January 1, 2019 utilizing the modified retrospective transition method with no adjustments to comparative periods presented in accordance with ASU No. 2018-11.

The adoption of ASC Topic 842 resulted in the recognition of lease liabilities and right of use assets of approximately $1.5 billion as of January 1, 2019. Such amount of right of use assets was recognized based upon the amount of the recognized lease liabilities, adjusted for accrued lease payments, which are not material to our condensed consolidated financial statements as of January 1, 2019. We have also concluded that any previously unrecognized right of use assets needed to be reviewed for impairment effective January 1, 2019, which could have resulted in a reduction to the initially recognized right of use assets with a cumulative effect adjustment to beginning retained earnings as of January 1, 2019. We have completed the process of evaluating the initial right of use assets for impairment and have determined there were no indicators of impairment. Due to changes in how we account for the deferred gain on our sale and leaseback transaction described above effective with the adoption of these ASUs, on January 1, 2019, we recorded through retained earnings our total deferred gain of $67,473 on our consolidated balance sheets as of December 31, 2018, $55 of which was in accounts payable and accrued expenses, $6,723 of which was in other current liabilities, $1,217 of which was in other long term liabilities and the remaining $59,478 was separately stated on our consolidated balance sheets.

For the year ended December 31, 2018, a substantial portion of our senior living revenue at our independent living and assisted living communities related to housing services and was subject to ASC Topic 840, and revenue for additional requested services was recognized in accordance with ASC Topic 606. Upon adoption of Topic 842, we elected the lessor practical expedient within ASU No. 2018-11 and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component, either the lease or non-lease component, of the contracts rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the lease and, therefore, we recognize revenue for these agreements under ASC Topic 606. After the adoption of ASC Topic 842, the timing and pattern of revenue recognition are substantially the same as those prior to the adoption.

See also the discussion above under “Leases” and Note 9 for more information regarding the impact of these ASUs on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), which shortens the amortization period for certain callable debt securities held at a premium. Specifically, this ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The adoption of this ASU did not have a material impact on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), which permits an entity to reclassify the tax effects that remain recorded within other comprehensive income to retained earnings as a result of tax reform legislation that became effective in December 2017. The adoption of this ASU did not have a material impact on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2018-07, Compensation—Stock Compensation (Topic 718), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from non-employees. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.

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FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current available for sale security other-than-temporary impairment model for debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. This ASU is effective for reporting periods beginning after December 15, 2019. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief which provides for an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. This ASU is effective for reporting periods beginning after December 15, 2019. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2018, the FASB also issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for reporting periods beginning after December 15, 2019. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

Note 3. Property and Equipment

Property and equipment consists of the following:

	June 30, 2019			December 31, 2018
Land	$	12,155		$	16,383
Buildings and improvements	200,054			208,375
Furniture, fixtures and equipment	53,216			239,240
Property and equipment, at cost	265,425			463,998
Accumulated depreciation	(100,043		)	(220,125		)
Property and equipment, net	$	165,382		$	243,873

We recorded depreciation expense relating to our property and equipment of $2,941 and $8,957 for the three months ended June 30, 2019 and 2018, respectively, and $11,106 and $17,797 for the six months ended June 30, 2019 and 2018, respectively.

We review the carrying value of 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. 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 assets or asset groups are expected to generate, and we consider these estimates to be a Level 3 fair value measurement. As a result of our long lived assets impairment review, we recorded $112 and $3,260 of impairment charges to certain of our long lived assets for the three and six months ended June 30, 2019, respectively, and $365 for the three and six months ended June 30, 2018.

As of June 30, 2019, we had $10,807 of net property and equipment classified as held for sale and presented separately in our consolidated balance sheets primarily as a result of the Transaction Agreement. SNH has agreed to purchase $3,545 of these assets classified as held for sale as of June 30, 2019. See Note 9 for more information regarding our communities classified as held for sale and our leases and other arrangements with SNH. 

On April 1, 2019, pursuant to the Transaction Agreement, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH’s senior living communities leased to and operated by us, which amount was

12

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement. See Note 9 for more information regarding the Transaction Agreement and the transactions contemplated thereby.

Note 4. Accumulated Other Comprehensive Income

The following table details the changes in accumulated other comprehensive income, net of tax, for the six months ended June 30, 2019:

	Equity Investment of an Investee			Investments			Accumulated Other Comprehensive Income
Balance at January 1, 2019	$	(266	)	$	2,008		$	1,742
Unrealized loss on investments, net of tax	—			(221		)	(221		)
Equity in unrealized gain of an investee, net of tax	136			—			136
Realized loss on investments reclassified and included in net income (loss), net of tax	—			1			1
Balance at June 30, 2019	$	(130	)	$	1,788		$	1,658

Accumulated other comprehensive income represents the unrealized gains and losses of our debt investments, net of tax, and our share of other comprehensive income of Affiliates Insurance Company, or AIC. See Note 11 for more information regarding our arrangements with AIC.

Note 5.  Income Taxes

We recognized a benefit for income taxes of $705 and a provision for income taxes of $785 for the three and six months ended June 30, 2019, respectively. We recognized a provision for income taxes of $281 and $537 for the three and six months ended June 30, 2018, respectively. The benefit for income taxes for the three months ended June 30, 2019 is related to a decrease to our cumulative federal and state income taxes through June 30, 2019 compared to March 31, 2019, and the provision for income taxes for the six months ended June 30, 2019 is related to federal and state income taxes. The provision for income taxes for the three and six months ended June 30, 2018 is related to state income taxes.

We previously determined it was more likely than not that a majority of our net deferred tax assets would not be realized and concluded that a valuation allowance was required, which eliminated the majority of our net deferred tax assets recorded in our consolidated balance sheets. In the future, if we believe that we will more likely than not realize a benefit of these deferred tax assets, we will adjust our valuation allowance and recognize an income tax benefit, which may affect our results of operations.

Note 6.  Earnings Per Share

We calculated basic earnings per common share, or EPS, for the three and six months ended June 30, 2019 and 2018 using the weighted average number of shares of our common shares, outstanding during the periods. When applicable, diluted EPS reflects the more dilutive earnings per common share amount calculated using the two class method or the treasury stock method. The three months ended June 30, 2019 and 2018 had 1,355,405 and 1,245,186, respectively, and the six months ended June 30, 2019 and 2018 had 1,218,752 and 1,255,478, respectively, of potentially dilutive restricted unvested common shares. These shares were not included in the calculation of diluted EPS for the six months ended June 30, 2019 and the three and six months ended June 30, 2018 because to do so would have been antidilutive.

Note 7.  Fair Values of Assets and Liabilities

Our assets recorded at fair value have been categorized based on a fair value hierarchy in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures. 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.

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FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

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.

Recurring Fair Value Measures

The tables below present the assets measured at fair value at June 30, 2019 and December 31, 2018 categorized by the level of inputs used in the valuation of each asset.

	As of June 30, 2019
			Quoted Prices in Active Markets for Identical  Assets		Significant  Other Observable  Inputs		Significant Unobservable  Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents(1)	$	27,846	$	27,846	$	—	$	—
Investments:
Equity investments(2)
Financial services industry	1,161		1,161		—		—
Healthcare	273		273		—		—
Technology	236		236		—		—
Other	4,312		4,312		—		—
Total equity investments	5,982		5,982		—		—
Debt investments:(3)
International bond fund(4)	2,642		—		2,642		—
High yield fund(5)	2,905		—		2,905		—
Industrial bonds	1,176		—		1,176		—
Technology bonds	2,172		—		2,172		—
Government bonds	9,514		9,514		—		—
Energy bonds	622		—		622		—
Financial bonds	1,763		—		1,763		—
Other	766		—		766		—
Total debt investments	21,560		9,514		12,046		—
Total investments	27,542		15,496		12,046		—
Total	$	55,388	$	43,342	$	12,046	$	—

14

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

	As of December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant  Other Observable Inputs		Significant  Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents(1)	$	23,390	$	23,390	$	—	$	—
Investments:
Equity investments(2)
Financial services industry	1,074		1,074		—		—
Healthcare	291		291		—		—
Technology	174		174		—		—
Other	3,927		3,927		—		—
Total equity investments	5,466		5,466		—		—
Debt investments(3)
International bond fund(4)	2,537		—		2,537		—
High yield fund(5)	2,669		—		2,669		—
Industrial bonds	1,692		—		1,692		—
Technology bonds	2,375		—		2,375		—
Government bonds	9,791		9,791		—		—
Energy bonds	595		—		595		—
Financial bonds	1,858		—		1,858		—
Other	1,268		—		1,268		—
Total debt investments	22,785		9,791		12,994		—
Total investments	28,251		15,257		12,994		—
Total	$	51,641	$	38,647	$	12,994	$	—

(1) Cash equivalents consist of short term, highly liquid investments and money market funds held principally for obligations arising from our self insurance programs. Cash equivalents are reported in our condensed consolidated balance sheets as cash and cash equivalents and current and long term restricted cash. Cash equivalents include $23,577 and $19,529 of balances that are restricted at June 30, 2019 and December 31, 2018, respectively.

(2) The fair value of our equity investments is readily determinable. During the six months ended June 30, 2019 and 2018, we received gross proceeds of $1,664 and $561, respectively, in connection with the sales of equity investments and recorded gross realized gains totaling $282 and $65, respectively, and gross realized losses totaling $45 and $4, respectively.

(3) As of June 30, 2019, our debt investments, which are classified as available for sale, had a fair value of $21,560 with an amortized cost of $19,633; the difference between the fair value and amortized cost amounts resulted from unrealized gains of $1,932, net of unrealized losses of $5. As of December 31, 2018, our debt investments had a fair value of $22,785 with an amortized cost of $21,806; the difference between the fair value and amortized cost amounts resulted from unrealized gains of $1,276, net of unrealized losses of $296. Debt investments include $12,433 and $13,943 of balances that are restricted as of June 30, 2019 and December 31, 2018, respectively. At June 30, 2019, none of the securities we hold have been in a loss position for less than 12 months and 10 of the investments we hold, with a fair value of $2,548, have been in a loss position for greater than 12 months. We do not believe these investments 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 investments remain strong with solid fundamentals, or we intend to hold these investments until recovery, and other factors that support our conclusion that the loss is temporary. During the six months ended June 30, 2019 and 2018, we received gross proceeds of $2,782 and $4,420, respectively, in connection with the sales of debt investments and recorded gross realized gains totaling $6 and $9, respectively, and gross realized losses totaling $7 and $80, respectively. We record gains and losses on the sales of these investments using the specific identification method.

(4) The investment strategy of this fund is to invest principally in fixed income securities issued by non-U.S. issuers. 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.

(5) 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.

15

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

During the six months ended June 30, 2019, 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 six months ended June 30, 2019.

The carrying value of accounts receivable and accounts payable approximates fair value as of June 30, 2019 and December 31, 2018. The carrying value and fair value of our mortgage notes payable were $7,705 and $9,357, respectively, as of June 30, 2019 and $7,872 and $8,986, respectively, as of December 31, 2018, 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.

Non-Recurring Fair Value Measures

We review the carrying value of our long lived assets, including our right of use assets, property and equipment and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. See Note 3 for more information regarding fair value measurements related to impairments of our long lived assets we recorded.

Note 8.  Indebtedness

Our prior credit facility, which provided for borrowings of up to $54,000, subject to conditions, was scheduled to mature on June 28, 2019. In June 2019, we replaced our prior credit facility with our $65,000 secured revolving credit facility. Our credit facility is scheduled to mature on June 12, 2021, and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our credit facility for a one year period. Other terms of our credit facility are substantially similar to those of our prior credit facility. We paid fees of $1,279 in 2019 in connection with the closing of our credit facility, which fees were deferred and are being amortized over the initial term of our credit facility. Our credit facility is available for general business purposes, including acquisitions, and provides for the issuance of letters of credit. We are required to pay interest at a rate of LIBOR plus a premium of 250 basis points per annum, or at a base rate, as defined in our credit agreement, plus 150 basis points per annum, on borrowings under our credit facility; the effective annual interest rates as of June 30, 2019 were 4.93% and 7.00%, respectively. We are also required to pay a quarterly commitment fee of 0.35% per annum on the unused part of the available borrowings under our credit facility. The weighted average annual interest rate for borrowings under our credit facility was 4.94% for the six months ended June 30, 2019. The weighted average annual interest rate for borrowings under our prior credit facility was 4.99% and 6.50% for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had no borrowings under our credit facility, letters of credit issued in an aggregate amount of $2,516 and $62,484 available for borrowing under our credit facility. We incurred aggregate interest expense and other associated costs related to our credit facilities of $775 and $270 for the three months ended June 30, 2019 and 2018, respectively, and $1,547 and $535 for the six months ended June 30, 2019 and 2018 respectively.

Our credit facility is secured by real estate mortgages on 11 senior living communities with a combined 1,245 living units owned by certain of our subsidiaries that guarantee our obligations under our credit facility. Our credit facility is also secured by these subsidiaries’ accounts receivable and related collateral. The amount of available borrowings under our credit facility is subject to our having qualified collateral, which is primarily based on the value of the communities securing our obligations under our credit facility. Our credit facility provides for acceleration of payment of all amounts outstanding under our credit facility upon the occurrence and continuation of certain events of default, including a change of control of us, as defined. Our credit agreement contains financial and other covenants, including those that restrict our ability to pay dividends or make other distributions to our stockholders in certain circumstances.

At June 30, 2019, we had seven irrevocable standby letters of credit outstanding, totaling $26,476. In June 2019, we increased, from $22,700 to $23,237, one of these letters of credit which secures our workers' compensation insurance program, and this letter of credit is currently collateralized by approximately $21,535 of cash equivalents and $5,842 of debt and equity investments. This letter of credit currently expires in June 2020 and is automatically extended for one year terms unless notice of nonrenewal is provided by the issuing bank prior to the end of the applicable term. We expect that our workers' compensation insurance program will require an increase in the value of this letter of credit in June 2020. At June 30, 2019, the cash equivalents collateralizing this letter of credit, including accumulated interest, were classified as short term restricted cash in our condensed consolidated balance sheets, and the debt and equity investments collateralizing this letter of credit are classified as short term investments in our condensed consolidated balance sheets. The remaining six irrevocable standby letters of credit outstanding at June 30, 2019, totaling $3,238, secure certain of our other obligations. These letters of credit are scheduled to

16

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

mature between October 2019 and September 2020 and are required to be renewed annually. As of June 30, 2019, our obligations under these six letters of credit, totaling $2,516, were issued and outstanding under our credit facility and obligations of $723 for four of the six letters of credit were collateralized by cash and classified as restricted cash as of June 30, 2019.

At June 30, 2019, one of our senior living communities was encumbered by a mortgage. This mortgage contains standard mortgage covenants. We recorded a mortgage discount in connection with the assumption of this mortgage note as part of our acquisition of the community secured by this mortgage note in order to record this mortgage at its estimated fair value. We amortize this mortgage discount as an increase in interest expense until the maturity of this mortgage. This mortgage note requires payments of principal and interest monthly until maturity. The following table is a summary of this mortgage note as of June 30, 2019:

Balance as of			Contractual Stated		Effective			Monthly
June 30, 2019			Interest Rate		Interest Rate		Maturity Date	Payment		Lender Type
$	7,971	(1)	6.20	%	6.70	%	September 2032	$	72	Federal Home Loan Mortgage Corporation

(1) Contractual principal payment excluding unamortized discount and debt issuance costs of $266.

We incurred mortgage interest expense, net of discount amortization, of $131 and $334 for the three months ended June 30, 2019 and 2018, respectively, and $265 and $772 for the six months ended June 30, 2019 and 2018, respectively. Our mortgage debt requires monthly payments into escrows for taxes, insurance and property replacement funds; certain withdrawals from escrows require Federal Home Loan Mortgage Corporation approval.

In February 2018, in connection with the sale of one of our senior living communities to SNH, SNH assumed a Federal National Mortgage Association mortgage note that had a principal balance of $16,776 and required interest at the contracted rate of 6.64% per annum. In connection with SNH's assumption of this debt, we recorded a gain of $543, which amount is included in gain on sale of senior living communities in our condensed consolidated statements of operations.

In June 2018, in connection with the sale of two of our senior living communities to SNH, SNH assumed a commercial lender

mortgage that had a principal balance of $16,588 and required interest at the contracted rate of 5.75% per annum. In connection

with SNH's assumption of this debt, we recorded a gain of $638, which amount is included in gain on sale of senior living

communities in our condensed consolidated statements of operations.

As of June 30, 2019, we believe we were in compliance with all applicable covenants under our credit facility and mortgage debts.

See Note 9 for information regarding the $25,000 credit facility we obtained from SNH on April 1, 2019. As of August 6, 2019, we have not made any borrowings under this credit facility.

Note 9. Leases with SNH and HCP and Management Agreements with SNH

We are SNH’s largest tenant and SNH is our largest landlord. As of June 30, 2019 and 2018, we leased 181 and 184 senior living communities from SNH, respectively. We lease senior living communities from SNH pursuant to five master leases. We also manage senior living communities for the account of SNH pursuant to management and pooling agreements under which we earn management fees. As of June 30, 2019 and 2018, we managed 77 and 75 senior living communities, respectively, for the account of SNH.

The April 2019 Transaction Agreement with SNH. Among other things, the Transaction Agreement provides that, subject to certain conditions, effective as of the Conversion Time:

• our five existing master leases with SNH for all of SNH's senior living communities that are leased by us, as well as our existing management agreements and pooling agreements with SNH for SNH's senior living communities that are operated by us, will be terminated and replaced, or the Conversion, with new management agreements for all of these senior living communities, or collectively, the New Management Agreements;

17

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

• we will issue to SNH such number of our common shares as is necessary to cause SNH to own, when considered together with our common shares then owned by SNH, approximately 34% of our then outstanding common shares, and SNH will declare a pro rata distribution to holders of its common shares of beneficial interest of the right to receive, and we will issue on a pro rata basis to such holders, a number of our common shares which equals approximately 51% of our then outstanding common shares, or, together, the Share Issuances; the noted percentage ownership amounts are post-issuance, giving effect to the Share Issuances; and

• as consideration for the Share Issuances, SNH will provide to us $75,000 of additional consideration, or, collectively with the Conversion and the Share Issuances, the Restructuring Transactions.

In accordance with ASC Topic 360, Property, Plant and Equipment, or ASC 360, the senior living communities under the five existing master leases with SNH that will terminate, as described above, meet the conditions to be classified as held for sale in reporting periods subsequent to our entry into the Transaction Agreement. As a result, as of June 30, 2019, we have classified these senior living communities as held for sale. The carrying value of these senior living communities was $(872), and consisted of restricted cash of $42, prepaid and other current assets of $178, net property and equipment of $10,656, other intangible assets of $191, accrued real estate taxes of $9,815 and security deposits and current portion of continuing care contracts of $2,124, all of which were presented on our condensed consolidated balance sheets as assets and liabilities held for sale. These communities, while leased by us, generated income (loss) from operations before income taxes of $18,565 and $(6,958) for the three months ended June 30, 2019 and 2018, respectively, and $10,538 and $(7,358) for the six months ended June 30, 2019 and 2018, respectively.

Also pursuant to the Transaction Agreement: (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by us under our master leases with SNH is $11,000, subject to adjustment and extension, and no additional rent is payable to SNH by us from such date to the Conversion Time; and (2) on April 1, 2019, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH's senior living communities leased and operated by us, which amount was subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement.

At our annual meeting of stockholders held on June 11, 2019, our stockholders approved the Share Issuances. The Restructuring Transactions remain subject to conditions, including, among others: (1) the receipt of all Required Licenses (as defined in the Transaction Agreement) and any other third party consent or approval required for the consummation of the Restructuring Transactions; (2) the effectiveness of the registration statement on Form S-1 to be filed by us with the Securities and Exchange Commission, or SEC, to register our common shares to be issued pursuant to the Share Issuances; and (3) approval by The Nasdaq Stock Market LLC, or Nasdaq, of the listing of our common shares to be issued pursuant to the Share Issuances, subject to official notice of issuance.

If any required approval is not obtained by December 31, 2019, and the failure to obtain such approval is not the result of a breach or default by us under the Transaction Agreement, we and SNH have agreed to work in good faith to determine an alternative to allow the Restructuring Transactions to occur on January 1, 2020; provided SNH is not required to agree to any alternative that would adversely affect SNH's qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended. If we and SNH do not agree to any such alternative, and, as of January 1, 2020, the failure to obtain a required approval is the only remaining condition under the Transaction Agreement, the Conversion Time will be automatically extended to January 1, 2021. Pursuant to the Transaction Agreement, since our stockholders approved the Share Issuances, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated.

In accordance with ASC Topic 842, the reduction in our monthly minimum rent payable to SNH under our existing master leases with SNH pursuant to the Transaction Agreement was determined to be a modification of these master leases, and we have reassessed the classification of these master leases based on the modified terms and determined that these master leases continue to be classified as long term operating leases. Accordingly, we have remeasured the lease liability and right of use asset recorded in the condensed consolidated balance sheets.

Pursuant to the Transaction Agreement, we have agreed to expand our Board of Directors within six months following the Conversion Time to add an Independent Director (as defined in our Bylaws) reasonably satisfactory to SNH.

18

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

Pursuant to the New Management Agreements, we will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for our direct costs and expenses related to such communities, as well as an annual incentive fee equal to 15% of the amount by which the annual earnings before interest, taxes, depreciation and amortization, or EBITDA, of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year, provided that in no event shall the incentive fee be greater than 1.5% of the gross revenues realized at all communities on a combined basis for such calendar year.

The New Management Agreements provide for 15 year terms, subject to our right to extend for two consecutive five year terms if we achieve certain performance targets for the combined managed communities portfolio. The New Management Agreements also provide SNH with the right to terminate the New Management Agreement for any community that does not earn 90% of the target EBITDA for such community for two consecutive calendar years or in any two of three consecutive calendar years, with the measurement period commencing January 1, 2021 (and the first termination not possible until the beginning of calendar year 2023), provided SNH may not in any calendar year terminate communities representing more than 20% of the combined revenues for all communities for the calendar year prior to such termination.

In connection with the Transaction Agreement, we entered into a credit agreement with SNH pursuant to which SNH extended to us a $25,000 line of credit, or the SNH credit facility. The SNH credit facility matures on January 1, 2020, or January 1, 2021 if the Conversion Time is extended pursuant to the Transaction Agreement. The SNH credit facility provides for interest to be paid on borrowed amounts at a rate of 6% per year and is secured by real estate mortgages on six senior living communities owned by certain of our subsidiaries that guarantee our obligations under the SNH credit facility, and certain personal property owned by those and certain other of our subsidiaries. The SNH credit facility provides for acceleration of payment of all amounts outstanding under the SNH credit facility upon the occurrence and continuation of certain events of default, including a default by us under the Transaction Agreement and certain other agreements. The agreement governing the SNH credit facility contains covenants, including those that restrict our ability to incur debt or to pay dividends or make other distributions to our stockholders in certain circumstances. As of August 6, 2019, we have not made any borrowings under the SNH credit facility.

We incurred transaction costs of $1,133 and $8,808 related to the Transaction Agreement for the three and six months ended June 30, 2019, respectively.

Senior Living Communities Leased from SNH. Under our master leases with SNH, we pay SNH annual rent plus percentage rent equal to 4.0% of the increase in gross revenues at the applicable senior living communities over base year gross revenues as specified in the applicable lease. Our obligation to pay percentage rent under Lease No. 5 commenced in 2018. Different base years apply to those communities that pay percentage rent. The base year for a particular leased community is usually the first full calendar year after that community has become subject to that lease. As noted above, pursuant to the Transaction Agreement, no additional rent is payable to SNH by us from February 1, 2019 to the Conversion Time.

Our total annual rent payable to SNH as of June 30, 2019 and 2018 was $131,170 and $207,007, respectively, excluding percentage rent. As noted above, pursuant to the Transaction Agreement, since our stockholders approved the Share Issuances, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated. Our total rent expense under all of our leases with SNH was $32,490 and $51,391 for the three months ended June 30, 2019 and 2018, respectively, and $86,272 and $102,913 for the six months ended June 30, 2019 and 2018, respectively, which amounts included estimated percentage rent of $0 and $1,290 for the three months ended June 30, 2019 and 2018, respectively, and $1,547 and $2,681 for the six months ended June 30, 2019 and 2018, respectively. Rent expense for the three and six months ended June 30, 2018 was net of lease inducement amortization and the amortization of the deferred gain associated with the sale and leaseback transaction with SNH in June 2016 of $1,689 and $3,380, respectively. Rent expense for the three and six months ended June 30, 2019 was net of lease inducement amortization of $472. Pursuant to the Transaction Agreement, our rent payable to SNH was reduced by a total of $13,840 in aggregate for February and March 2019 and we did not pay such amount to SNH. However, as the Transaction Agreement was not entered into until April 1, 2019, our rent expense for the three months ended March 31, 2019 was not adjusted for the rent reduction for February and March 2019. Instead, the rent reduction for February and March 2019 was determined to be a lease inducement, for which a liability for the $13,840 has been recorded as a reduction of the right of use asset on our condensed consolidated balance sheets and will be amortized as a reduction of rent expense over the remaining terms of our master leases.

As of June 30, 2019 and December 31, 2018, we had outstanding rent due and payable to SNH of $10,910 and $18,781, respectively, which amounts are included in due to related persons in our condensed consolidated balance sheets.

19

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

Under our leases with SNH, we are required to operate continuously and maintain, at our expense, the leased communities in good order and repair, including structural and non-structural components. We may request that SNH purchase certain improvements to the leased communities in return for increases in annual rent in accordance with a formula specified in the applicable lease; however, SNH is not obligated to purchase such improvements and we are not obligated to sell them to SNH. We sold to SNH $8,529 of improvements to communities leased from SNH for the six months ended June 30, 2018. As a result, the annual rent payable by us to SNH increased by approximately $680. Pursuant to the Transaction Agreement, the improvements we sold to SNH for the communities we leased from SNH during the six months ended June 30, 2019 did not result in increased rent payable by us to SNH. As of June 30, 2019, our assets held for sale included $3,545 for similar improvements to communities leased from SNH that SNH has agreed to purchase from us.

In accordance with FASB ASC Topic 840, Leases, the sale and leaseback transaction we completed in June 2016 with SNH qualified for sale-leaseback accounting and we classified the related lease as an operating lease. Accordingly, the gain generated from the sale of $82,644 was deferred and was being amortized as a reduction of rent expense over the initial term of the related lease. In accordance with our adoption of Topic 842 effective January 1, 2019, we recorded through retained earnings our total deferred gain as of that date.

In April 2019, we and SNH entered into an agreement to sell to a third party two SNFs located in Wisconsin that SNH owns and leases to us for an aggregate sales price of approximately $11,000, excluding closing costs. These sales are subject to conditions; as a result, these sales may not occur, they may be delayed or their terms may change. In accordance with ASC 360, the SNFs that we and SNH have agreed to sell have met the conditions to be classified as held for sale as of June 30, 2019. The carrying value of these senior living communities was $(128), and consisted primarily of net property, plant and equipment of $35 and accrued real estate taxes of $163, which were presented on our condensed consolidated balance sheets as assets held for sale.

In May 2019, we and SNH sold to a third party three SNFs located in California that SNH owned and leased to us for an aggregate sales price of approximately $21,500, excluding closing costs. Pursuant to the Transaction Agreement, our annual rent payable to SNH decreased by $831 as a result of this sale. We did not receive any proceeds from this sale.

In May 2019, we and SNH entered into an agreement to sell 15 SNFs located in Iowa, Nebraska and Kansas that SNH owns and leases to us for an aggregate sales price of approximately $8,000, excluding closing costs. These sales are subject to conditions; as a result, these sales may not occur, they may be delayed or their terms may change. In accordance with ASC 360, these SNFs we and SNH have agreed to sell have met the conditions to be classified as held for sale as of June 30, 2019. The carrying value of these senior living communities was $(396), and consisted primarily of net property, plant and equipment of $116 and accrued real estate taxes and resident security deposits of $512 which was presented on our condensed consolidated balance sheets as assets held for sale.

In June 2018, we and SNH sold one SNF to a third party, which had been previously leased to us, located in California for a sales price of approximately $6,500, excluding closing costs. Pursuant to the terms of our lease with SNH, as a result of this sale, our annual rent payable to SNH decreased by 10.0% of the net proceeds that SNH received from this sale, in accordance with the terms of the applicable lease. We did not receive any proceeds from this sale.

Also in June 2018, SNH acquired an additional living unit at a senior living community we lease from SNH located in Florida which was added to the lease for that senior living community, and, as a result of this acquisition, our annual rent payable to SNH increased by $14 in accordance with the terms of such lease.

Senior Living Communities Leased from HCP. As of June 30, 2019, we leased four senior living communities under one lease with HCP, Inc., or HCP. This lease is also a “triple net” lease which requires that we pay all costs incurred in the operation of the communities, including the cost of insurance and real estate taxes, maintaining the communities, and indemnifying the landlord for any liability which may arise from the operations during the lease term. Our lease with HCP contains a minimum annual escalator of 2.0%, but not greater than 4.0%, depending on increases in certain cost of living indexes and expires on April 30, 2028 and includes one 10 year renewal option. Rent expense is recognized for actual rent paid plus or minus a straight line adjustment for the minimum lease escalators, which amount is not material to our condensed consolidated financial statements. The right of use asset balance has been decreased for the amount of accrued lease payments, which amounts are not material to our consolidated financial statements.

20

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

The following table is a summary of our leases with SNH and with HCP as of June 30, 2019:

						Future Minimum Rents for the Twelve Months Ending June 30,
	Number of Properties	Current Expiration Date	Remaining Renewal Options	Annual Minimum Rent as of June 30, 2019		2020		2021		2022		2023		2024		Thereafter		Total		IBR		Lease Liability (1)
1. Lease No. 1 for SNFs and independent and assisted living communities	81	December 31, 2024	Two 15-year renewal options.	$	31,826	$	31,826	$	31,826	$	31,826	$	31,826	$	15,913	$	—	$	175,043	4.53	%	$	154,706
2. Lease No. 2 for SNFs and independent and assisted living communities	45	June 30, 2026	Two 10-year renewal options.	39,956		39,956		39,956		39,956		39,956		39,956		39,956		279,692		4.64	%	238,423
3. Lease No. 3 for independent and assisted living communities	17	December 31, 2028	Two 15-year renewal options.	26,679		26,679		26,679		26,679		26,679		26,679		93,376		253,450		4.6	%	205,016
4. Lease No. 4 for SNFs and independent and assisted living communities	29	April 30, 2032	Two 15-year renewal options.	25,788		25,788		25,788		25,788		25,788		25,788		176,215		330,943		4.64	%	249,089
5. Lease No. 5 for independent and assisted living communities	9	December 31, 2028	Two 15-year renewal options.	6,921		6,921		6,921		6,921		6,921		6,921		24,222		65,748		4.6	%	53,182
6. One HCP lease	4	April 30, 2028	One 10-year renewal option.	2,825		2,881		2,937		2,986		3,058		3,119		9,175		26,981		4.6	%	22,007
Totals	185			$	133,995	$	134,051	$	134,107	$	134,156	$	134,228	$	118,376	$	342,944	$	1,131,857			$	922,423

(1)    Total lease liability does not include the lease liability related to our headquarters of $1,901.

Senior Living Communities Managed for the Account of SNH and its Related Entities. As of June 30, 2019 and 2018, we managed 77 and 75 senior living communities, respectively, for the account of SNH. We earned base management fees of $3,802 and $3,465 from the senior living communities we managed for the account of SNH for the three months ended June 30, 2019 and 2018, respectively, and $7,521 and $6,888 for the six months ended June 30, 2019 and 2018, respectively. In addition, we earned fees for our management of capital expenditure projects at the communities we managed for the account of SNH of $153 and $243 for the three months ended June 30, 2019 and 2018, respectively, and $346 and $371 for the six months ended June 30, 2019 and 2018, respectively. These amounts are included in management fee revenue in our condensed consolidated statements of operations. Pursuant to the Transaction Agreement, we and SNH have agreed to replace our long term management and pooling agreements with new management agreements, subject to certain conditions and the receipt of various approvals.

During the first quarter of 2018, we sold two senior living communities pursuant to a transaction agreement we entered with SNH in November 2017, or the 2017 transaction agreement, for an aggregate sales price of $41,917. These two senior living communities had an aggregate carrying value of $19,425, net of mortgage debt and premiums of $17,356, of which the principal amount of $16,776 was assumed by SNH. These transactions are accounted for in accordance with ASU No. 2014-09, in particular ASC Topic 610 and related ASUs, effective with the adoption of these new ASUs on January 1, 2018. Under these new ASUs, the income recognition for real estate sales is largely based on the transfer of control rather than continuing involvement in the ownership of the real estate. We recorded a gain of $0 and $5,684 for the three and six months ended June 31, 2018, respectively, as a result of the sale of these two senior living communities, which gain is included in loss (gain) on sale of senior living communities in our condensed consolidated statements of operations.

In June 2018, we sold to SNH the remaining two senior living communities pursuant to the 2017 transaction agreement for an aggregate sales price of $23,300. These two senior living communities had an aggregate carrying value of $5,163, net of mortgage debt and premiums of $17,226, of which the principal amount of $16,588 was assumed by SNH. These transactions are accounted for in accordance with ASU No. 2014-09, in particular ASC Topic 610 and related ASUs, effective with our adoption of these new ASUs on January 1, 2018. We recorded a gain of $1,549 for each of the three and six months ended June 30, 2018 as a result of the sale of these two senior living communities, which gain is included in loss (gain) on sale of senior living communities in our condensed consolidated statements of operations.

We also provide certain other services to residents at some of the senior living communities we manage for the account of SNH, such as rehabilitation services. At senior living communities we manage for the account of SNH where we provide rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay us for those rehabilitation services. At senior living communities we manage for the account of SNH where we provide both inpatient and outpatient rehabilitation services, SNH generally pays us for these services and charges for such services are included in amounts charged to residents, third party payers or government programs. We earned revenues of $1,513 and $1,660 for the three months ended June 30, 2019 and 2018, respectively, and $3,188 and $3,359 for the six months ended June 30, 2019 and 2018, respectively, for rehabilitation services we provided at senior living communities we manage for the account of SNH and

21

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

that are payable by SNH. These amounts are included in senior living revenue in our condensed consolidated statements of operations.

In order to accommodate certain requirements of New York healthcare licensing laws, a part of the senior living community SNH owns, and we manage, located in Yonkers, New York is subleased by a subsidiary of SNH to D&R Yonkers LLC. As of June 30, 2019, D&R Yonkers LLC was owned by our former Executive Vice President, Chief Financial Officer and Treasurer and by SNH’s former president and chief operating officer. We count the part of this senior living community that we manage for D&R Yonkers LLC and the part of this senior living community that we manage for the account of SNH as one senior living community. We earned management fees of $69 for each of the three months ended June 30, 2019 and 2018, and $140 for each of the six months ended June 30, 2019 and 2018, under this management arrangement with D&R Yonkers LLC, which amounts are included in management fee revenue in our condensed consolidated statements of operations.

Note 10. Business Management Agreement with RMR LLC

The RMR Group LLC, or RMR LLC, provides us certain services that we require to operate our business and which relate to various aspects of our business. RMR LLC provides these services pursuant to a business management agreement. Pursuant to our business management agreement with RMR LLC, we incurred aggregate fees payable to RMR LLC of $2,338 and $2,257 for the three months ended June 30, 2019 and 2018, respectively, and $4,632 and $4,514 for the six months ended June 30, 2019 and 2018, respectively. In addition, we incurred internal audit costs of $71 and $54 for the three months ended June 30, 2019 and 2018, respectively, and $142 and $123 for the six months ended June 30, 2019 and 2018, respectively, that we reimbursed RMR LLC pursuant to our business management agreement. These amounts are included in general and administrative expenses in our condensed consolidated statements of operations. For further information about our relationship with RMR LLC, see our Annual Report.

Note 11. Related Person Transactions

We have relationships and historical and continuing transactions with SNH, RMR LLC, ABP Trust, AIC and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and which have trustees, directors and officers who are also our Directors or officers.

SNH. SNH is currently one of our largest stockholders, owning, as of June 30, 2019, 4,235,000 of our common shares, or approximately 8.3% of our outstanding common shares. We lease from, and manage for the account of, SNH a majority of the senior living communities we operate. RMR LLC provides management services to both us and SNH and Adam D. Portnoy, the Chair of our Board of Directors and one of our Managing Directors, also serves as a managing trustee of SNH. SNH’s executive officers are officers of RMR LLC. Our Secretary also serves as a managing trustee and the secretary of SNH. On April 1, 2019, we entered into the Transaction Agreement with SNH, pursuant to which we agreed to modify our existing business arrangements with SNH, subject to certain conditions and the receipt of various approvals. See Notes 1 and 9 for more information regarding our relationships, agreements and transactions with SNH and certain parties related to it and us.

RMR LLC. We have an agreement with RMR LLC to provide management services to us. See Note 10 for more information regarding our management agreement with RMR LLC. Adam Portnoy is a managing director, president and chief executive officer of The RMR Group Inc., or RMR Inc., and is an executive officer and employee of RMR LLC; RMR Inc. is the managing member of RMR LLC. Our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer are officers and employees of RMR LLC. Our Secretary is a managing director, executive vice president, general counsel and secretary of RMR Inc. and is an officer and employee of RMR LLC.

ABP Trust. ABP Acquisition LLC, a subsidiary of ABP Trust is our largest stockholder, owning, as of June 30, 2019, 17,999,999 of our common shares, or approximately 35.4% of our outstanding common shares. Adam Portnoy is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc. Our Secretary is also an officer of ABP Trust.

We lease our headquarters from another subsidiary of ABP Trust. Our rent expense for our headquarters, including utilities and real estate taxes that we pay as additional rent, was $451 and $415 for the three months ended June 30, 2019 and 2018, respectively, and $971 and $879 for the six months ended June 30, 2019 and 2018, respectively. The adoption of ASC Topic 842 resulted in the recognition of a lease liability and right of use asset, which amount was $1,901 for each of the lease liability and the right of use asset as of June 30, 2019, with respect to our headquarters lease, using an IBR of 4.4%. The right of use

22

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

asset balance has been reduced by the amount of accrued lease payments, which have been deemed not material to our condensed consolidated financial statements.

AIC. We, ABP Trust, SNH and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders historically participated in a combined property insurance program arranged and reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage from unrelated third party insurance providers.

As of June 30, 2019 and December 31, 2018, our investment in AIC had a carrying value of $9,303 and $8,633, respectively. These amounts are presented as equity investment of an investee in our condensed consolidated balance sheets. We recognized income related to our investment in AIC, which amounts are presented as equity in earnings of an investee in our condensed consolidated statements of operations. Our other comprehensive income includes our proportionate part of unrealized gains (losses) on fixed income securities that are owned by AIC related to our investment in AIC.

Other. Pursuant to a letter agreement with Bruce J. Mackey Jr., our former President and Chief Executive Officer, we made a cash payment to him in the amount of $600 in January 2019. Additionally, we and RMR LLC made the first and second of four, equal quarterly release payments of $138 to Mr. Mackey, in cash, in March 2019 and June 2019, respectively, and made monthly transition payments to him, in cash, totaling $30 and $60 for the three and six months ended June 30, 2019, respectively; we paid 80% and RMR LLC paid 20% of those amounts. Mr. Mackey will continue to receive quarterly release payments and monthly transition payments until December 31, 2019, or such earlier date pursuant to the letter agreement, or Mr. Mackey's separation date; we will pay 80% and RMR LLC will pay 20% of those amounts. Our arrangement with Mr. Mackey meets the criteria in FASB ASC Topic 420, Exit or Disposal Cost Obligations, or ASC Topic 420, and, as a result, we recorded the full severance cost of $1,160 during the fourth quarter of 2018. Pursuant to the letter agreement, the vesting of any of our common shares previously granted to Mr. Mackey under our equity compensation plan that remain unvested will be accelerated upon Mr. Mackey's separation date.

Pursuant to a separation agreement with R. Scott Herzig, our former Senior Vice President of Senior Living Operations, we made a cash payment to him in the amount of $510 on January 11, 2019.

Effective May 31, 2019, Richard A. Doyle resigned his positions as our Executive Vice President, Chief Financial Officer and Treasurer. Pursuant to a letter agreement we, RMR LLC and Mr. Doyle entered into in connection with Mr. Doyle’s retirement, we and RMR LLC made a cash payment to him of $325 and a transition payment to him of $10 in June 2019; we paid 80% and RMR LLC paid 20% of those payments. Pursuant to the letter agreement, we and RMR LLC will make an additional cash payment of $325 to Mr. Doyle in December 2019 and transition payments to him of $10 per month until December 31, 2019, or such earlier date pursuant to the letter agreement, or Mr. Doyle's separation date; we will pay 80% and RMR LLC will pay 20% of those amounts. Our arrangement with Mr. Doyle meets the criteria in ASC Topic 420, and, as a result, we recorded the full severance cost of $568 during the second quarter of 2019, which is included in general and administrative expenses in our condensed consolidated statements of operations. Pursuant to the letter agreement, the vesting of any of our common shares previously granted to Mr. Doyle under our equity compensation plan that remain unvested will be accelerated upon Mr. Doyle's separation date.

For further information about these and other such relationships and certain other related person transactions, see our Annual Report.

Note 12.  Legal Proceedings and Claims

We have been, are currently, and expect in the future to be involved in claims, lawsuits, and regulatory and other government audits, investigations and proceedings arising in the ordinary course of our business, some of which may involve material amounts. Also, the defense and resolution of these claims, lawsuits, and regulatory and other government audits, investigations and proceedings may require us to incur significant expense. We account for claims and litigation losses in accordance with FASB ASC Topic 450, Contingencies. Under FASB ASC Topic 450, loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment and are refined as additional information becomes known. Accordingly, we are often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded; then, as information

23

FIVE STAR SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share amounts)

(unaudited)

becomes known, the minimum loss amount is updated, as appropriate. A minimum or best estimate amount may be increased or decreased when events result in a changed expectation.

As previously disclosed, in July 2017, as a result of our compliance program to review records related to our Medicare billing practices, we became aware of certain potential inadequate documentation and other issues at one of our leased SNFs. This compliance review was not initiated in response to any specific complaint or allegation, but was a review of the type that we periodically undertake to test our compliance with applicable Medicare billing rules. As a result of these discoveries, we made a voluntary disclosure of deficiencies to the U.S. Department of Health and Human Services Office of the Inspector General, or the OIG, pursuant to the OIG's Provider Self-Disclosure Protocol. We submitted supplemental disclosures related to this matter to the OIG in December 2017 and March 2018. In June 2019, we settled this matter with the OIG without admitting any liability and agreed to pay approximately $1,139 in exchange for a customary release.

We previously accrued a liability of $1,139 related to this matter, all of which was accrued and unpaid at June 30, 2019. We subsequently paid this settlement in July 2019. At December 31, 2017, we accrued an estimated revenue reserve of $888 for historical Medicare payments we received and expected to repay as a result of this matter, which amount we reduced to $759 in March 2018. In addition, at December 31, 2017, we recorded an aggregate $658 expense for additional costs we incurred as a result of this matter, including estimated OIG imposed penalties of $444, which amount we reduced to $594 in March 2018, including a reduction in estimated OIG imposed penalties to $380, and recorded additional expenses of $55, $20 and $13 for further costs related to this matter for the three months ended March 31, 2018, June 30, 2018 and September 30, 2018, respectively. We did not recognize any expenses related to this matter in 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report.

GENERAL INDUSTRY TRENDS

We believe that the primary market for senior living services is individuals age 80 and older, and, according to U.S. Census data, that group is projected to be among the fastest growing age cohort in the United States over the next 20 years. Also, as a result of medical advances, seniors are living longer. Due to these demographic trends, we expect the demand for senior living services to increase in future years.

Despite this trend, future economic downturns, softness in the U.S. housing market, higher levels of unemployment among our residents' and potential residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford our resident charges. Prospective residents who plan to use the proceeds from the sale of their homes to cover the cost of senior living services seem to be especially affected by cyclical factors affecting the housing market. However, any appreciation in U.S. housing values may not result in increased demand for our services. Although many of the services that we provide to residents are needs driven, economic circumstances and seniors’ preferences for housing and healthcare services and delivery methods, among other reasons, are key factors when making decisions as to whether to relocate to a senior living community.

For the past few years, increased access to capital and low interest rates appear to have encouraged increased senior living development, particularly in areas where existing senior living communities have historically experienced high occupancies. This has resulted in a significant number of new senior living communities being developed in recent years, although there are indications that the rate of newly started development has recently declined. The development activity has increased competitive pressures on us, particularly in certain of our geographic markets, and we expect these challenges to continue for at least the next few years. As recently developed senior living communities begin operations, we expect to have continuing challenges to maintain or increase occupancies and charges at our senior living communities. These challenges are currently negatively impacting our revenues, cash flows and results from operations and we expect these challenges to continue at least through the first half of 2020.

Another factor which appears to have a negative impact on us and our industry is that healthcare services that are extending lives and periods of occupancy at senior living communities are also allowing some potential residents to defer the time when they require certain services available at our communities or forgo moving to senior living communities altogether. We do not

24

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

currently believe that the increased stays that may result from medical advances and healthcare services will be completely offset by deferred entry, but we think this is a contributing factor to the challenges in growing occupancy.

In addition, low unemployment in the United States combined with a competitive labor market and, in certain jurisdictions, legislation and regulations that increase the minimum wage, are increasing our employment costs, including salaries, wages and benefits, such as health care benefit coverage, for our employees, which will increase our operating expenses and may negatively impact our financial results.

The senior living and healthcare industries are subject to extensive and frequently changing federal, state and local laws and regulations. These laws and regulations vary by jurisdiction but may address, among other things, licensure, personnel training, staffing ratios, types and quality of medical care, physical facility requirements, government healthcare program participation, the definition of "fraud and abuse", payment rates for resident services and confidentiality of patient records. We incur significant costs to comply with these laws and regulations and these laws and regulations may result in our having to repay payments we received for services we provided and to pay penalties, fines and interest, which amounts can be significant. See Note 12 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. For further information regarding government regulations and reimbursements, including possible changes and related legislative and other reform efforts, see "—Our Revenues" in Part I, Item 2 of this Quarterly Report on Form 10-Q.

TRANSACTION AGREEMENTS WITH SNH AND REFINANCED CREDIT FACILITY

On April 1, 2019, we entered into the Transaction Agreement pursuant to which we and SNH agreed to modify our existing business arrangements. Pursuant to the Transaction Agreement, effective January 1, 2020 (or January 1, 2021 if extended under the Transaction Agreement), or the Conversion Time, our existing leases, management agreements and pooling agreements with SNH will be terminated and replaced with new management agreements, we will issue our common shares to SNH and SNH’s shareholders, which, after giving effect to those issuances, will result in SNH owning approximately 34% and SNH’s shareholders owning approximately 51% of our then outstanding common shares, or the Share Issuances, and at that time, SNH will also pay us $75 million as consideration for the Share Issuances. At our 2019 annual meeting of stockholders on June 11, 2019, our stockholders approved the Share Issuances. Also pursuant to the Transaction Agreement, in addition to other transactions: (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by us under our master leases is $11.0 million, subject to adjustment and extension, and no additional rent is payable to SNH by us from such date to the Conversion Time; (2) on April 1, 2019, SNH purchased from us approximately $50.0 million of unencumbered fixed assets and improvements related to SNH's senior living communities leased and operated by us, which amount was subsequently adjusted to $49.2 million due to the exclusion of certain fixed assets in accordance with the Transaction Agreement; and (3) on April 1, 2019 we entered into the SNH credit facility, subject to a one year extension. These transactions are subject to conditions including, among others, the receipt of certain regulatory approvals. See Note 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information about these transactions and the conditions to these transactions. We cannot be sure that any or all such conditions will be satisfied or that these pending transactions will be completed.

On June 12, 2019, we entered into a second amended and restated credit agreement with Citibank, N.A., as administrative agent and lender, and a syndicate of other lenders, pursuant to which we obtained a $65.0 million secured revolving credit facility that is available for general business purposes. Our credit facility replaced our prior credit facility, which was scheduled to expire on June 28, 2019. On June 24, 2019 and June 28, 2019, we repaid, in aggregate, approximately $51.5 million of outstanding borrowings under our credit facility. As of June 30, 2019 and August 6, 2019 we have no borrowings outstanding under our credit facility. For more information regarding our credit agreement, our credit facility and our prior credit facility, see Note 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information about our credit facility.

In November 2017, we entered into a transaction agreement with SNH pursuant to which we agreed to sell six senior living communities to SNH for $104.4 million, including SNH’s assumption of approximately $33.5 million of mortgage debt principal secured by certain of these senior living communities, excluding closing costs. In December 2017, January 2018, February 2018 and June 2018, we sold to, and began managing for the account of, SNH, these senior living communities, and concurrently with those sales, we and SNH entered management agreements for each of these senior living communities and two new pooling arrangements with SNH.

For more information regarding our leases and management agreements and other transactions with SNH, see Note 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

As of June 30, 2019, 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 others independent living communities, assisted living communities and SNFs and provide housing and services to the residents at those communities and SNFs. In the rehabilitation and wellness operating segment we provide therapy services, including physical, occupational, speech and other specialized therapy services, in the inpatient setting and in outpatient clinics. We have determined that our two operating segments meet the aggregation criteria as prescribed under FASB ASC Topic 280, Segment Reporting, and we have therefore 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 Cayman Islands organized captive insurance company subsidiary, which participates in our workers’ compensation, professional and general liability and certain automobile insurance programs.

Key Statistical Data For the Three Months Ended June 30, 2019 and 2018:

The following tables present a summary of our operations for the three months ended June 30, 2019 and 2018:

	Three Months Ended June 30,
(dollars in thousands, except average monthly rate)	2019			2018			Change			%/bps Change
Senior living revenue	$	274,496		$	270,882		$	3,614		1.3	%
Management fee revenue	4,024			3,777			247			6.5	%
Reimbursed costs incurred on behalf of managed communities	77,219			68,439			8,780			12.8	%
Total revenues	355,739			343,098			12,641			3.7	%
Senior living wages and benefits	(145,249		)	(140,713		)	4,536			3.2	%
Other senior living operating expenses	(72,576		)	(75,764		)	(3,188		)	(4.2	)%
Costs incurred on behalf of managed communities	(77,219		)	(68,439		)	8,780			12.8	%
Rent expense	(33,262		)	(52,113		)	(18,851		)	(36.2	)%
General and administrative expenses	(20,548		)	(18,477		)	2,071			11.2	%
Depreciation and amortization expense	(2,941		)	(8,977		)	(6,036		)	(67.2	)%
(Loss) gain on sale of senior living communities	(101		)	1,509			(1,610		)	106.7	%
Long lived asset impairment	(112		)	(365		)	(253		)	(69.3	)%
Interest, dividend and other income	415			218			197			90.4	%
Interest and other expense	(906		)	(604		)	302			50.0	%
Unrealized (loss) gain on equity investments	(38		)	44			82			(186.4	)%
Realized gain (loss) on sale of debt and equity investment, net of tax	144			(42		)	186			(442.9	)%
Provision for income taxes	705			(281		)	986			(350.9	)%
Equity in earnings of an investee, net of tax	130			12			118			983.3	%
Net income (loss)	$	4,181		$	(20,894	)	$	25,075		120.0	%
Total number of communities (end of period):
Owned and leased communities	205			208			(3		)	(1.4	)%
Managed communities	77			75			2			2.7	%
Number of total communities	282			283			(1		)	(0.4	)%
Total number of living units (end of period):
Owned and leased living units (1)	21,912			22,290			(378		)	(1.7	)%
Managed living units (1)	10,084			9,510			574			6.0	%
Number of total living units (1)	31,996			31,800			196			0.6	%
Owned and leased communities:
Occupancy % (1)(2)	83.0		%	81.4		%	n/a			160		bps
Average monthly rate (2)(3)	$	4,745		$	4,709		$	36		0.8	%
Percent of senior living revenue from Medicaid	11.7		%	12.2		%	n/a			(50	)	bps
Percent of senior living revenue from Medicare	10.7		%	10.6		%	n/a			10		bps
Percent of senior living revenue from private and other sources	77.6		%	77.2		%	n/a			40		bps

(1) Includes only living units categorized as in service. As a result, the number of living units may change from period to period for reasons other than the acquisition or disposition of senior living communities.

(2) Occupancy and average monthly rate for the three months ended June 30, 2018 include data for the senior living communities that were sold to SNH during such period as owned until the time of sale and as managed from the time of sale through the end of such period.

(3) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenues for senior living services divided by occupied units during the period, and multiplying it by 30 days.

26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparable communities (senior living communities that we have operated continuously since April 1, 2018):

	Three Months Ended June 30,
(dollars in thousands, except average monthly rate)	2019			2018			Change			%/bps Change
Senior living revenue	$	271,110		$	262,725		$	8,385		3.2	%
Management fee revenue	3,542			3,533			9			0.3	%
Senior living wages and benefits	142,888			135,656			(7,232		)	5.3	%
Other senior living operating expenses	71,808			72,565			757			(1.0	)%
Total number of communities (end of period):
Owned and leased communities	205			205			—			—	%
Managed communities	72			72			—			—	%
Number of total communities	277			277			—			—	%
Total number of living units (end of period):
Owned and leased living units (1)	21,912			22,012			(100		)	(0.5	)%
Managed living units (1)	9,274			9,261			13			0.1	%
Number of total living units (1)	31,186			31,273			(87		)	(0.3	)%
Owned and leased communities (1):
Occupancy % (1)	83.1		%	81.4		%	n/a			170		bps
Average monthly rate (2)	$	4,728		$	4,665		$	63		1.4	%
Percent of senior living revenue from Medicaid	11.3		%	10.9		%	n/a			40		bps
Percent of senior living revenue from Medicare	10.3		%	10.1		%	n/a			20		bps
Percent of senior living revenue from private and other sources	78.4		%	79.0		%	n/a			(60	)	bps

(1) Includes only living units categorized as in service. As a result, the number of living units may change from period to period for reasons other than the acquisition or disposition of senior living communities.

(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenues for senior living services divided by occupied units during the period, and multiplying it by 30 days.

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

The following is a discussion of our operating results for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Senior living revenue. Senior living revenue increased approximately 1.3% due to an increase in occupancy and average monthly rates from residents who pay privately for services, as well as an increase in revenues from ancillary services, such as rehabilitation and wellness services, partially offset by sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party. The 3.2% increase in senior living revenue at the communities that we have operated continuously since April 1, 2018 was primarily due to an increase in occupancy and average monthly rates to residents who pay privately for services.

Management fee revenue. Management fee revenue increased by 6.5% primarily due to an increase in the number of managed communities to 77 from 75.

Reimbursed costs incurred on behalf of managed communities. Reimbursed costs incurred on behalf of managed communities increased by 12.8% primarily due to an increase in the number of managed communities to 77 from 75.

Senior living wages and benefits. Senior living wages and benefits increased by 3.2% primarily due to an increase in our salaries and wages of $4.4 million attributable to the aforementioned competitive labor market and, in certain jurisdictions, legislation and regulations that increased the minimum wage; as a result, we have focused on reducing employee turnover through being competitive in the marketplace with respect to cash compensation and other benefits. In addition, outside labor costs have increased $2.3 million primarily due to the transition of the SNFs owned by SNH and leased to us, which we and SNH have agreed to sell. These increases were partially offset by a decrease in employee health insurance expenses, sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party. The 5.3% increase in senior living wages and benefits at the communities that we have operated continuously since April 1, 2018 is primarily due to an increase in our salaries and wages attributable to our focus on reducing employee turnover through being competitive in the marketplace with respect to cash compensation and other benefits, in conjunction with increased outside

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

labor costs due to the transition of the SNFs that SNH owns and leases to us, which we and SNH have agreed to sell, partially offset by a decrease in employee health insurance expense.

Other senior living operating expenses. Other senior living operating expenses, which include utilities, housekeeping, dietary, repairs and maintenance, insurance and community level administrative costs, decreased by 4.2% due to sales during the second quarter of 2019 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, the sale during the second quarter of 2019 of three SNFs to a third party, and a decrease in repairs and maintenance and certain consulting and other purchase services expenses. The 1.0% decrease in other senior living operating expenses at the communities that we have operated continuously since April 1, 2018 was primarily due to a decrease in repairs and maintenance and certain consulting and other purchased services expenses.

Rent expense. Rent expense decreased by 36.2% due to the reduction in our rent pursuant to the Transaction Agreement, whereby our aggregate minimum monthly rent payable to SNH was reduced to $11.0 million commencing February 1, 2019 through December 31, 2019.

General and administrative expenses. General and administrative expenses increased by 11.2% primarily due to $1.1 million of transaction costs incurred in connection with the Transaction Agreement and $0.4 million in severance costs incurred during the second quarter of 2019 related to payments owed to a former Five Star executive officer.

Depreciation and amortization expense. Depreciation and amortization expense decreased by 67.2% due to the sale of approximately $78.9 million of fixed assets and improvements to SNH during the first half of 2019, sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party.

(Loss) gain on sale of senior living communities. A loss on sale of senior living communities of $0.1 million was recorded during the three months ended June 30, 2019, primarily in connection with the sale of three SNFs to a third party during the second quarter of 2019. A gain on sale of senior living communities of $1.5 million was recorded during the three months ended June 30, 2018, primarily in connection with our sale of two senior living communities to SNH in June 2018.

Long lived asset impairment. For the three months ended June 30, 2019 and 2018, we recorded non-cash charges related to long lived asset impairments of $0.1 million and $0.4 million, respectively, to reduce the carrying value of certain of our long lived assets to their estimated fair values.

Interest, dividend and other income. Interest, dividend and other income increased by 90.4% due to the combination of higher stated interest rates and increased cash balances invested during the period.

Interest and other expense. Interest and other expense increased by 50.0% for the three months ended June 30, 2019 compared to the same period in 2018 primarily due to increased borrowings under our prior credit facility, partially offset by SNH's assumption of two mortgage notes in connection with our sale of three senior living communities during the first half of 2018.

Unrealized (loss) gain on equity investments. Unrealized (loss) gain on equity investments represents adjustments made to our investments in equity securities to record amounts to fair value.

Realized gain (loss) on sale of debt and equity investments, net of tax. Realized gain (loss) on sale of debt and equity investments represents our realized gain (loss) on investments, net of applicable taxes. 

Benefit (provision) for income taxes. For the three months ended June 30, 2019 and 2018, we recognized a benefit for income taxes of $0.7 million and a provision of $0.3 million, respectively. The benefit for income taxes for the three months ended June 30, 2019 is related to a decrease to our cumulative federal and state income taxes through June 30, 2019 compared to March 31, 2019. The provision for income taxes for the three months ended June 30, 2018 is due to our state income taxes.

Equity in earnings of an investee, net of tax. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.

28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Key Statistical Data For the Six Months Ended June 30, 2019 and 2018:

The following tables present a summary of our operations for the six months ended June 30, 2019 and 2018:

	Six Months Ended June 30,
(dollars in thousands, except average monthly rate)	2019			2018			Change			%/bps Change
Senior living revenue	$	551,431		$	545,407		$	6,024		1.1	%
Management fee revenue	8,007			7,399			608			8.2	%
Reimbursed costs incurred on behalf of managed communities	151,824			135,809			16,015			11.8	%
Total revenues	711,262			688,615			22,647			3.3	%
Senior living wages and benefits	(288,879		)	(276,882		)	11,997			4.3	%
Other senior living operating expenses	(149,344		)	(149,541		)	(197		)	(0.1	)%
Costs incurred on behalf of managed communities	(151,824		)	(135,809		)	16,015			11.8	%
Rent expense	(87,804		)	(104,358		)	(16,554		)	(15.9	)%
General and administrative expenses	(47,050		)	(38,440		)	8,610			22.4	%
Depreciation and amortization expense	(11,106		)	(17,837		)	(6,731		)	(37.7	)%
(Loss) gain on sale of senior living communities	(101		)	7,193			(7,294		)	(101.4	)%
Long lived asset impairment	(3,260		)	(365		)	2,895			793.2	%
Interest, dividend and other income	571			385			186			48.3	%
Interest and other expense	(1,812		)	(1,307		)	505			38.6	%
Unrealized gain (loss) on equity investments	328			(6		)	334			5,566.7	%
Realized gain (loss) on sale of debt and equity investment, net of tax	236			(10		)	246			2,460.0	%
Provision for income taxes	(785		)	(537		)	248			46.2	%
Equity in earnings of an investee, net of tax	534			56			478			853.6	%
Net loss	$	(29,034	)	$	(28,843	)	$	(191	)	0.7	%
Total number of communities (end of period):
Owned and leased communities	205			208			(3		)	(1.4	)%
Managed communities	77			75			2			2.7	%
Number of total communities	282			283			(1		)	(0.4	)%
Total number of living units (end of period):
Owned and leased living units (1)	21,912			22,290			(378		)	(1.7	)%
Managed living units (1)	10,084			9,510			574			6.0	%
Number of total living units (1)	31,996			31,800			196			0.6	%
Owned and leased communities:
Occupancy % (1) (2)	83.0		%	81.5		%	n/a			150		bps
Average monthly rate (2) (3)	$	4,781		$	4,752		$	29
Percent of senior living revenue from Medicaid	12.1		%	12.2		%	n/a			(10	)	bps
Percent of senior living revenue from Medicare	10.9		%	11.0		%	n/a			(10	)	bps
Percent of senior living revenue from private and other sources	77.0		%	76.8		%	n/a			20		bps

(1) Includes only living units categorized as in service. As a result, the number of living units may change from period to period for reasons other than the acquisition or disposition of senior living communities.

(2) Occupancy and average monthly rate for the six months ended June 30, 2018 include data for the senior living communities that were sold to SNH during such period as owned until the time of sale and as managed from the time of sale through the end of such period.

(3) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenues for senior living services divided by occupied units during the period, and multiplying it by 30 days.

Comparable communities (senior living communities that we have operated continuously since January 1, 2018):

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Six Months Ended June 30,
(dollars in thousands, except average monthly rate)	2019			2018			Change			%/bps Change
Senior living revenue	$	539,580		$	527,667		$	11,913		2.3	%
Management fee revenue	6,888			6,824			64			0.9	%
Senior living wages and benefits	281,102			266,272			(14,830		)	5.6	%
Other senior living operating expenses	146,503			143,959			(2,544		)	1.8	%
Total number of communities (end of period):
Owned and leased communities	205			205			—			—	%
Managed communities	70			70			—			—	%
Number of total communities	275			275			—			—	%
Total number of living units (end of period):
Owned and leased living units (1)	21,912			22,012			(100		)	(0.5	)%
Managed living units (1)	9,059			9,046			13			0.1	%
Number of total living units (1)	30,971			31,058			(87		)	(0.3	)%
Owned and leased communities (1):
Occupancy % (1)	83.0		%	81.6		%	n/a			140		bps
Average monthly rate (2)	$	4,743		$	4,708		$	35		0.7	%
Percent of senior living revenue from Medicaid	11.3		%	10.8		%	n/a			50		bps
Percent of senior living revenue from Medicare	10.2		%	10.5		%	n/a			(30	)	bps
Percent of senior living revenue from private and other sources	78.5		%	78.7		%	n/a			(20	)	bps

(1) Includes only living units categorized as in service. As a result, the number of living units may change from period to period for reasons other than the acquisition or disposition of senior living communities.

(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenues for senior living services divided by occupied units during the period, and multiplying it by 30 days.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

The following is a discussion of our operating results for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Senior living revenue. Senior living revenue increased approximately 1.1% due to an increase in occupancy and average monthly rates from residents who pay privately for services, as well as an increase in revenues from ancillary services, such as rehabilitation and wellness services, partially offset by sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party. The 2.3% increase in senior living revenue at the communities that we have operated continuously since January 1, 2018 was primarily due to an increase in occupancy and average monthly rates.

Management fee revenue. Management fee revenue increased by 8.2% due to an increase in the number of managed communities to 77 from 75.

Reimbursed costs incurred on behalf of managed communities. Reimbursed costs incurred on behalf of managed communities increased by 11.8% due to an increase in the number of managed communities to 77 from 75.

Senior living wages and benefits. Senior living wages and benefits increased by 4.3% primarily due to an increase in our salaries and wages of $9.8 million attributable to the aforementioned competitive labor market and, in certain jurisdictions, legislation and regulations that increased the minimum wage; as a result, we have focused on reducing employee turnover through being competitive in the marketplace with respect to cash compensation and other benefits. In addition, outside labor costs have increased $4.8 million primarily due to the transition of the SNFs that SNH owns and leases to us, which we and SNH have agreed to sell. These increases were partially offset by a decrease in employee health insurance expense, sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party. The 5.6% increase in senior living wages and benefits at the communities that we have operated continuously since January 1, 2018 is due an increase in our salaries and wages attributable to our focus on reducing employee turnover through being competitive in the marketplace with respect to cash compensation and other benefits, in conjunction with increased outside labor costs due to the transition of the SNFs that SNH owns and leases to us, which we and SNH have agreed to sell, partially offset by a decrease in employee health insurance expense.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other senior living operating expenses. Other senior living operating expenses, which include utilities, housekeeping, dietary, repairs and maintenance, insurance and community level administrative costs, decreased by 0.1% primarily due to sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party, partially offset by an increase in repairs and maintenance and certain consulting and other purchased services expenses. The 1.8% increase in other senior living operating expenses at the communities that we have operated continuously since January 1, 2018 was primarily due to an increase in repairs and maintenance and certain consulting and other purchased services expenses.

Rent expense. Rent expense decreased by 15.9% directly attributable to the Transaction Agreement, whereby our aggregate minimum monthly rent payable to SNH was reduced to $11.0 million commencing February 1, 2019 through December 31, 2019. 

General and administrative expenses. General and administrative expenses increased by 22.4% primarily due to $8.8 million of transaction costs incurred in connection with the Transaction Agreement.

Depreciation and amortization expense. Depreciation and amortization expense decreased by 37.7% due to the sale of approximately $78.9 million of fixed assets and improvements to SNH during the first half of 2019, sales during the first half of 2018 of four senior living communities to SNH, which communities we now manage for SNH's account, as well as a SNF to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party.

Loss (gain) on sale of senior living communities. A loss on sale of senior living communities of $0.1 million was recorded during the six months ended June 30, 2019, primarily in connection with the sale of three SNFs to a third party during the second quarter of 2019. A gain on sale of senior living communities of $7.2 million was recorded during the six months ended June 30, 2018, primarily in connection with our sale of four senior living communities to SNH during the first half of 2018.

Long lived asset impairment. For the six months ended June 30, 2019, and 2018, we recorded non-cash charges for long lived asset impairment of $3.3 million and $0.4 million, respectively, to reduce the carrying value of certain of our long lived assets to their estimated fair values.

Interest, dividend and other income. Interest, dividend and other income increased by 48.3% due to the combination of higher stated interest rates and increased cash balances invested during the period.

Interest and other expense. Interest and other expense increased by 38.6% primarily due to increased borrowings under our prior credit facility, partially offset by SNH's assumption of two mortgage notes in connection with our sale of three senior living communities during the first half of 2018.

Unrealized gain (loss) on equity investments. Unrealized gain (loss) on equity investments represents adjustments made to our investments in equity securities to record amounts to fair value.

Realized gain (loss) on sale of debt and equity investments, net of tax. Realized gain (loss) on sale of debt and equity investments represents our realized gain (loss) on investments, net of applicable taxes. 

Provision for income taxes. For the six months ended June 30, 2019 and 2018, we recognized a provision for income taxes of $0.8 million and $0.5 million, respectively. The provision for income taxes for the six months ended June 30, 2019 is related to our federal and state income tax obligations. The provision for income taxes for the six months ended June 30, 2018 is due to our state income taxes.

Equity in earnings of an investee, net of tax. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2019, we had $35.5 million of unrestricted cash and cash equivalents, $62.5 million available for borrowing under our credit facility and $25.0 million available for borrowing under the SNH credit facility. The amount of available borrowings under our credit facility is subject to our having qualified collateral, which is primarily based on the value of the assets securing our obligations under our credit facility. Accordingly, the availability of borrowings under our credit facility at any time may be less than $65 million.

Our principal sources of funds to meet operating and capital expenses and debt service obligations are cash flows from operating activities, unrestricted cash balances, sales to, or other funding by, SNH of capital improvements at senior living communities SNH owns and we operate, and borrowings under our credit facilities. We believe that these sources will be sufficient to meet our operating and capital expenses and debt service obligations for the next 12 months.

Our future cash flows from operating activities will depend primarily upon our ability to maintain or increase the occupancy of, and the rental rates at, our senior living communities and our ability to control operating expenses at our senior living communities. If occupancy at our senior living communities declines, the rates we receive from residents who pay for our services with private resources decline, government reimbursement rates are reduced, our operating expenses increase or if we are unable to generate positive cash flows for an extended period for these or other reasons, we expect that we would explore various alternatives to fund our operations. Such alternatives may include seeking to reduce our costs, incurring debt under or in addition to our credit facility, engaging in sale and manageback transactions, mortgage financing our owned senior living communities and issuing other debt or equity securities. Although we believe these alternatives will be available to us, we cannot be sure that they will be. See Note 9 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our leases and management agreements and the modification of our business arrangements with SNH pursuant to the Transaction Agreement.

Assets and Liabilities

At June 30, 2019, we had $35.5 million of unrestricted cash and cash equivalents compared to $29.5 million at December 31, 2018. Our total current and long term assets were $153.0 million and $1,097.0 million, respectively, at June 30, 2019 compared to $138.1 million and $267.6 million, respectively, at December 31, 2018. Our total current and long term liabilities were $270.1 million and $870.2 million, respectively, at June 30, 2019 compared to $229.7 million and $104.8 million, respectively, at December 31, 2018. The increase in total current assets primarily relates to an increase in assets held for sale, which consists of net property and equipment previously classified as long term, primarily as a result of our entering into the Transaction Agreement with SNH, and an increase in cash and cash equivalents. These increases were partially offset by a decrease in due from related persons related to timing differences in when payments were received, a decline in prepaid and other current assets attributed to the timing of when real estate tax payments are made and the receipt of cash in the current period related to the monetization of alternative minimum tax credits in the prior year. The increase in long term assets is the result of recording right of use assets in connection with the adoption of ASU No. 2016-02, partially offset by the sale of $78.9 million of fixed assets and improvements to SNH. The increase in total current liabilities primarily relates to recording lease liabilities in connection with the adoption of ASU No. 2016-02, an increase in accrued compensation and benefits due to timing differences in when the pay dates prior to the end of each period occurred and in when the payment of other payroll items occurred, partially offset by repayment of the outstanding borrowings under our credit facility in the current period, a decrease in accounts payable and accrued expenses due to timing differences in when payments were made, and a decrease in other current liabilities due to the short term portion of our deferred gain related to our sale and leaseback transaction with SNH in 2017 being recorded through retained earnings on January 1, 2019 in connection with the adoption of ASU No. 2016-02. The increase in long term liabilities is primarily due to the result of recording lease liabilities, partially offset by our deferred gain on sale and leaseback transaction being recorded through retained earnings on January 1, 2019, both of which were in connection with the adoption of ASU No. 2016-02.

We had cash flows provided by operating activities of $6.5 million for the six months ended June 30, 2019 compared to cash flows used in operating activities of $23.3 million for the same period in 2018. The increase in cash flows provided by operating activities for the six months ended June 30, 2019 compared to the same period in 2018 is primarily the result of the reduction in monthly minimum rent payable to SNH under our master leases to $11.0 million (subject to adjustment), commencing February 1, 2019, as a result of our entering into the Transaction Agreement with SNH. This positive impact was partially offset by transaction fees paid as a direct result of the Transaction Agreement.

We had cash flows provided by investing activities of $56.7 million for the six months ended June 30, 2019 compared to $19.0 million for the same period in 2018. The increase in cash flows provided by investing activities was primarily due to the sale of approximately $78.9 million of fixed assets and improvements to SNH, partially offset by $31.9 million of net proceeds

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

received from the sale of four senior living communities to SNH during the first half of 2018. Acquisitions of property and equipment, net of sales of qualified improvements we made to SNH pursuant to our leases with SNH, were $(54.5) million and $15.2 million for the six months ended June 30, 2019 and 2018, respectively. 

We had cash flows used in financing activities of $52.9 million and $0.3 million for the six months ended June 30, 2019 and 2018, respectively. The increase in cash flows used in financing activities for the six months ended June 30, 2019 was primarily due to our repayment of $51.5 million in outstanding borrowings under our credit facility in June 2019.

We previously determined it was more likely than not that a majority of our net deferred tax assets would not be realized and concluded that a valuation allowance was required, which eliminated the majority of our net deferred tax assets recorded in our consolidated balance sheets. In the future, if we believe that we will more likely than not realize the benefit of these deferred tax assets, we will adjust our valuation allowance and recognize an income tax benefit, which may affect our results of operations. If we complete the Share Issuances, our net operating loss and tax credit carryforwards may be subject to limitations on usage or elimination.

Our Leases and Management Agreements with SNH

As of June 30, 2019, we leased 181 senior living communities from SNH under five leases. Our total annual rent payable to SNH as of June 30, 2019 was $131.2 million, excluding percentage rent based on increases in gross revenues at certain communities. Our total rent expense under all our leases with SNH, which for 2018 was net of lease inducement amortization and the amortization of the deferred gain associated with the June 2016 sale and leaseback transaction, was $32.5 million and $51.4 million for the three months ended June 30, 2019 and 2018, respectively, for which 2018 included approximately $1.3 million in estimated percentage rent due to SNH. For the three months ended June 30, 2019 no percentage rent payments were due. The Transaction Agreement we entered into with SNH on April 1, 2019, modified our existing business arrangements with SNH. Various aspects of that Transaction Agreement were, or will be, effective at different dates. Pursuant to the Transaction Agreement, among other matters, our monthly minimum rent payable to SNH is set at $11.0 million for the period from February 1, 2019 through December 31, 2019, subject to adjustment and extension. As the Transaction Agreement was not entered into until April 1, 2019, our rent expense for the three months ended March 31, 2019 was not adjusted for the rent reduction for February and March 2019 even though we did not pay, and are not obligated to pay, the prior rent amounts that were in excess of the modified amount. Instead, that amount is being amortized over the remaining lives of the applicable master leases in accordance with GAAP. The transactions contemplated by the Transaction Agreement are subject to conditions, including among others, the receipt of certain regulatory approvals. For more information regarding our Transaction Agreement and the modifications to our existing business arrangements with SNH, see Notes 1 and 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and “—2019 Transaction Agreement with SNH and Refinanced Credit Facility” in Part I, Item 2 of this Quarterly Report on Form 10-Q.

Under our existing leases with SNH, upon our request, SNH may purchase capital improvements made at the communities we lease from SNH. During the six months ended June 30, 2019, we sold to SNH $29.8 million of improvements made at the communities we lease from SNH. In addition, pursuant to the Transaction Agreement, we sold approximately $50.0 million of unencumbered fixed assets and improvements related to SNH's senior living communities leased and operated by us, which amount was subsequently adjusted to $49.2 million due to the exclusion of certain fixed assets in accordance with the Transaction Agreement. Also pursuant to the Transaction Agreement, our monthly minimum rent payable to SNH is set at $11.0 million for the period from February 1, 2019 through December 31, 2019, subject to adjustment and extension; as a result, capital improvements that SNH purchases from us during that period will not result in an increase in our monthly minimum rent. The sales of capital improvements that we made to SNH for the three months ended March 31, 2019 occurred after February 1, 2019.

As of June 30, 2019, we managed 77 senior living communities for the account of SNH and its related entities pursuant to long term management agreements and pooling agreements that combine various calculations of revenues and expenses from the operations of the communities covered by the applicable pooling agreements. We earned management fees attributable to senior living communities we manage for SNH's account of $4.0 million and $3.8 million for the three months ended June 30, 2019 and 2018, respectively and $8.0 million and $7.4 million for the six months ended June 30, 2019 and 2018, respectively. Included in these amounts were fees we earned for our management of capital expenditure projects of $0.2 million for each of the three months ended June 30, 2019 and 2018, and $0.3 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

In November 2017, we entered a transaction agreement with SNH pursuant to which we agreed to sell six senior living communities to SNH and, as we sold these communities, enter into new management agreements with SNH for us to manage the sold communities for SNH's account, with the new management agreements being combined pursuant to two new pooling

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

agreements between us and SNH. In December 2017, January 2018, February 2018 and June 2018, we sold to, and began managing for the account of, SNH, these six senior living communities, and, concurrently with those sales, we and SNH entered management agreements for each of these senior living communities and two new pooling agreements.

In April 2019, we began managing for SNH’s account a senior living community that SNH owns located in Oregon with 318 living units, pursuant to a management agreement with SNH on terms substantially similar to those of existing management agreements between us and SNH.

For more information regarding our leases and management agreements and other transactions with SNH, see Notes 9 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and Notes 9, 11, 13 and 16 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.

Our Revenues

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018. Our adoption of ASC Topic 606 did not result in an adjustment to our beginning retained earnings and did not have a material impact on the amount and timing of our revenue recognition for the three and six months ended June 30, 2019 or 2018.

Our revenues from services to residents at our senior living communities are our primary source of cash to fund our operating expenses, including rent, capital expenditures (net of capital improvements that we sell to SNH for increased rent pursuant to our leases with SNH) and principal and interest payments on our debt.

The general trends impacting our industry are affecting our business and revenues. For further information about those trends, see "—General Industry Trends" in Part I, Item 2 of this Quarterly Report on Form 10-Q.

At some of our senior living communities (principally our SNFs) and our rehabilitation and wellness clinics, Medicare and Medicaid programs provide operating revenues for skilled nursing and rehabilitation and wellness services. We derived approximately 23.0% and 23.2% of our consolidated revenues from these government funded programs during the six months ended June 30, 2019 and 2018, respectively. Our net Medicare revenues totaled $59.8 million and $60.1 million during the six months ended June 30, 2019 and 2018, respectively. Our net Medicaid revenues totaled $66.9 million and $66.3 million during the six months ended June 30, 2019 and 2018, respectively. 

On June 24, 2019, President Trump signed an executive order intended to improve health care price and quality transparency and protect patients from surprise medical bills. The executive order advances many policy initiatives, including the directive for certain federal agencies to solicit comments from the public on a proposal to require healthcare providers and health insurance issuers to provide or facilitate access to information about expected out-of-pocket costs for items or services to patients before they receive care.

On July 16, 2019, the Centers for Medicare & Medicaid Services, or CMS, announced two rules - one final and one proposed - related to the requirements that long term care, or LTC, facilities must meet to participate in the Medicare and Medicaid programs. Specifically, the final rule repeals the prohibition on the use of pre-dispute, binding arbitration agreements by LTC facilities. The final rule also imposes certain safeguards intended to increase the transparency of arbitration agreements used by LTC facilities, as well as the related arbitration process, including requiring that a facility not require any resident or his or her representative to sign an arbitration agreement as a condition of admission to the facility. Under the proposed rule, CMS proposes to further reform the requirements for LTC facilities by eliminating or reducing certain requirements deemed unnecessary, obsolete, or excessively burdensome. Notably, CMS put forward proposals to modify certain requirements related to grievance policies, infection control staffing, and compliance program requirements, among other changes.

On July 30, 2019, CMS issued a final rule updating Medicare payments to SNFs under the SNF prospective payment system for federal fiscal year 2020, which CMS estimates will increase payments to SNFs by an aggregate of $851 million, or 2.4%, compared to federal fiscal year 2019. In addition, CMS has finalized changes to the definition of group therapy performed in a SNF setting in order to align the definition with other post-acute settings. Previously, a group had been defined as having exactly four patients. Under the new definition, a group may have between two and six patients doing the same or similar activities. Further, CMS finalized two new quality measures related to data exchange between SNFs and other providers for inclusion in the SNF Quality Reporting Program.

Because of shifting policy priorities, the current and projected federal budget deficit, other federal spending priorities and challenging fiscal conditions in some states, there have been numerous recent legislative and regulatory actions or proposed

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

actions with respect to federal Medicare rates, state Medicaid rates and federal payments to states for Medicaid programs. We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded healthcare programs to fail to provide rates that match our increasing expenses, and that such changes may be material and adverse to our operations and to our future financial results of operations.

For further information regarding government healthcare funding and regulation and the possible impact on us and our business, revenues and operations, see the sections captioned “Business—Government Regulation and Reimbursement” in Part I, Item I and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Revenues” in Part II, Item 7 of our Annual Report and the section captioned "—Our Revenues" in Part I, Item 2 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

Insurance

Increases over time in the costs of insurance, especially professional and general liability insurance, workers’ compensation and employee health insurance, have had an adverse impact upon our results of operations. Although we self insure a large portion of these costs, our costs have increased as a result of the higher costs that we incur to settle claims and to purchase insurance for claims in excess of the self insurance amounts. These increased costs may continue in the future. Further, we may realize increased premiums for other forms of insurance we obtain from third parties, such as for property, casualty and business interruption coverage. For more information about our existing insurance see “Business—Insurance” in Part I, Item I of our Annual Report.

Debt Financings and Covenants

We replaced our $54.0 million prior credit facility with our $65.0 million secured revolving credit facility, that we currently maintain and is available for general business purposes. Our credit facility matures in June 2021. Subject to our payment of extension fees and meeting other conditions, we have the option to extend the stated maturity date of our credit facility for a one year period. We are required to pay interest at a rate of LIBOR plus a premium of 250 basis points per annum, or at a base rate as defined in our credit agreement, plus 150 basis points per annum, on borrowings under our credit facility; the effective annual rates as of June 30, 2019 were 4.93% and 7.00%, respectively. We are also required to pay a quarterly commitment fee of 0.35% per annum on the unused part of the available borrowings under our credit facility. No principal repayment is due until maturity.

Our credit facility is secured by real estate mortgages on 11 senior living communities with a combined 1,245 living units owned by certain of our subsidiaries that guarantee our obligations under our credit facility. Our credit facility is also secured by these subsidiaries’ accounts receivable and related collateral. The amount of available borrowings under our credit facility is subject to our having qualified collateral, which is primarily based on the value of the communities securing our obligations under our credit facility. Our credit facility provides for acceleration of payment of all amounts outstanding under our credit facility upon the occurrence and continuation of certain events of default, including a change of control of us, as defined. Our credit agreement contains financial and other covenants, including those that restrict our ability to pay dividends or make other distributions to our stockholders in certain circumstances.

As of June 30, 2019 and August 6, 2019, we had no outstanding borrowings under our credit facility, $2.5 million in letters of credit issued under our credit facility and approximately $7.7 million of outstanding mortgage debt. As of June 30, 2019, we believe we were in compliance with all applicable covenants under our debt agreements.

Pursuant to the Transaction Agreement, on April 1, 2019, we obtained a $25.0 million line of credit from SNH. As of June 30, 2019 and August 6, 2019, we had no outstanding borrowings under this line of credit. For further information regarding this line of credit, see Note 9 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For more information regarding our debt financings and covenants, see Note 8 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Related Person Transactions

We have relationships and historical and continuing transactions with SNH, RMR LLC, ABP Trust and others related to them. For example: SNH is our former parent company, our largest landlord, the owner of the senior living communities that we manage and a significant stockholder of us, owning as of June 30, 2019, 8.3% of our outstanding common shares, and with which we have entered the Transaction Agreement, which provides for modifications for our existing business arrangements with SNH, and Adam Portnoy, the Chair of our Board of Directors and one of our Managing Directors, and our Secretary, are managing trustees of SNH; various services we require to operate our business are provided to us by RMR LLC pursuant to our business management agreement with RMR LLC and RMR LLC also provides management services to SNH; RMR LLC employs our President and Chief Executive Officer, our Executive Vice President, Chief Financial Officer and Treasurer, our Secretary and Adam Portnoy; Adam Portnoy, directly and indirectly through ABP Trust and its subsidiaries, is our largest stockholder, beneficially owning approximately 35.4% of our outstanding common shares as of June 30, 2019; a subsidiary of ABP Trust is also the landlord for our headquarters; and Adam Portnoy, through ABP Trust, is also the controlling shareholder of RMR Inc., which is the managing member of RMR LLC. We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and some of which have directors, trustees or officers who are also directors, trustees or officers of us, SNH, RMR LLC or RMR Inc.

For further information about these and other such relationships and related person transactions, see Notes 9, 10 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business management agreement with RMR LLC, our various agreements with SNH and our lease and other agreements with subsidiaries of ABP Trust, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

Nasdaq Listing

As previously disclosed, on October 22, 2018, we received a notification letter from Nasdaq informing us that, for the last 30 consecutive business days, the bid price of our common shares had closed below $1.00 per common share, which is the minimum required closing bid price for continued listing on Nasdaq pursuant to the Nasdaq listing rules. To regain compliance, the closing bid price of our common shares must meet or exceed $1.00 per common share for a minimum of 10 consecutive business days.

We had a 180 calendar day grace period to regain compliance with the minimum bid price continued listing standard, but did not regain compliance during that period. Nasdaq granted us a second 180 calendar day grace period, or until October 21, 2019, to regain compliance with the minimum bid price continued listing standard. If we do not regain compliance within the second grace period, Nasdaq will provide notice that our common shares will be subject to delisting.

On June 12, 2019, we announced our intention to effect a reverse stock split of our issued and outstanding common shares at a ratio of one-for-ten. The reverse stock split is currently expected to take effect at approximately 5:00 p.m. Eastern Time on September 30, 2019, or the Effective Time. Accordingly, if the reverse stock split is completed at the Effective Time, every ten issued and outstanding common shares would be converted into one common share. No fractional shares will be issued in connection with the reverse share split. Instead, each stockholder that would otherwise be entitled to receive a fractional share will instead be entitled to receive, in lieu of such fractional share, cash in an amount equal to the relevant percentage of the product of a fraction of a share, multiplied by the closing price per common share, on a split-adjusted basis, as reported by Nasdaq on September 30, 2019. We expect that, as a result of the reverse stock split, we will regain compliance with Nasdaq listing standards.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our management, including our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of

the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, "will", "may" and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:

• Our ability to complete the transactions contemplated by the Transaction Agreement we entered into with SNH in April 2019,

• Our ability to operate our senior living communities profitably,

• Our ability to meet our rent and debt obligations or obtain relief from those obligations,

• Our ability to access or raise debt or equity capital,

• Our expectation to focus our expansion activities on internal growth from our existing senior living communities and the healthcare services that we may provide,

• Our ability to increase the number of senior living communities we operate and residents we serve and to grow our other sources of revenues, including rehabilitation and wellness services and other services we may provide,

• Whether the aging U.S. population and increasing life spans of seniors will increase the demand for senior living communities, wellness centers and other medical and healthcare related properties and healthcare services,

• Our ability to comply and to remain in compliance with applicable Medicare, Medicaid and other federal and state regulatory, rule making and rate setting requirements,

• Our ability to sell communities we offer for sale,

• The impact of the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act, or collectively, the ACA, or the possible future repeal, replacement or modification of the ACA, and other existing or proposed legislation or regulations on us, and

• Other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, cash flows, liquidity and prospects include, but are not limited to: 

• The impact of conditions in the economy and the capital markets on us and our residents and other customers,

• Competition within the senior living and other healthcare related services businesses,

• Our operating leverage,

• Seniors' delaying or forgoing moving to senior living communities or purchasing healthcare services from us,

• Increases in tort and insurance liability costs,

• Increases in our labor costs or in costs we pay for goods and services,

• Actual and potential conflicts of interest with our related parties, including our Managing Directors, SNH, RMR LLC, ABP Trust and others affiliated with them,

• Changes in Medicare or Medicaid policies and regulations, including those that may result from the ACA, or the possible future repeal, replacement or modification of the ACA, and other existing or proposed legislation or

38

regulations, which could result in reduced Medicare or Medicaid rates, a failure of such rates to cover our costs or limit the scope or funding of either or both programs, or reductions in private insurance utilization and coverage,

• Delays or nonpayments of government payments to us that could result from government shutdowns or other circumstances,

• Compliance with, and changes to, federal, state and local laws and regulations that could affect our services or impose requirements, costs and administrative burdens that may reduce our ability to profitably operate our business,

• Continued efforts by third party payers to reduce healthcare costs, and

• Acts of terrorism, outbreaks of so called pandemics or other manmade or natural disasters beyond our control.

For example:

• Even though challenging conditions in the senior living industry continue to exist, there no longer exists a substantial doubt about our ability to continue as a going concern. However, our business and operations remain subject to substantial risks, including the risk that the transactions contemplated by the Transaction Agreement will not be completed, and many of these risks are beyond our control. As a result, our operations may not be profitable in the future and we may realize losses, which could negatively affect our ability to continue as a going concern,

• We entered into the Transaction Agreement to modify our existing business arrangements with SNH, and certain of the transactions contemplated by the Transaction Agreement are expected to be effective January 1, 2020. These transactions are subject to conditions, including, among others, the receipt of certain licensing and other regulatory approvals. We cannot be sure that any or all of such conditions will be satisfied. Accordingly, these transactions may not become effective as of January 1, 2020 or at all, or the terms of such transactions may change,

• The Share Issuances will require the effectiveness of a registration statement on Form S-1 to be filed by us with the SEC to register our common shares to be issued pursuant to the Share Issuances. The process of preparing the Form S-1 is time consuming and the time before the SEC declares the registration statement effective is beyond our control. Accordingly, we cannot be sure that the Transaction Agreement and the restructuring transactions will be completed within a specified time period or at all,

• Our ability to operate senior living communities profitably depends upon many factors, including our ability to integrate new communities into our existing operations, as well as some factors which are beyond our control, such as the demand for our services arising from economic conditions generally and competition from other providers of senior living services. We may not be able to successfully integrate, operate, compete and profitably manage our senior living communities,

• We expect to enter additional operating arrangements with SNH for additional senior living communities that SNH owns or may acquire in the future. However, we cannot be sure that we will enter any additional operating arrangements with SNH,

• Our belief that the aging of the U.S. population and increasing life spans of seniors will increase demand for senior living communities and services may not be realized or may not result in increased demand for our services,

• Our marketing initiatives may not succeed in increasing our occupancy and revenues, and they may cost more than any increased revenues they may generate,

• At June 30, 2019, we had $35.5 million of unrestricted cash and cash equivalents. As of June 30, 2019, we had no borrowings under our $65.0 million credit facility or $25.0 million SNH credit facility, letters of credit issued in an aggregate amount of $2.5 million and $62.5 million available for borrowing under our credit facility. These statements may imply that we may have sufficient cash liquidity. However, we have been incurring operating losses and have a large accumulated deficit. Moreover, our operations and business require significant amounts of working cash and require us to make significant capital expenditures to maintain our competitiveness. Accordingly, we may not have sufficient cash liquidity,

• Circumstances that adversely affect the ability of seniors or their families to pay for our services, such as economic downturns, weakening housing market conditions, higher levels of unemployment among our residents' or potential

39

residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics generally could affect the profitability of our senior living communities,

• Residents who pay for our services with their private resources may become unable to afford our services, resulting in decreased occupancy and decreased revenues at our senior living communities and our increased reliance on lower rates from government agencies and other payers,

• The various federal and state government agencies which pay us for the services we provide to some of our residents are currently experiencing budgetary constraints and may lower the Medicare, Medicaid and other rates they pay us,

• We may be unable to repay our debt obligations when they become due,

• Actual costs under our credit facility will be higher than LIBOR plus a premium because of other fees and expenses associated with our credit facility,

• The amount of available borrowings under our credit facility is subject to our having qualified collateral, which is primarily based on the value of the assets securing our obligations under our credit facility. Accordingly, the availability of borrowings under our credit facility at any time may be less than $65.0 million. Also, the availability of borrowings under our credit facility is subject to our satisfying certain financial covenants and other conditions that we may be unable to satisfy,

• The amount of available borrowings under our SNH credit facility is subject to conditions. Further, the SNH credit facility is scheduled to mature at the Conversion Time. As such, it is not a long term source of financing for us,

• Our actions and approach to managing our insurance costs, including our operating an offshore captive insurance company and self insuring with respect to certain liability matters, may not be successful and could result in our incurring significant costs and liabilities that we will be responsible for funding,

• Contingencies in our and SNH’s applicable acquisition and sale agreements may not be satisfied and our and SNH’s applicable pending acquisitions and sales and any related leases, management or pooling arrangements we may expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,

• We may be unable to meet collateral requirements related to our workers’ compensation insurance program for future policy years, which may result in increased costs for such insurance program,

• We may not be able to sell communities that we may seek to sell on terms acceptable to us or otherwise,

• We currently expect to effect a 1:10 reverse stock split on or before September 30, 2019. However, this reverse stock split is subject to approval by our Board of Directors; as a result, this reverse stock split may not occur, may be delayed or accelerated, or its terms may change. Further, the benefits that we expect may be achieved from the reverse stock split, if it occurs, may not be realized, including our regaining compliance with Nasdaq listing standards; if we fail to regain and thereafter maintain compliance with Nasdaq listing standards, Nasdaq may initiate proceedings to delist our common shares,

• We believe that our relationships with our related parties, including SNH, RMR LLC, ABP Trust and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize, and

• Our senior living communities are subject to extensive government regulation, licensure and oversight. We sometimes experience deficiencies in the operation of our senior living communities, and some of our communities may be prohibited from admitting new residents, or our license to continue operations at a community may be revoked. Also, operating deficiencies or a license revocation at one or more of our senior living communities may have an adverse impact on our ability to operate, obtain licenses for, or attract residents to, our other communities.

40

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as acts of terrorism, natural disasters, changed Medicare or Medicaid rates, new legislation, regulations or rule making affecting our business, or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on 10-Q or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC’s website at www.sec.gov.

You should not place undue reliance upon our forward-looking statements.

Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

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PART II.  Other Information

Item 1. Legal Proceedings

There have been no material developments in our legal proceedings from those disclosed in our Annual Report.

Item 1A. Risk Factors

There have been no material changes to the risk factors from those we previously disclosed in our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended June 30, 2019:

Calendar Month	Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 2019	2,543	$	0.57	—	$	—
Total	2,543	$	0.57	—	$	—

(1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of a former RMR LLC employee in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

Item 5. Other Information

On August 6, 2019, our Board of Directors elected Margaret S. Wigglesworth as our Senior Vice President and Chief Operating Officer effective August 12, 2019. Prior to joining us, Ms. Wigglesworth, age 64, served as an executive vice president of the International Council of Shopping Centers, a 70,000 member global trade association, and has held various management positions at several multi-national public and private companies and trade associations, including Cresa, Colliers International Group Inc. and the Coalition of Service Industries.

Also on August 6, 2019, our Board of Directors appointed Ellen Snow as our Chief Accounting Officer effective August 31, 2019. Ms. Snow, age 47, currently serves as an independent financial consultant, including to us and previously to RMR LLC. Ms. Snow previously served as the vice president of finance and corporate controller of Anika Therapeutics, Inc., a global public medical technology company, and has held various accounting and finance positions at several private companies, including Benchmark Senior Living LLC and Catalyst Health Ventures.

Ms. Wigglesworth’s annual base salary has been set at $300,000, effective August 12, 2019, and Ms. Snow’s annual base salary has been set at $235,000, effective August 31, 2019. Ms. Snow will also receive a signing bonus of $16,000. Mses. Wigglesworth and Snow will be eligible for bonuses as determined in the discretion of our Board of Directors and share awards as determined in the discretion of the Compensation Committee of our Board of Directors.

Mses. Wigglesworth and Snow have each advised us that she has no arrangement or understanding with any other person pursuant to which she was elected as an officer, and neither Ms. Wigglesworth nor Ms. Snow has any direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K. Neither Ms. Wigglesworth nor Ms. Snow has any family relationship with any member of our Board of Directors or any of our executive officers.

42

Item 6. Exhibits

Exhibit Number	Description
3.1	Composite Copy of Articles of Amendment and Restatement, dated December 5, 2001, as amended to date. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.)
3.2	Articles Supplementary, as corrected by Certificate of Correction, dated March 19, 2004. (Incorporated by reference to the Company’s registration statement on Form 8-A dated March 19, 2004 and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, respectively.)
3.3	Articles Supplementary, dated April 16, 2014. (Incorporated by reference to the Company’s Current Report on Form 8-K dated April 16, 2014.)
3.4	Amended and Restated Bylaws of the Company, adopted March 3, 2017. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.)
4.1	Form of Common Stock Certificate. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.)
4.2	Consent, Standstill, Registration Rights and Lock-Up Agreement, dated October 2, 2016, among the Company, ABP Trust, ABP Acquisition LLC, Barry M. Portnoy and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form 8-K dated October 2, 2016.)
10.1	Second Amended and Restated Credit Agreement, dated as of June 12, 2019, among the Company, the Guarantors party thereto, Citibank, N.A. and the other parties thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 11, 2019.)
10.2	Summary of Director Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 11, 2019.)
10.3	Partial Termination of and Seventeenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of May 1, 2019, among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and certain subsidiaries of the Company, as Tenant. (Filed herewith.)
10.4	Partial Termination of and Twelfth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of May 1, 2019, among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and certain subsidiaries of the Company, as Tenant. (Filed herewith.)
10.5	Form of Indemnification Agreement.(+) (Filed herewith.)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith.)
31.2	Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith.)
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. (Furnished herewith.)
101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements, tagged as blocks of text and in detail. (Filed herewith.)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIVE STAR SENIOR LIVING INC.

/s/ Katherine E. Potter

Katherine E. Potter

President and Chief Executive Officer

Dated: August 7, 2019

/s/ Jeffrey C. Leer

Jeffrey C. Leer

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

Dated: August 7, 2019

44

EX-10.3

Exhibit 10.3

PARTIAL TERMINATION OF AND SEVENTEENTH AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 1)

THIS PARTIAL TERMINATION OF AND SEVENTEENTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 1) (this “Amendment”) is made and entered into as of May 1, 2019 by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “Landlord”) and each of the parties identified on the signature pages hereof as a tenant (jointly and severally, “Tenant”).

WITNESSETH:

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 4, 2009, as amended by that certain Partial Termination of and First Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of October 1, 2009, that certain Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of November 17, 2009, that certain Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of December 10, 2009, that certain Partial Termination of and Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 1, 2010, that certain Fifth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of May 1, 2011, that certain Partial Termination of and Sixth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 1, 2011, that certain Seventh Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 20, 2011, that certain Eighth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 31, 2012, that certain Partial Termination of and Ninth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 1, 2013, that certain Partial Termination of and Tenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of January 22, 2014, that certain Partial Termination of and Eleventh Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of October 1, 2014, that certain Partial Termination of and Twelfth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of October 31, 2014, that certain Partial Termination of and Thirteenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of February 17, 2015, that certain Partial Termination of and Fourteenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 1, 2015, that certain Partial Termination of and Fifteenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of December 29, 2015, and that certain Partial Termination of and Sixteenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 1, 2018 (as so amended, “Amended Lease No. 1”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Amended Lease No. 1), all as more particularly described in Amended Lease No. 1; and

WHEREAS, Amended Lease No. 1 was further modified by that certain Transaction Agreement, dated as of April 1, 2019, between Five Star Senior Living Inc., on behalf of itself and

certain of its subsidiaries, and Senior Housing Properties Trust, on behalf of itself and certain of its subsidiaries (the “Transaction Agreement”);

WHEREAS, prior to the date hereof, the financing secured by the RMI Properties was paid off and, pursuant to Section 23.17 of Amended Lease No. 1, the RMI Properties were automatically added to and demised under Amended Lease No. 1, and, pursuant to Section 21.11(c) of the RMI Lease, the RMI Lease was automatically terminated; and

WHEREAS, simultaneously herewith, SPTMNR Properties Trust is selling the Property consisting of the real property and related improvements known as the Van Nuys Healthcare Center and located at 6835 Hazeltine Avenue, Van Nuys, California, as more particularly described on Exhibit A-9 to Amended Lease No. 1 (the “Van Nuys Property”); and

WHEREAS, in connection with the foregoing, SPTMNR Properties Trust and the other entities comprising Landlord and Five Star Quality Care Trust and the other entities comprising Tenant wish to (a) document the addition of the RMI Properties to Amended Lease No. 1, and (b) amend Amended Lease No. 1 to terminate Amended Lease No. 1 with respect to the Van Nuys Property;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that, effective as of the date hereof, Amended Lease No. 1 is hereby amended as follows:

1.RMI Properties Leases. As of October 31, 2016, the financing securing the RMI Properties described on Exhibit A-87 through and including Exhibit A-94 attached hereto was paid off, those RMI Properties were added to and demised under Lease No. 1, such that the applicable landlords and tenant under the corresponding RMI Properties Lease became Landlords and Tenant under Amended Lease No. 1 and Minimum Rent under Amended Lease No. 1 increased accordingly.

2.Partial Termination of Amended Lease No. 1. Amended Lease No. 1 is terminated with respect to the Van Nuys Property and neither Landlord nor Tenant shall have any further rights or liabilities thereunder with respect to the Van Nuys Property from and after the date hereof, except for those rights and liabilities which by their terms survive the termination of Amended Lease No. 1.

3.Leased Property. Section 2.1 of Amended Lease No. 1 is hereby amended by deleting subsection (a) therefrom in its entirety and replacing it with the following:

(a) those certain tracts, pieces and parcels of land as more particularly described on Exhibits A-1 through A-94 attached hereto and made a part hereof (the “Land”);

4.Minimum Rent. The defined term “Minimum Rent” set forth in Section 1.68 of Amended Lease No. 1 is hereby reduced as of the date hereof by the sum of Zero and 05/100 Dollars ($0.05) per month in accordance with Section 2.1(1)(b) to the Transaction Agreement.

5.Schedule 1. Schedule 1 to Amended Lease No. 1 is deleted in its entirety and replaced with Schedule 1 attached hereto.

6.Exhibit A. Exhibit A to Amended Lease No. 1 is amended by (a) deleting the text of Exhibit A-9 attached thereto in their entirety and replacing it with “Intentionally Deleted”, and (b) inserting Exhibits A-87 through A-94 attached hereto immediately following Exhibit A-86 to Amended Lease No. 1.

7.Ratification. As amended hereby, Amended Lease No. 1 is hereby ratified and confirmed.

[Remainder of page intentionally left blank; signature pages follow]

IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:

SNH SOMERFORD PROPERTIES TRUSTSPTMNR PROPERTIES TRUSTSNH/LTA PROPERTIES TRUSTSPTIHS PROPERTIES TRUSTSNH CHS PROPERTIES TRUSTSNH/LTA PROPERTIES GA LLC

SNH/LTA SE WILSON LLC

MSD POOL 1 LLC

MSD POOL 2 LLC

SNH RMI FOX RIDGE MANOR PROPERTIES LLC

SNH RMI JEFFERSON MANOR PROPERTIES LLC

SNH RMI MCKAY MANOR PROPERTIES LLC

SNH RMI NORTHWOOD MANOR PROPERTIES LLC

SNH RMI OAK WOODS MANOR PROPERTIES LLC

SNH RMI PARK SQUARE MANOR PROPERTIES LLC

SNH RMI SMITH FARMS MANOR PROPERTIES LLC and

SNH RMI SYCAMORE MANOR PROPERTIES LLC

By:    /s/ Jennifer F. Francis                

Jennifer F. Francis

President and Chief Operating Officer of each of the foregoing entities

[Signature Page: Partial Termination of and Seventeenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1)]

TENANT:

FIVE STAR QUALITY CARE TRUSTMORNINGSIDE OF KNOXVILLE, LLC
MORNINGSIDE OF FRANKLIN, LLC

FVE SE WILSON LLC

FIVE STAR QUALITY CARE-RMI, LLC

By:    /s/ Katherine E. Potter                

Katherine E. Potter

President and Chief Executive Officer of each of the foregoing entities

MORNINGSIDE OF MACON, LLC

MORNINGSIDE OF SENECA, L.P.

MORNINGSIDE OF HOPKINSVILLE, LIMITED PARTNERSHIP

By: LIFETRUST AMERICA, INC.,
a Tennessee corporation, its General Partner/Member (as applicable)

By:    /s/ Katherine E. Potter            

    Katherine E. Potter

    President and Chief Executive Officer

MORNINGSIDE OF BEAUFORT, LLCMORNINGSIDE OF CAMDEN, LLC

MORNINGSIDE OF HARTSVILLE, LLC

MORNINGSIDE OF LEXINGTON, LLC

MORNINGSIDE OF ORANGEBURG, LLC

By: MORNINGSIDE OF SOUTH CAROLINA, L.P., a Delaware limited partnership, its Sole Member

By: LIFETRUST AMERICA, INC.,
a Tennessee corporation, its General Partner

By:    /s/ Katherine E. Potter        

Katherine E. Potter

President and Chief Executive Officer

[Signature Page: Partial Termination of and Seventeenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1)]

MORNINGSIDE OF CULLMAN, LLCMORNINGSIDE OF MADISON, LLC

MORNINGSIDE OF SHEFFIELD, LLC

By: MORNINGSIDE OF ALABAMA, L.P., a Delaware limited partnership, its Sole Member

By: LIFETRUST AMERICA, INC.,
a Tennessee corporation, its General Partner

By:    /s/ Katherine E. Potter

Katherine E. Potter

President and Chief Executive Officer

MORNINGSIDE OF BOWLING GREEN, LLCMORNINGSIDE OF PADUCAH, LLC

By: MORNINGSIDE OF KENTUCKY, LIMITED PARTNERSHIP, a Delaware limited partnership, its Sole Member

By: LIFETRUST AMERICA, INC.,
a Tennessee corporation, its General Partner

By:    /s/ Katherine E. Potter        

Katherine E. Potter

President and Chief Executive Officer

[Signature Page: Partial Termination of and Seventeenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1)]

MORNINGSIDE OF CONYERS, LLCMORNINGSIDE OF GAINESVILLE, LLC

By: MORNINGSIDE OF GEORGIA, L.P., a Delaware limited partnership, its Sole Member

By: LIFETRUST AMERICA, INC.,
a Tennessee corporation, its General Partner

By:    /s/ Katherine E. Potter        

Katherine E. Potter

President and Chief Executive Officer

MORNINGSIDE OF CLEVELAND, LLCMORNINGSIDE OF COOKEVILLE, LLC

MORNINGSIDE OF JACKSON, LLC

By: MORNINGSIDE OF TENNESSEE, LLC, a Delaware limited liability company, its Sole Member

By:    /s/ Katherine E. Potter            

    Katherine E. Potter

    President and Chief Executive Officer

[Signature Page: Partial Termination of and Seventeenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1)]

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-1	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-2	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-3	Somerford Place - Encinitas 1350 South El Camino Real Encinitas, CA 92024	2009	$3,092,467	03/31/2008	8%
A-4	Somerford Place - Fresno 6075 North Marks Avenue Fresno, CA 93711	2009	$3,424,896	03/31/2008	8%
A-5	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-6	Somerford Place – Redlands 1319 Brookside Avenue Redlands, CA 92373	2009	$3,065,084	03/31/2008	8%
A-7	Somerford Place - Roseville 110 Sterling Court Roseville, CA 95661	2009	$2,802,082	03/31/2008	8%
A-8	Leisure Pointe 1371 Parkside Drive San Bernardino, CA 92404	2007	$1,936,220	09/01/2006	8.25%
A-9	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-10	Mantey Heights Rehabilitation & Care Center 2825 Patterson Road Grand Junction, CO 81506	2005	$5,564,949	12/31/2001	10%
A-11	Cherrelyn Healthcare Center 5555 South Elati Street Littleton, CO 80120	2005	$12,574,200	12/31/2001	10%
A-12	Somerford House and Somerford Place – Newark I & II 501 South Harmony Road and 4175 Ogletown Road Newark, DE 19713	2009	$6,341,636	03/31/2008	8%
A-13	Tuscany Villa Of Naples (aka Buena Vida) 8901 Tamiami Trail East Naples, FL 34113	2008	$2,157,675	09/01/2006	8.25%
A-14	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-15	Morningside of Columbus 7100 South Stadium Drive Columbus, GA 31909	2006	$1,381,462	11/19/2004	9%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-16	Morningside of Dalton 2470 Dug Gap Road Dalton, GA 30720	2006	$1,196,357	11/19/2004	9%
A-17	Morningside of Evans 353 North Belair Road Evans, GA 30809	2006	$1,433,421	11/19/2004	9%
A-18	Vacant Land Adjacent to Morningside of Macon 6191 Peake Road Macon, GA 31220	2006	N/A	11/19/2004	9%
A-19	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-20	Union Park Health Services 2401 East 8th Street Des Moines, IA 50316	2005	$4,404,678	12/31/2001	10%
A-21	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-22	Prairie Ridge Care & Rehabilitation 608 Prairie Street Mediapolis, IA 52637	2005	$3,234,505	12/31/2001	10%
A-23	Ashwood Place 102 Leonardwood Frankfort, KY 40601	2007	$1,769,726	09/01/2006	8.25%
A-24	Somerford Place - Annapolis 2717 Riva Road Annapolis, MD 21401	2009	$3,917,902	03/31/2008	8%
A-25	Somerford Place - Columbia 8220 Snowden River Parkway Columbia, MD 21045	2009	$3,221,426	03/31/2008	8%
A-26	Somerford Place - Frederick 2100 Whittier Drive Frederick, MD 21702	2009	$5,088,592	03/31/2008	8%
A-27	Somerford Place - Hagerstown 10114 & 10116 Sharpsburg Pike Hagerstown, MD 21740	2009	$4,066,761	03/31/2008	8%
A-28	The Wellstead of Rogers 20500 and 20600    South Diamond Lake Road Rogers, MN 55374	2009	$12,646,616	03/01/2008	8%
A-29	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-30	Hermitage Gardens of Oxford 1488 Belk Boulevard Oxford, MS 38655	2007	$1,816,315	10/01/2006	8.25%
A-31	Hermitage Gardens of Southaven 108 Clarington Drive Southaven, MS 38671	2007	$1,527,068	10/01/2006	8.25%
A-32	Ashland Care Center 1700 Furnace Street Ashland, NE 68003	2005	$4,513,891	12/31/2001	10%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-33	Blue Hill Care Center 414 North Wilson Street Blue Hill, NE 68930	2005	$2,284,065	12/31/2001	10%
A-34	Central City Care Center 2720 South 17th Avenue Central City, NE 68462	2005	$2,005,732	12/31/2001	10%
A-35	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-36	Gretna Community Living Center 700 South Highway 6 Gretna, NE 68028	2005	$3,380,356	12/31/2001	10%
A-37	Sutherland Care Center 333 Maple Street Sutherland, NE 69165	2005	$2,537,340	12/31/2001	10%
A-38	Waverly Care Center 11041 North 137th Street Waverly, NE 68462	2005	$3,066,135	12/31/2001	10%
A-39	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-40	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-41	Mount Vernon of South Park 1400 Riggs Road South Park, PA 15129	2006	$2,718,057	10/31/2005	9%
A-42	Morningside of Gallatin 1085 Hartsville Pike Gallatin, TN 37066	2006	$1,343,801	11/19/2004	9%
A-43	Walking Horse Meadows 207 Uffelman Drive Clarksville, TN 37043	2007	$1,471,410	01/01/2007	8.25%
A-44	Morningside of Belmont 1710 Magnolia Boulevard Nashville, TN 37212	2006	$3,131,648	06/03/2005	9%
A-45	Dominion Village at Chesapeake 2856 Forehand Drive Chesapeake, VA 23323	2005	$1,416,951	05/30/2003	10%
A-46	Dominion Village at Williamsburg 4132 Longhill Road Williamsburg, VA 23188	2005	$1,692,753	05/30/2003	10%
A-47	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-48	Brookfield Rehabilitation and Specialty Care (aka Woodland Healthcare Center) 18741 West Bluemound Road Brookfield, WI 53045	2005	$13,028,846	12/31/2001	10%
A-49	Meadowmere -    Southport Assisted Living 8350 and 8351 Sheridan Road Kenosha, WI 53143	2009	$2,170,645	01/04/2008	8%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-50	Meadowmere -    Madison Assisted Living 5601 Burke Road Madison, WI 53718	2009	$2,136,654	01/04/2008	8%
A-51	Intentionally Deleted.	N/A	N/A	N/A	N/A
A-52	Mitchell Manor Senior Living 5301 West Lincoln Avenue West Allis, WI 53219	2009	$12,348,104	01/04/2008	8%
A-53	Laramie Care Center 503 South 18th Street Laramie, WY 82070	2005	$4,473,949	12/31/2001	10%
A-54	Haven in Highland Creek 5920 McChesney Drive Charlotte, NC 28269 Laurels in Highland Creek 6101 Clark Creek Parkway Charlotte, NC 28269	2010	$6,454,157	11/17/2009	8.75%
A-55	Haven in the Village    at Carolina Place 13150 Dorman Road Pineville, NC 28134 Laurels in the Village    at Carolina Place 13180 Dorman Road Pineville, NC 28134	2010	$7,052,425	11/17/2009	8.75%
A-56	Haven in the Summit 3 Summit Terrace Columbia, SC 29229	2010	$2,308,737	11/17/2009	8.75%
A-57	Haven in the Village at Chanticleer 355 Berkmans Lane Greenville, SC 29605	2010	$2,197,919	11/17/2009	8.75%
A-58	Intentionally Deleted	N/A	N/A	N/A	N/A
A-59	Haven in Stone Oak 511 Knights Cross Drive San Antonio, TX 78258 Laurels in Stone Oak 575 Knights Cross Drive San Antonio, TX 78258	2010	$6,584,027	11/17/2009	8.75%
A-60	Eastside Gardens 2078 Scenic Highway North Snellville, GA 30078	2010	$1,766,628	12/10/2009	8.75%
A-61	Crimson Pointe 7130 Crimson Ridge Drive Rockford, IL 61107	2012	$2,568,827	05/01/2011	8%
A-62	Talbot Park 6311 Granby Street Norfolk, VA 23305	2012	$3,866,871	06/20/2011	7.5%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-63	The Landing at Parkwood Village 1720 Parkwood Boulevard Wilson, NC 27893	2012	$4,318,990	06/20/2011	7.5%
A-64	Aspenwood 14400 Homecrest Road Silver Spring, MD 20906	2005	$4,470,354	10/25/2002	10%
A-65	HeartFields at Easton 700 Port Street Easton, MD 21601	2005	$2,545,887	10/25/2002	10%
A-66	Morningside of Macon 6191 Peake Road Macon, GA 31220	2006	$1,298,541	11/19/2004	9%
A-67	Morningside of Beaufort 109 Old Salem Road Beaufort, SC 29902	2006	$1,337,453	11/19/2004	9%
A-68	Morningside of Camden 719 Kershaw Highway Camden, SC 29020	2006	$1,595,035	11/19/2004	9%
A-69	Morningside of Hartsville 1901 West Carolina Avenue Hartsville, SC 29550	2006	$1,507,131	11/19/2004	9%
A-70	Morningside of Lexington 218 Old Chapin Road Lexington, SC 29072	2006	$1,638,422	11/19/2004	9%
A-71	Morningside of Orangeburg 2306 Riverbank Drive Orangeburg, SC 29118	2006	$1,129,764	11/19/2004	9%
A-72	Morningside of Seneca 15855 Wells Highway Seneca, SC 29678	2006	$1,684,477	11/19/2004	9%
A-73	Morningside of Cullman 2021 Dahlke Dr. NE Cullman, AL 32058	2006	$1,413,633	11/19/2004	9%
A-74	Morningside of Madison 49 Hughes Road Madison, AL 35758	2006	$1,531,206	11/19/2004	9%
A-75	Morningside of Sheffield 413 D. D. Cox Boulevard Sheffield, AL 35660	2006	$1,495,038	11/19/2004	9%
A-76	Morningside of Bowling Green 981 Campbell Lane Bowling Green, KY 42104	2006	$1,458,781	11/19/2004	9%
A-77	Morningside of Paducah 1700 Elmdale Road Paducah, KY 42003	2006	$2,012,245	11/19/2004	9%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-78	Morningside of Conyers 1352 Wellbrook Circle Conyers, GA 30012	2006	$1,646,910	11/19/2004	9%
A-79	Morningside of Gainesville 2435 Limestone Parkway Gainesville, GA 30501	2006	$1,453,250	11/19/2004	9%
A-80	Morningside of Cleveland 2900 Westside Drive, N.W. Cleveland, TN 37312	2006	$1,212,846	11/19/2004	9%
A-81	Morningside of Cookeville 1010 East Spring Street Cookeville, TN 38501	2006	$1,513,932	11/19/2004	9%
A-82	Morningside of Jackson 1200 North Parkway Jackson, TN 38305	2006	$1,787,155	11/19/2004	9%
A-83	Williamsburg Villas A Morningside Community 3020 Heatherton Way Knoxville, TN 37920	2006	$2,728,841	11/19/2004	9%
A-84	Morningside of Franklin 105 Sunrise Circle Franklin, TN 37067	2006	$1,582,509	11/19/2004	9%
A-85	Morningside of Hopkinsville 4190 Lafayette Road Hopkinsville, KY 42240	2006	$1,444,246	11/19/2004	9%
A-86	Parkwood Village 1730 Parkwood Boulevard Wilson, NC 27893	2012	$4,318,990	06/23/2011	7.5%
A-87	Fox Ridge Manor 150 Fox Ridge Drive Vincennes, Indiana 47591	2009	N/A	09/01/2008	8%
A-88	Jefferson Manor 601 St. Joseph Drive Kokomo, Indiana 46901	2009	N/A	09/01/2008	8%
A-89	McKay Manor 1473 East McKay Road Shelbyville, Indiana 46176	2009	N/A	09/01/2008	8%
A-90	Northwood Manor 1590 West Timberview Drive Marion, Indiana 46952	2009	N/A	09/01/2008	8%
A-91	Oak Woods Manor 1211 Longwood Drive LaPorte, Indiana 46350	2009	N/A	09/01/2008	8%
A-92	Park Square Manor 6990 East County Road 100 North Avon, Indiana 46123	2009	N/A	09/01/2008	8%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-93	Smith Farm Manor 406 Smith Drive Auburn, Indiana 46706	2009	N/A	09/01/2008	8%
A-94	Sycamore Manor 222 South 25th Street Terre Haute, Indiana 47803	2009	N/A	09/01/2008	8%

EXHIBIT A-87

Fox Ridge Manor

150 Fox Ridge Drive

Vincennes, Indiana 47591

(See attached copy.)

EXHIBIT A-88

Jefferson Manor

601 St. Joseph Drive

Kokomo, Indiana 46901

(See attached copy.)

EXHIBIT A-89

McKay Manor

1473 East McKay Road

Shelbyville, Indiana 46176

(See attached copy.)

EXHIBIT A-90

Northwood Manor

1590 West Timberview Drive

Marion, Indiana 46952

(See attached copy.)

EXHIBIT A-91

Oak Woods Manor

1211 Longwood Drive

LaPorte, Indiana 46350

(See attached copy.)

EXHIBIT A-92

Park Square Manor

6990 East County Road 100 North

Avon, Indiana 46123

(See attached.)

EXHIBIT A-93

Smith Farm Manor

406 Smith Drive

Auburn, Indiana 46706

(See attached.)

EXHIBIT A-94

Sycamore Manor

222 South 25th Street

Terre Haute, Indiana 47803

(See attached.)

EX-10.4

Exhibit 10.4

PARTIAL TERMINATION OF AND TWELFTH AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 2)

THIS PARTIAL TERMINATION OF AND TWELFTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 2) (this “Amendment”) is made and entered into as of May 1, 2019, by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “Landlord”) and each of the parties identified on the signature pages hereof as a tenant (jointly and severally, “Tenant”).

WITNESSETH:

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 4, 2009, as amended by that certain Partial Termination of and First Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of November 1, 2009, that certain Partial Termination of and Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 1, 2010, that certain Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 20, 2011, that certain Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of July 22, 2011, that certain Fifth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 31, 2012, that certain Partial Termination of and Sixth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of September 19, 2013, that certain Partial Termination of and Seventh Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 1, 2014, that certain Partial Termination of and Eighth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of July 20, 2015, that certain Partial Termination of and Ninth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of September 30, 2016, that certain Tenth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 1, 2017 and that certain Eleventh Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of July 31, 2018 (as so amended, “Master Lease No. 2”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Master Lease No. 2), all as more particularly described in Master Lease No. 2;

WHEREAS, Amended Lease No. 2 was further modified by that certain Transaction Agreement, dated as of April 1, 2019, between Five Star Senior Living Inc., on behalf of itself and certain of its subsidiaries, and Senior Housing Properties Trust, on behalf of itself and certain of its subsidiaries (the “Transaction Agreement”);

WHEREAS, simultaneously herewith, SPTMNR Properties Trust is selling the Property consisting of the real property and related improvements known as (i) La Salette Health and Rehabilitation Center and located at 537 East Fulton Street, Stockton, California, as more particularly described on Exhibit A-4 to Amended Lease No. 2 (the “Stockton Property”), and (ii)

- 1 -

Thousand Oaks Healthcare Center and located at 93 West Avenida de Los Arboles, Thousand Oaks, California, as more particularly described on Exhibit A-5 to Amended Lease No. 2 (the “Thousand Oaks Property”); and

WHEREAS, in connection with the foregoing, SPTMNR Properties Trust and the other entities comprising Landlord and Five Star Quality Care Trust and the other entities comprising Tenant wish to amend Amended Lease No. 2 to terminate Amended Lease No. 2 with respect to the Stockton Property and the Thousand Oaks Property;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree, effective as of the date hereof, as follows:

1.    Partial Termination of Lease. Amended Lease No. 2 is terminated with respect to the Stockton Property and the Thousand Oaks Property and neither Landlord nor Tenant shall have any further rights or liabilities thereunder with respect to the Stockton Property and the Thousand Oaks Property from and after the date hereof, except for those rights and liabilities which by their terms survive the termination of Amended Lease No. 2.

2.    Minimum Rent. The defined term “Minimum Rent” set forth in Section 1.67 of Amended Lease No. 2 is hereby reduced by the sum of Sixty-Nine Thousand Two Hundred Ten and 33/100 Dollars ($69,210.33) per month in accordance with Section 2.1(1)(b) of the Transaction Agreement.

3.    Schedule 1. Schedule 1 to Amended Lease No. 2 is deleted in its entirety and replaced with Schedule 1 attached hereto.

4.    Exhibit A. Exhibit A to Amended Lease No. 2 is amended by deleting Exhibit A-4 and Exhibit A-5 attached thereto in their entirety and replacing each with “Intentionally Deleted.”

5.    Ratification. As amended hereby, Amended Lease No. 2 is ratified and confirmed.

[Remainder of page intentionally left blank; signature pages follow]

- 2 -

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as a sealed instrument as of the date first above written.

LANDLORD:

CCC FINANCING I TRUST,

CCC INVESTMENTS I, L.L.C.,

CCC OF KENTUCKY TRUST,

CCC PUEBLO NORTE TRUST,

CCDE SENIOR LIVING LLC,

CCOP SENIOR LIVING LLC,

O.F.C. CORPORATION,

SNH CHS PROPERTIES TRUST,

SNH/LTA PROPERTIES GA LLC,

SNH/LTA PROPERTIES TRUST,

SNH SOMERFORD PROPERTIES TRUST,

SPTIHS PROPERTIES TRUST, and

SPTMNR PROPERTIES TRUST

By: /s/ Jennifer F. Francis            

Jennifer F. Francis

President of each of the foregoing entities

CCC FINANCING LIMITED, L.P.

By:    CCC Retirement Trust,

its General Partner

By: /s/ Jennifer F. Francis        

Jennifer F. Francis

President

CCC RETIREMENT COMMUNITIES II, L.P.

By:    Crestline Ventures LLC,

its General Partner

By: /s/ Jennifer F. Francis        

Jennifer F. Francis

President

[Signature Page to Partial Termination of and Twelfth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2)]

LEISURE PARK VENTURE LIMITED PARTNERSHIP

By:    CCC Leisure Park Corporation,        its General Partner

By: /s/ Jennifer F. Francis        

Jennifer F. Francis

President

[Signature Page to Partial Termination of and Twelfth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2)]

TENANT:

FIVE STAR QUALITY CARE TRUST

By: /s/ Katherine E. Potter            

Katherine E. Potter

President

FS TENANT HOLDING COMPANY TRUST

By: /s/ Katherine E. Potter            

Katherine E. Potter

President

[Signature Page to Partial Termination of and Twelfth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2)]

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-1	Ashton Gables in Riverchase 2184 Parkway Lake Drive Birmingham, AL 35244	2009	$2,121,622	08/01/2008	8%
A-2	Lakeview Estates 2634 Valleydale Road Birmingham, AL 35244	2009	$2,692,868	08/01/2008	8%
A-3	Forum at Pueblo Norte 7090 East Mescal Street Scottsdale, AZ 85254	2005	$11,470,312	01/11/2002	10%
A-4	Intentionally deleted.	N/A	N/A	N/A	N/A
A-5	Intentionally deleted.	N/A	N/A	N/A	N/A
A-6	Skyline Ridge Nursing & Rehabilitation Center 515 Fairview Avenue Canon City, CO 81212	2005	$4,104,100	12/31/2001	10%
A-7	Springs Village Care Center 110 West Van Buren Street Colorado Springs, CO 80907	2005	$4,799,252	12/31/2001	10%
A-8	Willow Tree Care Center 2050 South Main Street Delta, CO 81416	2005	$4,310,982	12/31/2001	10%
A-9	Cedars Healthcare Center 1599 Ingalls Street Lakewood, CO 80214	2005	$6,964,007	12/31/2001	10%
A-10	Millcroft 255 Possum Park Road Newark, DE 19711	2005	$11,410,121	01/11/2002	10%
A-11	Forwood Manor 1912 Marsh Road Wilmington, DE 19810	2005	$13,446,434	01/11/2002	10%
A-12	Foulk Manor South 407 Foulk Road Wilmington, DE 19803	2005	$4,430,251	01/11/2002	10%
A-13	Shipley Manor 2723 Shipley Road Wilmington, DE 19810	2005	$9,333,057	01/11/2002	10%
A-14	Forum at Deer Creek 3001 Deer Creek Country Club Blvd. Deerfield Beach, FL 33442	2005	$12,323,581	01/11/2002	10%
A-15	Springwood Court 12780 Kenwood Lane Fort Myers, FL 33907	2005	$2,577,612	01/11/2002	10%
A-16	Fountainview 111 Executive Center Drive West Palm Beach, FL 33401	2005	$7,920,202	01/11/2002	10%
A-17	Morningside of Athens 1291 Cedar Shoals Drive Athens, GA 30605	2006	$1,560,026	11/19/2004	9%
A-18	Marsh View Senior Living 7410 Skidaway Road Savannah, GA 31406	2007	$2,108,378	11/01/2006	8.25%
A-19	Intentionally deleted.	N/A	N/A	N/A	N/A

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-20	West Bridge Care & Rehabilitation 1015 West Summit Street Winterset, IA 50273	2005	$3,157,928	12/31/2001	10%
A-21	Meadowood Retirement Community 2455 Tamarack Trail Bloomington, IN 47408	2009	$12,061,814	11/01/2008	8%
A-22	Woodhaven Care Center 510 West 7th Street Ellinwood, KS 67526	2005	$2,704,674	12/31/2001	10%
A-23	Lafayette at Country Place 690 Mason Headley Road Lexington, KY 40504	2005	$4,928,052	01/11/2002	10%
A-24	Lexington Country Place 700 Mason Headley Road Lexington, KY 40504	2005	$8,893,947	01/11/2002	10%
A-25	Intentionally deleted.	N/A	N/A	N/A	N/A
A-26	Intentionally deleted.	N/A	N/A	N/A	N/A
A-27	HeartFields at Bowie 7600 Laurel Bowie Road Bowie, MD 20715	2005	$2,436,102	10/25/2002	10%
A-28	HeartFields at Frederick 1820 Latham Drive Frederick, MD 21701	2005	$2,173,971	10/25/2002	10%
A-29	Intentionally deleted.	N/A	N/A	N/A	N/A
A-30	Intentionally deleted.	N/A	N/A	N/A	N/A
A-31	Morys Haven 1112 15th Street Columbus, NE 68601	2005	$2,440,714	12/31/2001	10%
A-32	Intentionally deleted.	N/A	N/A	N/A	N/A
A-33	Wedgewood Care Center 800 Stoeger Drive Grand Island, NE 68803	2005	$4,000,565	12/31/2001	10%
A-34	Intentionally deleted.	N/A	N/A	N/A	N/A
A-35	Crestview Healthcare Center 1100 West First Street Milford, NE 68405	2005	$2,284,407	12/31/2001	10%
A-36	Utica Community Care Center 1350 Centennial Avenue Utica, NE 68456	2005	$1,950,325	12/31/2001	10%
A-37	Leisure Park 1400 Route 70 Lakewood, NJ 08701	2005	$14,273,446	01/07/2002	10%
A-38	Franciscan Manor 71 Darlington Road Patterson Township Beaver Falls, PA 15010	2006	$4,151,818	10/31/2005	9%
A-39	Mount Vernon of Elizabeth 145 Broadlawn Drive Elizabeth, PA 15037	2006	$2,332,574	10/31/2005	9%
A-40	Overlook Green 5250 Meadowgreen Drive Whitehall, PA 15236	2006	$3,878,300	10/31/2005	9%
A-41	Myrtle Beach Manor 9547 Highway 17 North Myrtle Beach, SC 29572	2005	$6,138,714	01/11/2002	10%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)	Commencement Date	Interest Rate
A-42	Morningside of Anderson 1304 McLees Road Anderson, SC 29621	2006	$1,381,775	11/19/2004	9%
A-43	Heritage Place at Boerne 120 Crosspoint Drive Boerne, TX 78006	2009	$1,469,683	02/07/2008	8%
A-44	Forum at Park Lane 7831 Park Lane Dallas, TX 75225	2005	$13,620,931	01/11/2002	10%
A-45	Heritage Place at Fredericksburg 96 Frederick Road Fredericksburg, TX 78624	2009	$1,386,771	02/07/2008	8%
A-46	Intentionally deleted.	N/A	N/A	N/A	N/A
A-47	Intentionally deleted.	N/A	N/A	N/A	N/A
A-48	ManorPointe - Oak Creek Independent Senior Apartments and Meadowmere - Mitchell Manor - Oak Creek 700 East Stonegate Drive and 701 East Puetz Road Oak Creek, WI 53154	2009	$4,189,440	01/04/2008	8%
A-49	Intentionally deleted.	N/A	N/A	N/A	N/A
A-50	The Virginia Health &    Rehabilitation Center 1451 Cleveland Avenue Waukesha, WI 53186	2005	$6,128,045	12/31/2001	10%
A-51	Reserve at Greenbriar 1005 Elysian Place Chesapeake, Virginia	2012	$2,508,269	06/20/2011	7.5%
A-52	Palms at St. Lucie West 501 N.W. Cashmere Boulevard Port St. Lucie, Florida	2012	$2,903,642	07/22/2011	7.5%
A-53	Forum at Desert Harbor 13840 North Desert Harbor Drive Peoria, AZ 85381	2005	$9,830,918	01/11/2002	10.0%
A-54	Forum at Tucson 2500 North Rosemont Blvd. Tucson, AZ 85712	2005	$13,258,998	01/11/2002	10.0%
A-55	Park Summit at Coral Springs 8500 Royal Palm Blvd. Coral Springs, FL 33065	2005	$11,229,677	01/11/2002	10.0%
A-56	Gables at Winchester 299 Cambridge Street Winchester, MA 01890	2005	$6,937,852	01/11/2002	10.0%
A-57	Forum at Memorial Woods 777 North Post Oak Road Houston, TX 77024	2005	$19,734,400	01/11/2002	10.0%

EX-10.5

Exhibit 10.5

FIVE STAR SENIOR LIVING INC.
FORM OF [AMENDED AND RESTATED] INDEMNIFICATION AGREEMENT

THIS [AMENDED AND RESTATED] INDEMNIFICATION AGREEMENT (this “Agreement”), effective as of [DATE] (the “Effective Date”), by and between Five Star Senior Living Inc., a Maryland corporation (the “Company”), and [DIRECTOR/OFFICER] (“Indemnitee”).

WHEREAS, Indemnitee currently serves as a director and/or officer of the Company and may, in connection therewith, be subjected to claims, suits or proceedings arising from such service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law as hereinafter provided; and

WHEREAS, the parties [are currently parties to an Indemnification Agreement dated as of [DATE] (the “Prior Indemnification Agreement”) and] desire to [amend and restate the Prior Indemnification Agreement and] set forth their agreement regarding indemnification and advancement of expenses [as reflected herein];

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1.Definitions.  For purposes of this Agreement:

(a) “Board” means the board of directors of the Company.

(b)    “Bylaws” means the bylaws of the Company, as they may be amended from time to time.

(c)“Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date:

(i)any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of all the Company’s then outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest;

(ii)there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board then in office, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or

(iii)during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board.

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(d)“Charter” means the charter (as defined in the MGCL), of the Company, as it may be in effect from time to time.

(e)    “Company Status” means the status of a Person who is or was a director, trustee, manager, officer, partner, employee, agent or fiduciary of the Company or any predecessor of the Company or any of their majority owned subsidiaries and the status of a Person who, while a director, trustee, manager, officer, partner, employee, agent or fiduciary of the Company or any predecessor of the Company or any of their majority owned subsidiaries, is or was serving at the request of the Company or any predecessor of the Company or any of their majority owned subsidiaries as a director, trustee, manager, officer, partner, employee, agent or fiduciary of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other Enterprise.

(f)“control” of an entity, shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities, by contract or otherwise.

(g)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification or advance of Expenses is sought by Indemnitee.

(h)“Enterprise” shall mean the Company and any other corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, trustee, manager, officer, partner, employee, agent or fiduciary.

(i)“Expenses”  means all expenses, including, but not limited to, all attorneys’ fees and costs, retainers, court or arbitration costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding.  Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond or other appeal bond or its equivalent.

(j)“Independent Counsel” means a law firm, or a member of a law firm, selected by the Company and acceptable to Indemnitee, that is experienced in matters of business law.  If, within twenty (20) days after submission by Indemnitee of a written demand for indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall have been selected and agreed to by Indemnitee, either the Company or Indemnitee may petition a Chosen Court (as defined in Section 18) for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person so appointed shall act as Independent Counsel hereunder.

(k)“MGCL” means the Maryland General Corporation Law.

(l)“Person” means an individual, a corporation, a general or limited partnership, an association, a limited liability company, a governmental entity, a trust, a joint venture, a joint stock company or another entity or organization.

(m)“Proceeding” means any threatened, pending or completed claim, demand, action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), whether or not by or in the right of the Company, except one initiated by an Indemnitee pursuant to Section 9.

Section 2.Indemnification - General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law shall

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have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date.  The rights of Indemnitee provided in this Section 2 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the MGCL, the Charter or the Bylaws.

Section 3.Proceedings Other Than Derivative Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of Indemnitee’s Company Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, other than a derivative Proceeding by or in the right of the Company (or, if applicable, such other Enterprise at which Indemnitee is or was serving at the request of the Companyor a predecessor of the Company or any of their majority owned subsidiaries).  Pursuant to this Section 3, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses incurred by Indemnitee or on Indemnitee’s behalf in connection with a Proceeding by reason of Indemnitee’s Company Status unless it is finally determined that such indemnification is not permitted by the MGCL, the Charter or the Bylaws.

Section 4.Derivative Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of Indemnitee’s Company Status, Indemnitee is, or is threatened to be, made a party to any derivative Proceeding brought by or in the right of the Company (or, if applicable, such other Enterprise at which Indemnitee is or was serving at the request of the Companyor a predecessor of the Company or any of their majority owned subsidiaries).  Pursuant to this Section 4, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding unless it is finally determined that such indemnification is not permitted by the MGCL, the Charter or the Bylaws.

Section 5.Indemnification for Expenses of a Party Who is Partly Successful.  Without limitation on Section 3 or Section 4, if Indemnitee is not wholly successful in any Proceeding covered by this Agreement, but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 5 for all Expenses incurred by Indemnitee or on Indemnitee’s behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section 5 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6.Advancement of Expenses.  The Company, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding in which Indemnitee may be involved, or is threatened to be involved, including as a party, a witness or otherwise, by reason of Indemnitee’s Company Status, within ten (10) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by the MGCL, the Charter and the Bylaws has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form of Exhibit A hereto or in such other form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to any claims, issues or matters in the Proceeding as to which it shall be finally determined that the standard of conduct has not been met and which have not been successfully resolved as described in Section 5.  For the avoidance of doubt, the Company shall advance Expenses incurred by Indemnitee or on Indemnitee’s behalf in connection with such a Proceeding pursuant to this Section 6 until it is finally determined that Indemnitee is not entitled to indemnification under the MGCL, the Charter or the Bylaws in respect of such Proceeding.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 6 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.  At Indemnitee’s request, advancement of any such Expense shall be made by the Company’s direct payment of such Expense instead of reimbursement of Indemnitee’s payment of such Expense.

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Section 7.Procedure for Determination of Entitlement to Indemnification.

(a)To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written demand therefor.  The Secretary of the Company shall, promptly upon receipt of such a demand for indemnification, provide copies of the demand to the Board.

(b)Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 7(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred or if, after a Change in Control, Indemnitee shall so request, (A) by the Board (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors, or (B) if a quorum of the Board consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.  Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding Indemnitee’s entitlement to indemnification under this Agreement.

(c)    The Company shall pay the fees and expenses of Independent Counsel, if one is appointed, and shall agree to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or the Independent Counsel’s engagement as such pursuant hereto.

Section 8.Presumptions and Effect of Certain Proceedings.

(a)In making a determination with respect to entitlement to indemnification hereunder, the Person or Persons making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(b)It shall be presumed that Indemnitee has at all times acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.  Without limitation of the foregoing, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise.  In addition, the knowledge or actions, or failure to act, of any director, trustee, manager, officer, partner, employee, agent or fiduciary of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

(c)Neither the failure to make a determination pursuant to Section 7(b) as to whether indemnification is proper in the circumstances because Indemnitee has met any particular standard of conduct, nor an actual determination by the Company (including by the Board or Independent Counsel) pursuant to Section 7(b) that Indemnitee has not met such standard of conduct, shall be a defense to Indemnitee’s claim that indemnification is proper in the circumstances or create a presumption that Indemnitee has not met any particular standard of conduct. 

(d)The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, shall not in and of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not meet the standard of conduct required for indemnification.  The Company acknowledges that a settlement or other disposition

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short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty.  In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration), it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

Section 9.    Remedies of Indemnitee.

(a)If (i) a determination is made pursuant to Section 7(b) that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 6, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 7(b) within thirty (30) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall (A) unless the Company demands arbitration as provided by Section 17, be entitled to an adjudication in a Chosen Court or (B) be entitled to seek an award in arbitration as provided by Section 17, in each case of Indemnitee’s entitlement to such indemnification or advance of Expenses.

(b)In any judicial proceeding or arbitration commenced pursuant to this Section 9, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.  In the event that a determination shall have been made pursuant to Section 7(b) that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 9 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 7(b).

(c)If a determination shall have been made pursuant to Section 7(b) that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 9, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the demand for indemnification.

(d)In the event that Indemnitee, pursuant to this Section 9, seeks a judicial adjudication of or an award in arbitration as provided by Section 17 to enforce Indemnitee’s rights under, or to recover damages for breach of, this Agreement by the Company, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall indemnify Indemnitee against any and all Expenses incurred by Indemnitee in such judicial adjudication or arbitration and, if requested by Indemnitee, the Company shall (within ten (10) days after receipt by the Company of a written demand therefor) advance, to the extent not prohibited by law, the Charter or the Bylaws, any and all such Expenses.

(e)The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 9 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such judicial proceeding or arbitration that the Company is bound by all the provisions of this Agreement.

(f)To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral.  Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.

(g)Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period (i) commencing with either the tenth (10th) day after the date on which the Company was requested to advance Expenses in accordance with Section 6 of this

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Agreement or the thirtieth (30th) day after the date on which the Company was requested to make the determination of entitlement to indemnification under Section 7(b) of this Agreement, as applicable, and (ii) ending on the date such payment is made to Indemnitee by the Company.

Section 10.Defense of the Underlying Proceeding.

(a)Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)Subject to the provisions of the last sentence of this Section 10(b) and of Section 10(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within fifteen (15) days following receipt of notice of any such Proceeding under Section 10(a) above, and the counsel selected by the Company shall be reasonably satisfactory to Indemnitee.  The Company shall not, without the prior written consent of Indemnitee, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee or (iii) has the actual or purported effect of extinguishing, limiting or impairing Indemnitee’s rights hereunder.  This Section 10(b) shall not apply to a Proceeding brought by Indemnitee under Section 9 above or Section 15.

(c)Notwithstanding the provisions of Section 10(b), if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Company Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that Indemnitee may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other Person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, at the expense of the Company (subject to Section 9(d)), to represent Indemnitee in connection with any such matter.

Section 11.Liability Insurance.

(a)To the extent the Company maintains an insurance policy or policies providing liability insurance for any of its directors or officers, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer during Indemnitee’s tenure as a director or officer and, following a termination of Indemnitee’s service in connection with a Change in Control, for a period of six (6) years thereafter.

(b)If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

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(c)In the event of any payment by the Company under this Agreement the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee with respect to any insurance policy.  Indemnitee shall take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights in accordance with the terms of such insurance policy. The Company shall pay or reimburse all expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.

Section 12.Non-Exclusivity; Survival of Rights.

(a)The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or the Bylaws, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by Indemnitee in Indemnitee’s Company Status prior to such amendment, alteration or repeal.  To the extent that a change in the MGCL permits greater indemnification to Indemnitee than would be afforded currently under the MGCL, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change if permitted by the MGCL.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b)The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 13.Binding Effect.

(a)The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, manager, officer, partner, employee, agent or fiduciary of the Company or a director, trustee, manager, officer, partner, employee, agent or fiduciary of another Enterprise which such Person is or was serving at the request of the Company or a predecessor of the Company or any of their majority owned subsidiaries, and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(b)Any successor of the Company (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part of, the business or assets of the Company shall be automatically deemed to have assumed and agreed to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place, provided that no such assumption shall relieve the Company of its obligations hereunder.  To the extent required by applicable law to give effect to the foregoing sentence and to the extent requested by Indemnitee, the Company shall require and cause any such successor to expressly assume and agree to perform this Agreement by written agreement in form and substance satisfactory to Indemnitee.

Section 14.Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

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Section 15.Limitation and Exception to Right of Indemnification or Advance of Expenses.  Notwithstanding any other provision of this Agreement, (a) any indemnification or advance of Expenses to which Indemnitee is otherwise entitled under the terms of this Agreement shall be made only to the extent such indemnification or advance of Expenses does not conflict with applicable Maryland law and (b) Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (i) the Proceeding is brought to enforce rights under this Agreement, the Charter, the Bylaws, liability insurance policy or policies, if any, or otherwise or (ii) the Charter, the Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board or an agreement approved by the Board to which the Company is a party expressly provides otherwise.  Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification of Indemnitee by the Company in the following circumstances:  (a) if such court determines that Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or (b) if such court determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standard of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper without regard to any limitation on such court-ordered indemnification contemplated by Section 2-418(d)(2)(ii) of the MGCL.

Section 16.Specific Performance, Etc.  The parties hereto recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law.  Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

Section 17.Arbitration.

(a)Any disputes, claims or controversies regarding Indemnitee’s entitlement to indemnification or advancement of Expenses hereunder or otherwise arising out of or relating to this Agreement, including any disputes, claims or controversies brought by or on behalf of a party hereto or any holder of equity interests (which, for purposes of this Section 17, shall mean any holder of record or any beneficial owner of equity interests or any former holder of record or beneficial owner of equity interests) of a party, either on his, her or its own behalf, on behalf of a party or on behalf of any series or class of equity interests of a party or holders of equity interests of a party against a party or any of their respective trustees, directors, members, officers, managers, agents or employees, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this Section 17 or the governing documents of a party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall, on the demand of any party to such Dispute or Disputes, be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 17.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against the trustees, directors, officers or managers of a party and class actions by a holder of equity interests against those individuals or entities and a party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.  For purposes of this Section 17, the term “equity interest” shall mean (i) in respect of the Company, shares of beneficial interest of the Company, (ii) shares of “membership interests” in an entity that is a limited liability company, (iii) general partnership interests in an entity that is a partnership, (iv) shares of capital stock of an entity that is a corporation and (v) similar equity ownership interests in other entities.

(b)There shall be three (3) arbitrators.  If there are only two (2) parties to the Dispute, each party shall select one (1) arbitrator within fifteen (15) days after receipt by respondent of a copy of the demand for arbitration.  The arbitrators may be affiliated or interested persons of the parties.  If there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall select, by the vote of a majority of the claimants or the respondents, as the case may be, one (1) arbitrator within fifteen (15) days after receipt of the demand for arbitration. The arbitrators may be affiliated or interested persons of the claimants or the respondents,

8

as the case may be.  If either a claimant (or all claimants) or a respondent (or all respondents) fail(s) to timely select an arbitrator then the party (or parties) who has selected an arbitrator may request AAA to provide a list of three (3) proposed arbitrators in accordance with the Rules (each of whom shall be neutral, impartial and unaffiliated with any party) and the party (or parties) that failed to timely appoint an arbitrator shall have ten (10) days from the date AAA provides the list to select one (1) of the three (3) arbitrators proposed by AAA.  If the party (or parties) fail(s) to select the second (2nd) arbitrator by that time, the party (or parties) who have appointed the first (1st) arbitrator shall then have ten (10) days to select one (1) of the three (3) arbitrators proposed by AAA to be the second (2nd) arbitrator; and, if he/they should fail to select the second (2nd) arbitrator by such time, AAA shall select, within fifteen (15) days thereafter, one (1) of the three (3) arbitrators it had proposed as the second (2nd) arbitrator.  The two (2) arbitrators so appointed shall jointly appoint the third (3rd) and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within fifteen (15) days of the appointment of the second (2nd) arbitrator.  If the third (3rd) arbitrator has not been appointed within the time limit specified herein, then AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)    The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.  For the avoidance of doubt, it is intended that there shall be no depositions and no other discovery other than limited documentary discovery as described in the preceding sentence.

(e)In rendering an award or decision (an “Award”), the arbitrators shall be required to follow the laws of the State of Maryland without regard to principles of conflicts of law.  Any arbitration proceedings or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  An Award shall be in writing and shall state the findings of fact and conclusions of law on which it is based.  Any monetary Award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Subject to Section 17(g), each party against which an Award assesses a monetary obligation shall pay that obligation on or before the thirtieth (30th) day following the date of such Award or such other date as the Award may provide.

(f)Except to the extent expressly provided by this Agreement or as otherwise agreed by the parties hereto, each party and each Person acting or seeking to act in a representative capacity (such Person, a “Named Representative”) involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an Award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of a party’s award to its attorneys, a Named Representative or any attorney of a Named Representative.  Each party (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third (3rd) appointed arbitrator.

(g)Notwithstanding any language to the contrary in this Agreement, an Award, including but not limited to any interim Award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (the “Appellate Rules”).  An Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired.  Appeals must be initiated within thirty (30) days of receipt of an Award by filing a notice of appeal with any AAA office. Following the appeal process, the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof.  For the avoidance of doubt, and despite any contrary provision of the Appellate Rules, Section 17(f) shall apply to any appeal pursuant to this Section 17 and the appeal tribunal shall not render an Award that would include shifting of any costs or expenses (including attorneys’ fees) of any party or Named Representative or the payment of such costs and expenses, and all costs and expenses of a party or Named Representative shall be its sole responsibility.

(h)Following the expiration of the time for filing the notice of appeal, or the conclusion of the appeal process set forth in Section 17(g), an Award shall be final and binding upon the parties thereto and shall be

9

the sole and exclusive remedy between those parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon an Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(i)This Section 17 is intended to benefit and be enforceable by the parties hereto and their respective holders of equity interests, trustees, directors, officers, managers, agents or employees, and their respective successors and assigns, and shall be binding upon all such parties and their respective holders of equity interests, and be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

Section 18.Venue.  Each party hereto agrees that it shall bring any Proceeding in respect of any claim arising out of or related to this Agreement exclusively in the courts of the State of Maryland and the Federal courts of the United States, in each case, located in the City of Baltimore (the “Chosen Courts”).  Solely in connection with claims arising under this Agreement, each party irrevocably and unconditionally (i) submits to the exclusive jurisdiction of the Chosen Courts, (ii) agrees not to commence any such Proceeding except in such courts, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in the Chosen Courts, (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such Proceeding, (v) agrees that service of process upon such party in any such Proceeding shall be effective if notice is given in accordance with Section 24and (vi) agrees to request and/or consent to the assignment of any dispute arising out of this Agreement or the transactions contemplated by this Agreement to the Chosen Courts’ Business and Technology Case Management Program, or similar program.  Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by law.  A final judgment in any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS.  Notwithstanding anything herein to the contrary, if a demand for arbitration of a Dispute is made pursuant to Section 17, this Section 18 shall not preempt resolution of the Dispute pursuant to Section 17.

Section 19.Adverse Settlement.  The Company shall not seek, nor shall it agree to or support, or agree not to contest any settlement or other resolution of any matter that has the actual or purported effect of extinguishing, limiting or impairing Indemnitee’s rights hereunder, including without limitation the entry of any bar order or other order, decree or stipulation, pursuant to 15 U.S.C. § 78u-4 (the Private Securities Litigation Reform Act), or any similar foreign, federal or state statute, regulation, rule or law.

Section 20.Period of Limitations.  To the fullest extent permitted by law, no legal action shall be brought, and no cause of action shall be asserted, by or on behalf of the Company or any controlled affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its controlled affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

Section 21.Counterparts.  This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties hereto and delivered to the other party (including via facsimile or other electronic transmission), it being understood that each party hereto need not sign the same counterpart.

Section 22.Delivery by Electronic Transmission.  This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to

10

have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to the other parties.  No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.

Section 23.Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed to, or shall, constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 24.Notices.  Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered at the following addresses to the parties hereto:

(a) If to Indemnitee, to:  The address set forth on the signature page hereto.

(b) If to the Company to:

Five Star Senior Living Inc.

400 Centre Street

Newton, Massachusetts 02458-2094

Attn: Secretary

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 25.Governing Law.  The provisions of this Agreement and any Dispute, whether in contract, tort or otherwise, shall be governed by and construed in accordance with the laws of the State of Maryland without regard to its conflicts of laws rules.

Section 26.Interpretation.

(a)Generally.  Unless the context otherwise requires, as used in this Agreement: (a) words defined in the singular have the parallel meaning in the plural and vice versa; (b) “Articles,” “Sections,” and “Exhibits” refer to Articles, Sections and Exhibits of this Agreement unless otherwise specified; and (c) “hereto” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b)Additional Interpretive Provisions.  The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.  Any capitalized term used in any Exhibit to this Agreement, but not otherwise defined therein, shall have the meaning as defined in this Agreement.  References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder and any successor statute or statutory provision.  References to any agreement are to that agreement as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.  References to any Person include the successors and permitted assigns of that Person.  Reference to any agreement, document or instrument means the agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof.

(c)[Expansion of Indemnification. This amendment and restatement of the Prior Indemnification Agreement is intended to expand, and not to limit, the scope of indemnification provided to Indemnitee under the Prior Indemnification Agreement, and this Agreement shall be interpreted consistent with such intent.]

11

[Signature Page Follows]

12

IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.

Inf	FIVE STAR SENIOR LIVING INC.
	By:
	Name:
	Title:
	[INDEMNITEE]
	Indemnitee’s Address:
	[ ]

[Signature Page to [Amended and Restated] Indemnification Agreement]

13

EXHIBIT A

FORM OF AFFIRMATION AND

UNDERTAKING TO REPAY EXPENSES ADVANCED

To the Board of Directors of Five Star Senior Living Inc.:

This affirmation and undertaking is being provided pursuant to that certain [Amended and Restated] Indemnification Agreement dated                                 , 20   (the “Indemnification Agreement”), by and between Five Star Senior Living Inc., a Maryland corporation (the “Company”), and the undersigned Indemnitee, pursuant to which Indemnitee is entitled to advancement of expenses in connection with [Description of Claims/Proceeding] (together, the “Claims”).  Terms used, and not otherwise defined, herein shall have the meanings specified in the Indemnification Agreement.

Indemnitee is subject to the Claims by reason of Indemnitee’s Company Status or by reason of alleged actions or omissions by Indemnitee in such capacity.

Indemnitee hereby affirms Indemnitee’s good faith belief that the standard of conduct necessary for Indemnitee’s indemnification has been met.

In consideration of the advancement of Expenses by the Company for attorneys’ fees and related expenses incurred by Indemnitee in connection with the Claims (the “Advanced Expenses”), Indemnitee hereby agrees that if, in connection with a proceeding regarding the Claim, it is ultimately determined that Indemnitee is not entitled to indemnification under law, the Charter, the Bylaws or the Indemnification Agreement with respect to an act or omission by Indemnitee, then Indemnitee shall promptly reimburse the portion of the Advanced Expenses relating to the Claim(s) as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 5 of the Indemnification Agreement.  To the extent that Advanced Expenses do not relate to specific Claims, Indemnitee agrees that such Advanced Expenses may be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, the undersigned Indemnitee has executed this Affirmation and Undertaking to Repay Expenses Advanced on                      ,      .

WITNESS:
Print name of witness	Print name of Indemnitee

Schedule to Exhibit 10.5

The following directors and executive officers of Five Star Senior Living Inc., or FVE, are parties to Indemnification Agreements with FVE which are substantially identical in all material respects to the representative Indemnification Agreement filed herewith and are dated as of the respective dates listed below. The other Indemnification Agreements are omitted pursuant to Instruction 2 to Item 601 of Regulation S-K.

Name of Signatory	Date
Donna D. Fraiche	May 17, 2018
Bruce M. Gans	May 17, 2018
Barbara D. Gilmore	May 17, 2018
Gerard M. Martin	May 17, 2018
Adam D. Portnoy	May 17, 2018
Katherine E. Potter	May 17, 2018
Jeffrey C. Leer	June 1, 2019

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Katherine E. Potter, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Five Star Senior Living Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date: August 7, 2019	/s/ Katherine E. Potter
	Katherine E. Potter
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Jeffrey C. Leer, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Five Star Senior Living Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date: August 7, 2019	/s/ Jeffrey C. Leer
	Jeffrey C. Leer
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350

In connection with the filing by Five Star Senior Living Inc. (the “Company”) of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (the “Report”), each of the undersigned hereby certifies, to the best of her or his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Katherine E. Potter
	Katherine E. Potter
	President and Chief Executive Officer
	/s/ Jeffrey C. Leer
	Jeffrey C. Leer
	Executive Vice President, Chief Financial Officer and Treasurer
Date: August 7, 2019

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2019	Aug. 06, 2019
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2019
Document Transition Report	false
Entity File Number	1-16817
Entity Registrant Name	FIVE STAR SENIOR LIVING INC.
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	04-3516029
Entity Address, Address Line One	400 Centre Street
Entity Address, City or Town	Newton
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02458
City Area Code	617
Local Phone Number	796-8387
Title of 12(b) Security	Shares of Common Stock
Trading Symbol	FVE
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		50,865,892
Entity Central Index Key	0001159281
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 35,500	$ 29,512
Accounts receivable, net of allowance of $3,998 and $3,422 at June 30, 2019 and December 31, 2018, respectively	36,619	37,758
Due from related persons	3,698	7,855
Investments, of which $12,008 and $11,285 are restricted at June 30, 2019 and December 31, 2018, respectively	21,275	20,179
Restricted cash	23,880	19,720
Prepaid expenses and other current assets	20,844	23,029
Assets held for sale	11,218	0
Total current assets	153,034	138,053
Property and equipment, net	165,382	243,873
Equity investment of an investee	9,303	8,633
Restricted cash	1,029	923
Restricted investments	6,267	8,073
Right of use assets	909,267
Other long term assets	5,739	6,069
Total assets	1,250,021	405,624
Current liabilities:
Revolving credit facility	0	51,484
Accounts payable and accrued expenses	65,961	69,667
Current portion of lease liabilities	94,368
Accrued compensation and benefits	41,810	35,421
Due to related persons	18,359	18,883
Mortgage notes payable	350	339
Accrued real estate taxes	1,777	12,959
Security deposits and current portion of continuing care contracts	766	3,468
Other current liabilities	34,089	37,472
Liabilities held for sale	12,615	0
Total current liabilities	270,095	229,693
Long term liabilities:
Mortgage notes payable	7,355	7,533
Long term portion of lease liabilities	829,956
Accrued self insurance obligations	31,148	33,030
Deferred gain on sale and leaseback transaction	0	59,478
Other long term liabilities	1,721	4,721
Total long term liabilities	870,180	104,762
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $.01: 75,000,000 shares authorized, 50,865,892 and 50,853,452 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	508	508
Additional paid in capital	361,777	361,555
Accumulated deficit	(254,197)	(292,636)
Accumulated other comprehensive income	1,658	1,742
Total shareholders’ equity	109,746	71,169
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,250,021	$ 405,624

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Accounts receivable, net of allowance	$ 3,998	$ 3,422
Investments, restricted	$ 12,008	$ 11,285
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	75,000,000	75,000,000
Common stock, shares issued (in shares)	50,865,892	50,853,452
Common stock, shares outstanding (in shares)	50,865,892	50,853,452

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues:
Total revenues	$ 355,739	$ 343,098	$ 711,262	$ 688,615
Operating expenses:
Rent expense - topic 842	33,262		87,804
Rent expense - topic 840		52,113		104,358
General and administrative expenses	20,548	18,477	47,050	38,440
Depreciation and amortization expense	2,941	8,977	11,106	17,837
Loss (gain) on sale of senior living communities	101	(1,509)	101	(7,193)
Long lived asset impairment	112	365	3,260	365
Total operating expenses	352,008	363,339	739,368	716,039
Operating income (loss)	3,731	(20,241)	(28,106)	(27,424)
Interest, dividend and other income	415	218	571	385
Interest and other expense	(906)	(604)	(1,812)	(1,307)
Unrealized (loss) gain on equity investments	(38)	44	328	(6)
Realized gain (loss) on sale of debt and equity investments, net of tax	144	(42)	236	(10)
Income (loss) before income taxes and equity in earnings of an investee	3,346	(20,625)	(28,783)	(28,362)
Benefit (provision) for income taxes	705	(281)	(785)	(537)
Equity in earnings of an investee, net of tax	130	12	534	56
Net income (loss)	$ 4,181	$ (20,894)	$ (29,034)	$ (28,843)
Weighted average shares outstanding - basic (in shares)	50,067	49,653	50,054	49,624
Weighted average shares outstanding - diluted (in shares)	51,422	49,653	50,054	49,624
Net income (loss) per share—basic (in USD per share)	$ 0.08	$ (0.42)	$ (0.58)	$ (0.58)
Net income (loss) per share—diluted (in USD per share)	$ 0.08	$ (0.42)	$ (0.58)	$ (0.58)
Senior living revenue
Revenues:
Total revenues	$ 274,496	$ 270,882	$ 551,431	$ 545,407
Management fee revenue
Revenues:
Total revenues	4,024	3,777	8,007	7,399
Reimbursed costs incurred on behalf of managed communities
Revenues:
Total revenues	77,219	68,439	151,824	135,809
Operating expenses:
Cost of revenues	77,219	68,439	151,824	135,809
Senior living wages and benefits
Operating expenses:
Cost of revenues	145,249	140,713	288,879	276,882
Other senior living operating expenses
Operating expenses:
Cost of revenues	$ 72,576	$ 75,764	$ 149,344	$ 149,541

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 4,181	$ (20,894)	$ (29,034)	$ (28,843)
Other comprehensive income:
Unrealized loss on investments, net of tax	(16)	(43)	(221)	(440)
Equity in unrealized gain (loss) of an investee, net of tax	71	10	136	(83)
Realized (gain) loss on investments reclassified and included in net income (loss), net of tax	(3)	70	1	67
Other comprehensive income (loss)	52	37	(84)	(456)
Comprehensive income (loss)	$ 4,233	$ (20,857)	$ (29,118)	$ (29,299)

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income
Beginning balance (in shares) at Dec. 31, 2017		50,524,424
Beginning balance at Dec. 31, 2017	$ 144,994	$ 505	$ 360,942	$ (220,489)	$ 4,036
Comprehensive loss:
Net income (loss)	(7,949)			(7,949)
Unrealized loss on investments, net of tax	(397)				(397)
Realized gain/loss on investments reclassified and included in net loss, net of tax	(3)				(3)
Equity in unrealized gain of an investee, net of tax	(93)				(93)
Comprehensive income (loss)	(8,442)			(6,002)	(2,440)
Grants under share award plan and share based compensation (in shares)		12,500
Grants under share award plan and share based compensation	211		211
Ending balance (in shares) at Mar. 31, 2018		50,536,924
Ending balance at Mar. 31, 2018	136,763	$ 505	361,153	(226,491)	1,596
Beginning balance (in shares) at Dec. 31, 2017		50,524,424
Beginning balance at Dec. 31, 2017	144,994	$ 505	360,942	(220,489)	4,036
Comprehensive loss:
Net income (loss)	(28,843)
Comprehensive income (loss)	(29,299)
Ending balance (in shares) at Jun. 30, 2018		50,588,084
Ending balance at Jun. 30, 2018	116,186	$ 506	361,432	(247,385)	1,633
Beginning balance (in shares) at Mar. 31, 2018		50,536,924
Beginning balance at Mar. 31, 2018	136,763	$ 505	361,153	(226,491)	1,596
Comprehensive loss:
Net income (loss)	(20,894)			(20,894)	0
Unrealized loss on investments, net of tax	(43)				(43)
Realized gain/loss on investments reclassified and included in net loss, net of tax	70				70
Equity in unrealized gain of an investee, net of tax	10				10
Comprehensive income (loss)	(20,857)			(20,894)	37
Grants under share award plan and share based compensation (in shares)		62,500
Grants under share award plan and share based compensation	73	$ 1	72
Repurchases and forfeitures under share award plan (in shares)		(11,340)
Repurchases and forfeitures under share award plan	207		207
Ending balance (in shares) at Jun. 30, 2018		50,588,084
Ending balance at Jun. 30, 2018	$ 116,186	$ 506	361,432	(247,385)	1,633
Beginning balance (in shares) at Dec. 31, 2018	50,853,452	50,853,452
Beginning balance at Dec. 31, 2018	$ 71,169	$ 508	361,555	(292,636)	1,742
Comprehensive loss:
Net income (loss)	(33,215)			(33,215)
Unrealized loss on investments, net of tax	(205)				(205)
Realized gain/loss on investments reclassified and included in net loss, net of tax	4				4
Equity in unrealized gain of an investee, net of tax	65				65
Comprehensive income (loss)	(33,351)			(33,215)	(136)
Grants under share award plan and share based compensation (in shares)		0
Grants under share award plan and share based compensation	97		97
Repurchases and forfeitures under share award plan (in shares)		(10,420)
Repurchases and forfeitures under share award plan	0	$ 0
Ending balance (in shares) at Mar. 31, 2019		50,843,032
Ending balance at Mar. 31, 2019	$ 105,388	$ 508	361,652	(258,378)	1,606
Beginning balance (in shares) at Dec. 31, 2018	50,853,452	50,853,452
Beginning balance at Dec. 31, 2018	$ 71,169	$ 508	361,555	(292,636)	1,742
Comprehensive loss:
Net income (loss)	(29,034)
Comprehensive income (loss)	$ (29,118)
Ending balance (in shares) at Jun. 30, 2019	50,865,892	50,865,892
Ending balance at Jun. 30, 2019	$ 109,746	$ 508	361,777	(254,197)	1,658
Beginning balance (in shares) at Mar. 31, 2019		50,843,032
Beginning balance at Mar. 31, 2019	105,388	$ 508	361,652	(258,378)	1,606
Comprehensive loss:
Net income (loss)	4,181			4,181
Unrealized loss on investments, net of tax	(16)				(16)
Realized gain/loss on investments reclassified and included in net loss, net of tax	(3)				(3)
Equity in unrealized gain of an investee, net of tax	71				71
Comprehensive income (loss)	4,233		0	4,181	52
Grants under share award plan and share based compensation (in shares)		62,500
Grants under share award plan and share based compensation	123	$ 0	123
Repurchases and forfeitures under share award plan (in shares)		(39,640)
Repurchases and forfeitures under share award plan	$ 2	$ 0	2
Ending balance (in shares) at Jun. 30, 2019	50,865,892	50,865,892
Ending balance at Jun. 30, 2019	$ 109,746	$ 508	$ 361,777	$ (254,197)	$ 1,658

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net loss	$ (29,034)	$ (28,843)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization expense	11,106	17,837
Loss (gain) on sale of senior living communities	101	(7,193)
Unrealized (gain) loss on equity securities	(328)	6
Realized (gain) loss on sale of debt and equity investments	(236)	10
Loss on disposal of property and equipment	86	209
Long lived asset impairment	3,260	365
Equity in earnings of an investee, net of tax	(534)	(56)
Stock based compensation	222	491
Provision for losses on receivables	2,092	2,637
Amortization of non-cash rent adjustments	(472)	(3,305)
Other noncash expense adjustments, net	62	96
Changes in assets and liabilities:
Accounts receivable	(953)	187
Prepaid expenses and other assets	3,110	4,766
Accounts payable and accrued expenses	(5,123)	(11,165)
Accrued compensation and benefits	6,389	2,742
Due from (to) related persons, net	16,486	(1,798)
Other current and long term liabilities	293	(302)
Cash provided by (used in) operating activities	6,527	(23,316)
Cash flows from investing activities:
Acquisition of property and equipment	(24,427)	(23,680)
Purchases of investments	(2,234)	(2,682)
Proceeds from sale of property and equipment	78,920	8,529
Proceeds from sale of communities	0	31,853
Proceeds from sale of investments	4,446	4,981
Cash provided by investing activities	56,705	19,001
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facility	0	5,000
Repayments of borrowings on revolving credit facility	(51,484)	(5,000)
Repayments of mortgage notes payable	(181)	(343)
Payment of deferred financing fees	(1,271)	0
Cash used in financing activities	(52,936)	(343)
Change in cash and cash equivalents and restricted cash	10,296	(4,658)
Cash and cash equivalents and restricted cash at beginning of period	50,155	48,478
Cash and cash equivalents and restricted cash at end of period	60,451	43,820
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents and restricted cash at end of period	50,155	48,478
Supplemental cash flow information:
Cash paid for interest	1,565	1,002
Cash (received) paid for income taxes, net	(1,491)	348
Non-cash activities:
Initial recognition of right of use assets for lease liabilities	1,478,958	0
Real estate sale	0	33,364
Mortgage notes assumed by purchaser in real estate sale	$ 0	$ 33,364

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Basis of Presentation and Organization

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Organization

Basis of Presentation and Organization

General

The accompanying condensed consolidated financial statements of Five Star Senior Living Inc. and its subsidiaries, or we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, 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, 2018, 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. Certain reclassifications have been made to the prior years’ 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 June 30, 2019, we operated 282 senior living communities located in 33 states with 31,996 living units, including 256 primarily independent and assisted living communities with 29,768 living units and 26 SNFs with 2,228 living units. As of June 30, 2019, we owned and operated 20 of these senior living communities (2,108 living units), we leased and operated 185 of these senior living communities (19,804 living units) and we managed 77 of these senior living communities (10,084 living units). Our 282 senior living communities, as of June 30, 2019, included 11,134 independent living apartments, 16,470 assisted living suites and 4,392 SNF units. The foregoing numbers exclude living units categorized as out of service.  

Going Concern

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which accordingly assumes, among other things, the realization of assets and the satisfaction of liabilities in the ordinary course of business.

We previously determined that, as of May 8, 2019, a substantial doubt existed regarding our ability to continue as a going concern. We had made this determination based on the following factors, among others: we face increased competition across the senior living industry, including in specific markets in which we operate senior living communities; medical advances and healthcare services allow some potential residents to defer the time when they require the special services available at our communities; low unemployment in the United States combined with a competitive labor market within our industry are increasing our employment costs; we have a significant accumulated deficit and we have incurred operating losses in each of the last three fiscal years; we did not expect to be able to pay our full rent obligations during the first quarter of 2019, absent rent relief from Senior Housing Properties Trust, or, together with its subsidiaries, SNH; and our then existing $54,000 secured revolving credit facility, or our prior credit facility, was fully drawn and scheduled to expire on June 28, 2019. Since March 31, 2019, we have taken significant actions to address our operating and liquidity challenges. As a result, even though challenging conditions in the senior living industry continue to exist, there no longer exists a substantial doubt about our ability to continue as a going concern for the next 12 months.

We currently operate 258 senior living communities under lease and management arrangements with SNH, or approximately 91.5% of the total communities we operate. In order to address our ongoing operating and liquidity challenges, on April 1, 2019, we entered into a transaction agreement with SNH, or the Transaction Agreement, pursuant to which we and SNH agreed to modify our existing business arrangements, subject to certain conditions and the receipt of various approvals. As part of these modifications, (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by us under our master leases with SNH was reduced to $11,000, and, as our stockholders approved the issuances of our common shares to SNH and SNH’s shareholders pursuant to the Transaction Agreement, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated, and (2) no additional rent is payable to SNH by us from February 1, 2019 to January 1, 2020 (or January 1, 2021, if extended under the Transaction Agreement), or the Conversion Time, subject to possible extension. Also on April 1, 2019, pursuant to the Transaction Agreement, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH's

senior living communities leased and operated by us, which amount was subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement. SNH also extended to us a $25,000 line of credit that matures on January 1, 2020, subject to extension. As of June 30, 2019 and August 6, 2019, we had no borrowings outstanding under this line of credit. Other significant pending transactions are also contemplated by the Transaction Agreement. For more information regarding the Transaction Agreement and related agreements and the transactions contemplated thereby, see Note 9.

On June 12, 2019, we entered into a second amended and restated credit agreement with Citibank, N.A., as administrative agent and lender, and a syndicate of other lenders, or our credit agreement, pursuant to which we have a $65,000 secured revolving credit facility, or our credit facility, that is available for general business purposes. Our credit facility replaced our prior credit facility, which was scheduled to expire on June 28, 2019. During June 2019, we repaid, in aggregate, $51,484 of outstanding borrowings under our credit facility. As of June 30, 2019 and August 6, 2019, we had no borrowings outstanding under our credit facility. For more information regarding our credit agreement, our credit facility and our prior credit facility, see Note 8.

Segment Information

As of June 30, 2019, 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 others independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents. In the rehabilitation and wellness operating segment we provide therapy services, including physical, occupational, speech and other specialized therapy services, in the inpatient setting and in outpatient clinics. We have determined that our two operating segments meet the aggregation criteria as prescribed under Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or ASC, Topic 280, Segment Reporting, and we have therefore 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 Cayman Islands organized captive insurance company subsidiary, which participates in our workers’ compensation, professional and general liability and certain automobile insurance programs.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Leases

On January 1, 2019, we adopted FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, we elected the practical expedients within FASB Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU No. 2016-02, that allow an entity to not reassess as of January 1, 2019 its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs.

In accordance with ASC Topic 842, at inception of a contract, we, as lessee, evaluate and determine whether such contract is or contains a lease based on whether such contract conveys the right to control the use of the identified asset. We apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. We have elected to apply the portfolio approach where possible in assessing our leases and performed an assessment of all our leases. In addition, we have elected the practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. As lessee, we lease senior living communities and our headquarters, and enter into contracts for the use and maintenance of various pieces of equipment that contain a lease. We have determined that none of these leases have met any of the criteria to be classified as a finance lease and, therefore, we have accounted for all of these leases as operating leases.

We have determined that our leases for the use and maintenance of equipment are short term leases. In accordance with ASC Topic 842, we have made an accounting policy election for our leases, which are determined to be short term leases, whereby we recognize the lease payments on a straight line basis over the lease term and variable lease payments in the period in which the obligations for those payments are incurred. Expense related to these leases is recognized in the statement of operations in other senior living operating expenses and is not material to our condensed consolidated financial statements.

We have determined that our leases for senior living communities and our headquarters are long term leases. In accordance with ASC Topic 842, a lessee is required to record a right of use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Accordingly, we have recorded a right of use asset and lease liability for all of our leased communities and our headquarters. We determined that the discount rate implicit in the leases was not readily available,

and therefore, in accordance with ASC Topic 842, we determined our incremental borrowing rate, or IBR, to calculate the right of use assets and lease liabilities. For purposes of determining the lease term, we concluded that it is not reasonably certain that our lease extensions will be exercised and, therefore, we included payments required to be made under the committed lease term in calculating the right of use assets and lease liabilities. Expense related to these leases is recognized in the statement of operations in rent expense, except for the expense related to our headquarters, which is recorded in general and administrative expenses. We recognize variable lease payments primarily relating to percentage rent paid under our leases with SNH, and operating costs such as insurance and real estate taxes, in the statement of operations in the period in which the obligations for those payments are incurred.

We have not capitalized any initial direct costs related to our leases as these costs are not material to our condensed consolidated financial statements.

ASC Topic 842 provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. In addition, ASC Topic 842 clarifies which ASC Topic (Topic 842 or FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606) applies for the combined component. Specifically, if the non-lease components associated with the lease component are the predominant component of the combined components, the lessor should account for the combined component in accordance with ASC Topic 606. Otherwise, the lessor should account for the combined component as an operating lease in accordance with ASC Topic 842. We have elected this practical expedient and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the leases and, therefore, we recognize revenue for these agreements under ASC Topic 606.

Revenue Recognition

We recognize revenue from contracts with customers in accordance with ASC Topic 606 using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within that portfolio. The five step model defined by ASC Topic 606 requires us to: (1) identify our contracts with customers; (2) identify our performance obligations under those contracts; (3) determine the transaction prices of those contracts; (4) allocate the transaction prices to our performance obligations in those contracts; and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

A substantial portion of our revenue at our independent living and assisted living communities relates to contracts with residents for housing services that are generally short term in nature and initially is subject to ASC Topic 842. As previously discussed, we have concluded that the non-lease components of these agreements are the predominant components of the contracts; therefore, we recognize revenue for these agreements under ASC Topic 606. Our contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short term in nature. We have determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when our performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.

Senior Living Revenue. Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services being provided are not material to our consolidated financial statements. Some of our senior living communities require payment of an entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in other current liabilities in our consolidated balance sheets. These deferred amounts then are amortized on a straight line basis into revenue over the term of the resident agreement. Revenue recorded and deferred in connection with community fees is not material to our consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in

accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.

In our SNFs and certain of our independent and assisted living communities where we provide SNF services, we are paid fixed daily rates from governmental and contracted third party payers, and we charge a predetermined fixed daily rate for private pay residents. These fixed daily rates and certain other fees are billed monthly in arrears. Although there are complex regulatory compliance rules governing fixed daily rates, we have no episodic payments or capitation arrangements. We currently use the “most likely amount” technique to estimate revenue in accordance with ASC Topic 606, although rates are generally known and considered fixed prior to services being performed, whether included in the resident agreement or contracted with governmental or third party payers. Rate adjustments from Medicare or Medicaid are recorded when known (without regard to when the assessment is paid or withheld), and subsequent adjustments to these amounts are recorded in revenues when known. Billings under certain of these programs are subject to audit and possible retroactive adjustment, and related revenue is recorded at the amount we ultimately expect to receive, which is inclusive of the estimated retroactive adjustments or refunds, if any, under reimbursement programs. Retroactive adjustments are recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Revenue is recognized when performance obligations are satisfied by transferring control of the service provided to the resident, which is generally when services are provided over the duration of care. We derived approximately 22.4% and 22.8% of our senior living revenues for the three months ended June 30, 2019 and 2018, respectively, and 23.0% and 23.2% for the six months ended June 30, 2019 and 2018, respectively, from payments under Medicare and Medicaid programs.

Management Fee Revenue and Reimbursed Costs Incurred on Behalf of Managed Communities. We manage senior living communities for the account of SNH pursuant to long term management agreements which provide for periodic management fee payments to us and reimbursement for our direct costs and expenses related to such communities. Management fees are determined by an agreed upon percentage of gross revenues (as defined) and recognized in accordance with ASC Topic 606 in the same period that we provide the management services to SNH, generally monthly. FASB ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. Where we are the primary obligor and therefore control the transfer of the goods and services with respect to any such operating expenses incurred in connection with the management of these communities, we recognize revenue when the goods have been delivered or the service has been rendered and we are due to be reimbursed from SNH. Such revenue is included in reimbursed costs incurred on behalf of managed communities in our consolidated statements of operations. The related costs are included in costs incurred on behalf of managed communities in our consolidated statements of operations. Amounts due from SNH related to management fees and reimbursed costs incurred on behalf of managed communities are included in due from related persons in our consolidated balance sheets.

The following table presents revenue disaggregated by type of contract and payer:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue from contracts with customers:
Basic housing and support services (1)	$	163,615	$	161,778	$	326,390	$	323,882
Medicare and Medicaid programs (1)	61,443		61,824		126,764		126,427
Additional requested services, and private pay and other third party payer SNF services (1)	49,438		47,280		98,277		95,098
Management fee revenue	4,024		3,777		8,007		7,399
Reimbursed costs incurred on behalf of managed communities	77,219		68,439		151,824		135,809
Total revenues	$	355,739	$	343,098	$	711,262	$	688,615

(1) Included in senior living revenue in our consolidated statements of operations.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). This ASU also changes the accounting for sale and leaseback transactions, such as our sale and leaseback transaction with SNH in June 2016, and any

associated deferred gain. In accordance with ASC Topic 842, if a previous sale and leaseback transaction was accounted for as a sale and operating leaseback in accordance with FASB ASC Topic 840, Leases, or ASC Topic 840, any deferred gain or loss not resulting from off-market terms shall be recognized as a cumulative-effect adjustment to equity. This ASU is effective for reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, or ASU No. 2018-11, which works to improve on certain aspects of ASU No. 2016-02 identified by stakeholders as problematic or difficult to implement, including the adoption method. ASU No. 2018-11 provides for a transition method option, allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, rather than restating comparative periods being presented. ASU No. 2018-11 also provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. We adopted these ASUs as required effective January 1, 2019 utilizing the modified retrospective transition method with no adjustments to comparative periods presented in accordance with ASU No. 2018-11.

The adoption of ASC Topic 842 resulted in the recognition of lease liabilities and right of use assets of approximately $1.5 billion as of January 1, 2019. Such amount of right of use assets was recognized based upon the amount of the recognized lease liabilities, adjusted for accrued lease payments, which are not material to our condensed consolidated financial statements as of January 1, 2019. We have also concluded that any previously unrecognized right of use assets needed to be reviewed for impairment effective January 1, 2019, which could have resulted in a reduction to the initially recognized right of use assets with a cumulative effect adjustment to beginning retained earnings as of January 1, 2019. We have completed the process of evaluating the initial right of use assets for impairment and have determined there were no indicators of impairment. Due to changes in how we account for the deferred gain on our sale and leaseback transaction described above effective with the adoption of these ASUs, on January 1, 2019, we recorded through retained earnings our total deferred gain of $67,473 on our consolidated balance sheets as of December 31, 2018, $55 of which was in accounts payable and accrued expenses, $6,723 of which was in other current liabilities, $1,217 of which was in other long term liabilities and the remaining $59,478 was separately stated on our consolidated balance sheets.

For the year ended December 31, 2018, a substantial portion of our senior living revenue at our independent living and assisted living communities related to housing services and was subject to ASC Topic 840, and revenue for additional requested services was recognized in accordance with ASC Topic 606. Upon adoption of Topic 842, we elected the lessor practical expedient within ASU No. 2018-11 and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component, either the lease or non-lease component, of the contracts rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the lease and, therefore, we recognize revenue for these agreements under ASC Topic 606. After the adoption of ASC Topic 842, the timing and pattern of revenue recognition are substantially the same as those prior to the adoption.

See also the discussion above under “Leases” and Note 9 for more information regarding the impact of these ASUs on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), which shortens the amortization period for certain callable debt securities held at a premium. Specifically, this ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The adoption of this ASU did not have a material impact on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), which permits an entity to reclassify the tax effects that remain recorded within other comprehensive income to retained earnings as a result of tax reform legislation that became effective in December 2017. The adoption of this ASU did not have a material impact on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2018-07, Compensation—Stock Compensation (Topic 718), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from non-employees. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.

This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current available for sale security other-than-temporary impairment model for debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. This ASU is effective for reporting periods beginning after December 15, 2019. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief which provides for an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. This ASU is effective for reporting periods beginning after December 15, 2019. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2018, the FASB also issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for reporting periods beginning after December 15, 2019. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

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Property and Equipment

6 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment consists of the following:

	June 30, 2019			December 31, 2018
Land	$	12,155		$	16,383
Buildings and improvements	200,054			208,375
Furniture, fixtures and equipment	53,216			239,240
Property and equipment, at cost	265,425			463,998
Accumulated depreciation	(100,043		)	(220,125		)
Property and equipment, net	$	165,382		$	243,873

We recorded depreciation expense relating to our property and equipment of $2,941 and $8,957 for the three months ended June 30, 2019 and 2018, respectively, and $11,106 and $17,797 for the six months ended June 30, 2019 and 2018, respectively.

We review the carrying value of 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. 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 assets or asset groups are expected to generate, and we consider these estimates to be a Level 3 fair value measurement. As a result of our long lived assets impairment review, we recorded $112 and $3,260 of impairment charges to certain of our long lived assets for the three and six months ended June 30, 2019, respectively, and $365 for the three and six months ended June 30, 2018.

As of June 30, 2019, we had $10,807 of net property and equipment classified as held for sale and presented separately in our consolidated balance sheets primarily as a result of the Transaction Agreement. SNH has agreed to purchase $3,545 of these assets classified as held for sale as of June 30, 2019. See Note 9 for more information regarding our communities classified as held for sale and our leases and other arrangements with SNH. 

On April 1, 2019, pursuant to the Transaction Agreement, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH’s senior living communities leased to and operated by us, which amount was

subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement. See Note 9 for more information regarding the Transaction Agreement and the transactions contemplated thereby.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income

The following table details the changes in accumulated other comprehensive income, net of tax, for the six months ended June 30, 2019:

	Equity Investment of an Investee			Investments			Accumulated Other Comprehensive Income
Balance at January 1, 2019	$	(266	)	$	2,008		$	1,742
Unrealized loss on investments, net of tax	—			(221		)	(221		)
Equity in unrealized gain of an investee, net of tax	136			—			136
Realized loss on investments reclassified and included in net income (loss), net of tax	—			1			1
Balance at June 30, 2019	$	(130	)	$	1,788		$	1,658

Accumulated other comprehensive income represents the unrealized gains and losses of our debt investments, net of tax, and our share of other comprehensive income of Affiliates Insurance Company, or AIC. See Note 11 for more information regarding our arrangements with AIC.

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We recognized a benefit for income taxes of $705 and a provision for income taxes of $785 for the three and six months ended June 30, 2019, respectively. We recognized a provision for income taxes of $281 and $537 for the three and six months ended June 30, 2018, respectively. The benefit for income taxes for the three months ended June 30, 2019 is related to a decrease to our cumulative federal and state income taxes through June 30, 2019 compared to March 31, 2019, and the provision for income taxes for the six months ended June 30, 2019 is related to federal and state income taxes. The provision for income taxes for the three and six months ended June 30, 2018 is related to state income taxes.

We previously determined it was more likely than not that a majority of our net deferred tax assets would not be realized and concluded that a valuation allowance was required, which eliminated the majority of our net deferred tax assets recorded in our consolidated balance sheets. In the future, if we believe that we will more likely than not realize a benefit of these deferred tax assets, we will adjust our valuation allowance and recognize an income tax benefit, which may affect our results of operations.

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Earnings Per Share

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

We calculated basic earnings per common share, or EPS, for the three and six months ended June 30, 2019 and 2018 using the weighted average number of shares of our common shares, outstanding during the periods. When applicable, diluted EPS reflects the more dilutive earnings per common share amount calculated using the two class method or the treasury stock method. The three months ended June 30, 2019 and 2018 had 1,355,405 and 1,245,186, respectively, and the six months ended June 30, 2019 and 2018 had 1,218,752 and 1,255,478, respectively, of potentially dilutive restricted unvested common shares. These shares were not included in the calculation of diluted EPS for the six months ended June 30, 2019 and the three and six months ended June 30, 2018 because to do so would have been antidilutive.

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Fair Values of Assets and Liabilities

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Values of Assets and Liabilities

Fair Values of Assets and Liabilities

Our assets recorded at fair value have been categorized based on a fair value hierarchy in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures. 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.

Recurring Fair Value Measures

The tables below present the assets measured at fair value at June 30, 2019 and December 31, 2018 categorized by the level of inputs used in the valuation of each asset.

	As of June 30, 2019
			Quoted Prices in Active Markets for Identical  Assets		Significant  Other Observable  Inputs		Significant Unobservable  Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents(1)	$	27,846	$	27,846	$	—	$	—
Investments:
Equity investments(2)
Financial services industry	1,161		1,161		—		—
Healthcare	273		273		—		—
Technology	236		236		—		—
Other	4,312		4,312		—		—
Total equity investments	5,982		5,982		—		—
Debt investments:(3)
International bond fund(4)	2,642		—		2,642		—
High yield fund(5)	2,905		—		2,905		—
Industrial bonds	1,176		—		1,176		—
Technology bonds	2,172		—		2,172		—
Government bonds	9,514		9,514		—		—
Energy bonds	622		—		622		—
Financial bonds	1,763		—		1,763		—
Other	766		—		766		—
Total debt investments	21,560		9,514		12,046		—
Total investments	27,542		15,496		12,046		—
Total	$	55,388	$	43,342	$	12,046	$	—

	As of December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant  Other Observable Inputs		Significant  Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents(1)	$	23,390	$	23,390	$	—	$	—
Investments:
Equity investments(2)
Financial services industry	1,074		1,074		—		—
Healthcare	291		291		—		—
Technology	174		174		—		—
Other	3,927		3,927		—		—
Total equity investments	5,466		5,466		—		—
Debt investments(3)
International bond fund(4)	2,537		—		2,537		—
High yield fund(5)	2,669		—		2,669		—
Industrial bonds	1,692		—		1,692		—
Technology bonds	2,375		—		2,375		—
Government bonds	9,791		9,791		—		—
Energy bonds	595		—		595		—
Financial bonds	1,858		—		1,858		—
Other	1,268		—		1,268		—
Total debt investments	22,785		9,791		12,994		—
Total investments	28,251		15,257		12,994		—
Total	$	51,641	$	38,647	$	12,994	$	—

(1) Cash equivalents consist of short term, highly liquid investments and money market funds held principally for obligations arising from our self insurance programs. Cash equivalents are reported in our condensed consolidated balance sheets as cash and cash equivalents and current and long term restricted cash. Cash equivalents include $23,577 and $19,529 of balances that are restricted at June 30, 2019 and December 31, 2018, respectively.

(2) The fair value of our equity investments is readily determinable. During the six months ended June 30, 2019 and 2018, we received gross proceeds of $1,664 and $561, respectively, in connection with the sales of equity investments and recorded gross realized gains totaling $282 and $65, respectively, and gross realized losses totaling $45 and $4, respectively.

(3) As of June 30, 2019, our debt investments, which are classified as available for sale, had a fair value of $21,560 with an amortized cost of $19,633; the difference between the fair value and amortized cost amounts resulted from unrealized gains of $1,932, net of unrealized losses of $5. As of December 31, 2018, our debt investments had a fair value of $22,785 with an amortized cost of $21,806; the difference between the fair value and amortized cost amounts resulted from unrealized gains of $1,276, net of unrealized losses of $296. Debt investments include $12,433 and $13,943 of balances that are restricted as of June 30, 2019 and December 31, 2018, respectively. At June 30, 2019, none of the securities we hold have been in a loss position for less than 12 months and 10 of the investments we hold, with a fair value of $2,548, have been in a loss position for greater than 12 months. We do not believe these investments 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 investments remain strong with solid fundamentals, or we intend to hold these investments until recovery, and other factors that support our conclusion that the loss is temporary. During the six months ended June 30, 2019 and 2018, we received gross proceeds of $2,782 and $4,420, respectively, in connection with the sales of debt investments and recorded gross realized gains totaling $6 and $9, respectively, and gross realized losses totaling $7 and $80, respectively. We record gains and losses on the sales of these investments using the specific identification method.

(4) The investment strategy of this fund is to invest principally in fixed income securities issued by non-U.S. issuers. 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.

(5) 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 six months ended June 30, 2019, 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 six months ended June 30, 2019.

The carrying value of accounts receivable and accounts payable approximates fair value as of June 30, 2019 and December 31, 2018. The carrying value and fair value of our mortgage notes payable were $7,705 and $9,357, respectively, as of June 30, 2019 and $7,872 and $8,986, respectively, as of December 31, 2018, 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.

Non-Recurring Fair Value Measures

We review the carrying value of our long lived assets, including our right of use assets, property and equipment and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. See Note 3 for more information regarding fair value measurements related to impairments of our long lived assets we recorded.

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Indebtedness

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Indebtedness

Indebtedness

Our prior credit facility, which provided for borrowings of up to $54,000, subject to conditions, was scheduled to mature on June 28, 2019. In June 2019, we replaced our prior credit facility with our $65,000 secured revolving credit facility. Our credit facility is scheduled to mature on June 12, 2021, and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our credit facility for a one year period. Other terms of our credit facility are substantially similar to those of our prior credit facility. We paid fees of $1,279 in 2019 in connection with the closing of our credit facility, which fees were deferred and are being amortized over the initial term of our credit facility. Our credit facility is available for general business purposes, including acquisitions, and provides for the issuance of letters of credit. We are required to pay interest at a rate of LIBOR plus a premium of 250 basis points per annum, or at a base rate, as defined in our credit agreement, plus 150 basis points per annum, on borrowings under our credit facility; the effective annual interest rates as of June 30, 2019 were 4.93% and 7.00%, respectively. We are also required to pay a quarterly commitment fee of 0.35% per annum on the unused part of the available borrowings under our credit facility. The weighted average annual interest rate for borrowings under our credit facility was 4.94% for the six months ended June 30, 2019. The weighted average annual interest rate for borrowings under our prior credit facility was 4.99% and 6.50% for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had no borrowings under our credit facility, letters of credit issued in an aggregate amount of $2,516 and $62,484 available for borrowing under our credit facility. We incurred aggregate interest expense and other associated costs related to our credit facilities of $775 and $270 for the three months ended June 30, 2019 and 2018, respectively, and $1,547 and $535 for the six months ended June 30, 2019 and 2018 respectively.

Our credit facility is secured by real estate mortgages on 11 senior living communities with a combined 1,245 living units owned by certain of our subsidiaries that guarantee our obligations under our credit facility. Our credit facility is also secured by these subsidiaries’ accounts receivable and related collateral. The amount of available borrowings under our credit facility is subject to our having qualified collateral, which is primarily based on the value of the communities securing our obligations under our credit facility. Our credit facility provides for acceleration of payment of all amounts outstanding under our credit facility upon the occurrence and continuation of certain events of default, including a change of control of us, as defined. Our credit agreement contains financial and other covenants, including those that restrict our ability to pay dividends or make other distributions to our stockholders in certain circumstances.

At June 30, 2019, we had seven irrevocable standby letters of credit outstanding, totaling $26,476. In June 2019, we increased, from $22,700 to $23,237, one of these letters of credit which secures our workers' compensation insurance program, and this letter of credit is currently collateralized by approximately $21,535 of cash equivalents and $5,842 of debt and equity investments. This letter of credit currently expires in June 2020 and is automatically extended for one year terms unless notice of nonrenewal is provided by the issuing bank prior to the end of the applicable term. We expect that our workers' compensation insurance program will require an increase in the value of this letter of credit in June 2020. At June 30, 2019, the cash equivalents collateralizing this letter of credit, including accumulated interest, were classified as short term restricted cash in our condensed consolidated balance sheets, and the debt and equity investments collateralizing this letter of credit are classified as short term investments in our condensed consolidated balance sheets. The remaining six irrevocable standby letters of credit outstanding at June 30, 2019, totaling $3,238, secure certain of our other obligations. These letters of credit are scheduled to

mature between October 2019 and September 2020 and are required to be renewed annually. As of June 30, 2019, our obligations under these six letters of credit, totaling $2,516, were issued and outstanding under our credit facility and obligations of $723 for four of the six letters of credit were collateralized by cash and classified as restricted cash as of June 30, 2019.

At June 30, 2019, one of our senior living communities was encumbered by a mortgage. This mortgage contains standard mortgage covenants. We recorded a mortgage discount in connection with the assumption of this mortgage note as part of our acquisition of the community secured by this mortgage note in order to record this mortgage at its estimated fair value. We amortize this mortgage discount as an increase in interest expense until the maturity of this mortgage. This mortgage note requires payments of principal and interest monthly until maturity. The following table is a summary of this mortgage note as of June 30, 2019:

Balance as of			Contractual Stated		Effective			Monthly
June 30, 2019			Interest Rate		Interest Rate		Maturity Date	Payment		Lender Type
$	7,971	(1)	6.20	%	6.70	%	September 2032	$	72	Federal Home Loan Mortgage Corporation

(1) Contractual principal payment excluding unamortized discount and debt issuance costs of $266.

We incurred mortgage interest expense, net of discount amortization, of $131 and $334 for the three months ended June 30, 2019 and 2018, respectively, and $265 and $772 for the six months ended June 30, 2019 and 2018, respectively. Our mortgage debt requires monthly payments into escrows for taxes, insurance and property replacement funds; certain withdrawals from escrows require Federal Home Loan Mortgage Corporation approval.

In February 2018, in connection with the sale of one of our senior living communities to SNH, SNH assumed a Federal National Mortgage Association mortgage note that had a principal balance of $16,776 and required interest at the contracted rate of 6.64% per annum. In connection with SNH's assumption of this debt, we recorded a gain of $543, which amount is included in gain on sale of senior living communities in our condensed consolidated statements of operations.

In June 2018, in connection with the sale of two of our senior living communities to SNH, SNH assumed a commercial lender

mortgage that had a principal balance of $16,588 and required interest at the contracted rate of 5.75% per annum. In connection

with SNH's assumption of this debt, we recorded a gain of $638, which amount is included in gain on sale of senior living

communities in our condensed consolidated statements of operations.

As of June 30, 2019, we believe we were in compliance with all applicable covenants under our credit facility and mortgage debts.

See Note 9 for information regarding the $25,000 credit facility we obtained from SNH on April 1, 2019. As of August 6, 2019, we have not made any borrowings under this credit facility.

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Leases with SNH and HCP and Management Agreements with SNH

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases with SNH and HCP and Management Agreements with SNH

Leases with SNH and HCP and Management Agreements with SNH

We are SNH’s largest tenant and SNH is our largest landlord. As of June 30, 2019 and 2018, we leased 181 and 184 senior living communities from SNH, respectively. We lease senior living communities from SNH pursuant to five master leases. We also manage senior living communities for the account of SNH pursuant to management and pooling agreements under which we earn management fees. As of June 30, 2019 and 2018, we managed 77 and 75 senior living communities, respectively, for the account of SNH.

The April 2019 Transaction Agreement with SNH. Among other things, the Transaction Agreement provides that, subject to certain conditions, effective as of the Conversion Time:

• our five existing master leases with SNH for all of SNH's senior living communities that are leased by us, as well as our existing management agreements and pooling agreements with SNH for SNH's senior living communities that are operated by us, will be terminated and replaced, or the Conversion, with new management agreements for all of these senior living communities, or collectively, the New Management Agreements;

• we will issue to SNH such number of our common shares as is necessary to cause SNH to own, when considered together with our common shares then owned by SNH, approximately 34% of our then outstanding common shares, and SNH will declare a pro rata distribution to holders of its common shares of beneficial interest of the right to receive, and we will issue on a pro rata basis to such holders, a number of our common shares which equals approximately 51% of our then outstanding common shares, or, together, the Share Issuances; the noted percentage ownership amounts are post-issuance, giving effect to the Share Issuances; and

• as consideration for the Share Issuances, SNH will provide to us $75,000 of additional consideration, or, collectively with the Conversion and the Share Issuances, the Restructuring Transactions.

In accordance with ASC Topic 360, Property, Plant and Equipment, or ASC 360, the senior living communities under the five existing master leases with SNH that will terminate, as described above, meet the conditions to be classified as held for sale in reporting periods subsequent to our entry into the Transaction Agreement. As a result, as of June 30, 2019, we have classified these senior living communities as held for sale. The carrying value of these senior living communities was $(872), and consisted of restricted cash of $42, prepaid and other current assets of $178, net property and equipment of $10,656, other intangible assets of $191, accrued real estate taxes of $9,815 and security deposits and current portion of continuing care contracts of $2,124, all of which were presented on our condensed consolidated balance sheets as assets and liabilities held for sale. These communities, while leased by us, generated income (loss) from operations before income taxes of $18,565 and $(6,958) for the three months ended June 30, 2019 and 2018, respectively, and $10,538 and $(7,358) for the six months ended June 30, 2019 and 2018, respectively.

Also pursuant to the Transaction Agreement: (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by us under our master leases with SNH is $11,000, subject to adjustment and extension, and no additional rent is payable to SNH by us from such date to the Conversion Time; and (2) on April 1, 2019, SNH purchased from us approximately $50,000 of unencumbered fixed assets and improvements related to SNH's senior living communities leased and operated by us, which amount was subsequently reduced to $49,155 due to the exclusion of certain fixed assets in accordance with the Transaction Agreement.

At our annual meeting of stockholders held on June 11, 2019, our stockholders approved the Share Issuances. The Restructuring Transactions remain subject to conditions, including, among others: (1) the receipt of all Required Licenses (as defined in the Transaction Agreement) and any other third party consent or approval required for the consummation of the Restructuring Transactions; (2) the effectiveness of the registration statement on Form S-1 to be filed by us with the Securities and Exchange Commission, or SEC, to register our common shares to be issued pursuant to the Share Issuances; and (3) approval by The Nasdaq Stock Market LLC, or Nasdaq, of the listing of our common shares to be issued pursuant to the Share Issuances, subject to official notice of issuance.

If any required approval is not obtained by December 31, 2019, and the failure to obtain such approval is not the result of a breach or default by us under the Transaction Agreement, we and SNH have agreed to work in good faith to determine an alternative to allow the Restructuring Transactions to occur on January 1, 2020; provided SNH is not required to agree to any alternative that would adversely affect SNH's qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended. If we and SNH do not agree to any such alternative, and, as of January 1, 2020, the failure to obtain a required approval is the only remaining condition under the Transaction Agreement, the Conversion Time will be automatically extended to January 1, 2021. Pursuant to the Transaction Agreement, since our stockholders approved the Share Issuances, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated.

In accordance with ASC Topic 842, the reduction in our monthly minimum rent payable to SNH under our existing master leases with SNH pursuant to the Transaction Agreement was determined to be a modification of these master leases, and we have reassessed the classification of these master leases based on the modified terms and determined that these master leases continue to be classified as long term operating leases. Accordingly, we have remeasured the lease liability and right of use asset recorded in the condensed consolidated balance sheets.

Pursuant to the Transaction Agreement, we have agreed to expand our Board of Directors within six months following the Conversion Time to add an Independent Director (as defined in our Bylaws) reasonably satisfactory to SNH.

Pursuant to the New Management Agreements, we will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for our direct costs and expenses related to such communities, as well as an annual incentive fee equal to 15% of the amount by which the annual earnings before interest, taxes, depreciation and amortization, or EBITDA, of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year, provided that in no event shall the incentive fee be greater than 1.5% of the gross revenues realized at all communities on a combined basis for such calendar year.

The New Management Agreements provide for 15 year terms, subject to our right to extend for two consecutive five year terms if we achieve certain performance targets for the combined managed communities portfolio. The New Management Agreements also provide SNH with the right to terminate the New Management Agreement for any community that does not earn 90% of the target EBITDA for such community for two consecutive calendar years or in any two of three consecutive calendar years, with the measurement period commencing January 1, 2021 (and the first termination not possible until the beginning of calendar year 2023), provided SNH may not in any calendar year terminate communities representing more than 20% of the combined revenues for all communities for the calendar year prior to such termination.

In connection with the Transaction Agreement, we entered into a credit agreement with SNH pursuant to which SNH extended to us a $25,000 line of credit, or the SNH credit facility. The SNH credit facility matures on January 1, 2020, or January 1, 2021 if the Conversion Time is extended pursuant to the Transaction Agreement. The SNH credit facility provides for interest to be paid on borrowed amounts at a rate of 6% per year and is secured by real estate mortgages on six senior living communities owned by certain of our subsidiaries that guarantee our obligations under the SNH credit facility, and certain personal property owned by those and certain other of our subsidiaries. The SNH credit facility provides for acceleration of payment of all amounts outstanding under the SNH credit facility upon the occurrence and continuation of certain events of default, including a default by us under the Transaction Agreement and certain other agreements. The agreement governing the SNH credit facility contains covenants, including those that restrict our ability to incur debt or to pay dividends or make other distributions to our stockholders in certain circumstances. As of August 6, 2019, we have not made any borrowings under the SNH credit facility.

We incurred transaction costs of $1,133 and $8,808 related to the Transaction Agreement for the three and six months ended June 30, 2019, respectively.

Senior Living Communities Leased from SNH. Under our master leases with SNH, we pay SNH annual rent plus percentage rent equal to 4.0% of the increase in gross revenues at the applicable senior living communities over base year gross revenues as specified in the applicable lease. Our obligation to pay percentage rent under Lease No. 5 commenced in 2018. Different base years apply to those communities that pay percentage rent. The base year for a particular leased community is usually the first full calendar year after that community has become subject to that lease. As noted above, pursuant to the Transaction Agreement, no additional rent is payable to SNH by us from February 1, 2019 to the Conversion Time.

Our total annual rent payable to SNH as of June 30, 2019 and 2018 was $131,170 and $207,007, respectively, excluding percentage rent. As noted above, pursuant to the Transaction Agreement, since our stockholders approved the Share Issuances, our monthly minimum rent payable to SNH under our existing master leases with SNH will remain at $11,000, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated. Our total rent expense under all of our leases with SNH was $32,490 and $51,391 for the three months ended June 30, 2019 and 2018, respectively, and $86,272 and $102,913 for the six months ended June 30, 2019 and 2018, respectively, which amounts included estimated percentage rent of $0 and $1,290 for the three months ended June 30, 2019 and 2018, respectively, and $1,547 and $2,681 for the six months ended June 30, 2019 and 2018, respectively. Rent expense for the three and six months ended June 30, 2018 was net of lease inducement amortization and the amortization of the deferred gain associated with the sale and leaseback transaction with SNH in June 2016 of $1,689 and $3,380, respectively. Rent expense for the three and six months ended June 30, 2019 was net of lease inducement amortization of $472. Pursuant to the Transaction Agreement, our rent payable to SNH was reduced by a total of $13,840 in aggregate for February and March 2019 and we did not pay such amount to SNH. However, as the Transaction Agreement was not entered into until April 1, 2019, our rent expense for the three months ended March 31, 2019 was not adjusted for the rent reduction for February and March 2019. Instead, the rent reduction for February and March 2019 was determined to be a lease inducement, for which a liability for the $13,840 has been recorded as a reduction of the right of use asset on our condensed consolidated balance sheets and will be amortized as a reduction of rent expense over the remaining terms of our master leases.

As of June 30, 2019 and December 31, 2018, we had outstanding rent due and payable to SNH of $10,910 and $18,781, respectively, which amounts are included in due to related persons in our condensed consolidated balance sheets.

Under our leases with SNH, we are required to operate continuously and maintain, at our expense, the leased communities in good order and repair, including structural and non-structural components. We may request that SNH purchase certain improvements to the leased communities in return for increases in annual rent in accordance with a formula specified in the applicable lease; however, SNH is not obligated to purchase such improvements and we are not obligated to sell them to SNH. We sold to SNH $8,529 of improvements to communities leased from SNH for the six months ended June 30, 2018. As a result, the annual rent payable by us to SNH increased by approximately $680. Pursuant to the Transaction Agreement, the improvements we sold to SNH for the communities we leased from SNH during the six months ended June 30, 2019 did not result in increased rent payable by us to SNH. As of June 30, 2019, our assets held for sale included $3,545 for similar improvements to communities leased from SNH that SNH has agreed to purchase from us.

In accordance with FASB ASC Topic 840, Leases, the sale and leaseback transaction we completed in June 2016 with SNH qualified for sale-leaseback accounting and we classified the related lease as an operating lease. Accordingly, the gain generated from the sale of $82,644 was deferred and was being amortized as a reduction of rent expense over the initial term of the related lease. In accordance with our adoption of Topic 842 effective January 1, 2019, we recorded through retained earnings our total deferred gain as of that date.

In April 2019, we and SNH entered into an agreement to sell to a third party two SNFs located in Wisconsin that SNH owns and leases to us for an aggregate sales price of approximately $11,000, excluding closing costs. These sales are subject to conditions; as a result, these sales may not occur, they may be delayed or their terms may change. In accordance with ASC 360, the SNFs that we and SNH have agreed to sell have met the conditions to be classified as held for sale as of June 30, 2019. The carrying value of these senior living communities was $(128), and consisted primarily of net property, plant and equipment of $35 and accrued real estate taxes of $163, which were presented on our condensed consolidated balance sheets as assets held for sale.

In May 2019, we and SNH sold to a third party three SNFs located in California that SNH owned and leased to us for an aggregate sales price of approximately $21,500, excluding closing costs. Pursuant to the Transaction Agreement, our annual rent payable to SNH decreased by $831 as a result of this sale. We did not receive any proceeds from this sale.

In May 2019, we and SNH entered into an agreement to sell 15 SNFs located in Iowa, Nebraska and Kansas that SNH owns and leases to us for an aggregate sales price of approximately $8,000, excluding closing costs. These sales are subject to conditions; as a result, these sales may not occur, they may be delayed or their terms may change. In accordance with ASC 360, these SNFs we and SNH have agreed to sell have met the conditions to be classified as held for sale as of June 30, 2019. The carrying value of these senior living communities was $(396), and consisted primarily of net property, plant and equipment of $116 and accrued real estate taxes and resident security deposits of $512 which was presented on our condensed consolidated balance sheets as assets held for sale.

In June 2018, we and SNH sold one SNF to a third party, which had been previously leased to us, located in California for a sales price of approximately $6,500, excluding closing costs. Pursuant to the terms of our lease with SNH, as a result of this sale, our annual rent payable to SNH decreased by 10.0% of the net proceeds that SNH received from this sale, in accordance with the terms of the applicable lease. We did not receive any proceeds from this sale.

Also in June 2018, SNH acquired an additional living unit at a senior living community we lease from SNH located in Florida which was added to the lease for that senior living community, and, as a result of this acquisition, our annual rent payable to SNH increased by $14 in accordance with the terms of such lease.

Senior Living Communities Leased from HCP. As of June 30, 2019, we leased four senior living communities under one lease with HCP, Inc., or HCP. This lease is also a “triple net” lease which requires that we pay all costs incurred in the operation of the communities, including the cost of insurance and real estate taxes, maintaining the communities, and indemnifying the landlord for any liability which may arise from the operations during the lease term. Our lease with HCP contains a minimum annual escalator of 2.0%, but not greater than 4.0%, depending on increases in certain cost of living indexes and expires on April 30, 2028 and includes one 10 year renewal option. Rent expense is recognized for actual rent paid plus or minus a straight line adjustment for the minimum lease escalators, which amount is not material to our condensed consolidated financial statements. The right of use asset balance has been decreased for the amount of accrued lease payments, which amounts are not material to our consolidated financial statements.

The following table is a summary of our leases with SNH and with HCP as of June 30, 2019:

						Future Minimum Rents for the Twelve Months Ending June 30,
	Number of Properties	Current Expiration Date	Remaining Renewal Options	Annual Minimum Rent as of June 30, 2019		2020		2021		2022		2023		2024		Thereafter		Total		IBR		Lease Liability (1)
1. Lease No. 1 for SNFs and independent and assisted living communities	81	December 31, 2024	Two 15-year renewal options.	$	31,826	$	31,826	$	31,826	$	31,826	$	31,826	$	15,913	$	—	$	175,043	4.53	%	$	154,706
2. Lease No. 2 for SNFs and independent and assisted living communities	45	June 30, 2026	Two 10-year renewal options.	39,956		39,956		39,956		39,956		39,956		39,956		39,956		279,692		4.64	%	238,423
3. Lease No. 3 for independent and assisted living communities	17	December 31, 2028	Two 15-year renewal options.	26,679		26,679		26,679		26,679		26,679		26,679		93,376		253,450		4.6	%	205,016
4. Lease No. 4 for SNFs and independent and assisted living communities	29	April 30, 2032	Two 15-year renewal options.	25,788		25,788		25,788		25,788		25,788		25,788		176,215		330,943		4.64	%	249,089
5. Lease No. 5 for independent and assisted living communities	9	December 31, 2028	Two 15-year renewal options.	6,921		6,921		6,921		6,921		6,921		6,921		24,222		65,748		4.6	%	53,182
6. One HCP lease	4	April 30, 2028	One 10-year renewal option.	2,825		2,881		2,937		2,986		3,058		3,119		9,175		26,981		4.6	%	22,007
Totals	185			$	133,995	$	134,051	$	134,107	$	134,156	$	134,228	$	118,376	$	342,944	$	1,131,857			$	922,423

(1)    Total lease liability does not include the lease liability related to our headquarters of $1,901.

Senior Living Communities Managed for the Account of SNH and its Related Entities. As of June 30, 2019 and 2018, we managed 77 and 75 senior living communities, respectively, for the account of SNH. We earned base management fees of $3,802 and $3,465 from the senior living communities we managed for the account of SNH for the three months ended June 30, 2019 and 2018, respectively, and $7,521 and $6,888 for the six months ended June 30, 2019 and 2018, respectively. In addition, we earned fees for our management of capital expenditure projects at the communities we managed for the account of SNH of $153 and $243 for the three months ended June 30, 2019 and 2018, respectively, and $346 and $371 for the six months ended June 30, 2019 and 2018, respectively. These amounts are included in management fee revenue in our condensed consolidated statements of operations. Pursuant to the Transaction Agreement, we and SNH have agreed to replace our long term management and pooling agreements with new management agreements, subject to certain conditions and the receipt of various approvals.

During the first quarter of 2018, we sold two senior living communities pursuant to a transaction agreement we entered with SNH in November 2017, or the 2017 transaction agreement, for an aggregate sales price of $41,917. These two senior living communities had an aggregate carrying value of $19,425, net of mortgage debt and premiums of $17,356, of which the principal amount of $16,776 was assumed by SNH. These transactions are accounted for in accordance with ASU No. 2014-09, in particular ASC Topic 610 and related ASUs, effective with the adoption of these new ASUs on January 1, 2018. Under these new ASUs, the income recognition for real estate sales is largely based on the transfer of control rather than continuing involvement in the ownership of the real estate. We recorded a gain of $0 and $5,684 for the three and six months ended June 31, 2018, respectively, as a result of the sale of these two senior living communities, which gain is included in loss (gain) on sale of senior living communities in our condensed consolidated statements of operations.

In June 2018, we sold to SNH the remaining two senior living communities pursuant to the 2017 transaction agreement for an aggregate sales price of $23,300. These two senior living communities had an aggregate carrying value of $5,163, net of mortgage debt and premiums of $17,226, of which the principal amount of $16,588 was assumed by SNH. These transactions are accounted for in accordance with ASU No. 2014-09, in particular ASC Topic 610 and related ASUs, effective with our adoption of these new ASUs on January 1, 2018. We recorded a gain of $1,549 for each of the three and six months ended June 30, 2018 as a result of the sale of these two senior living communities, which gain is included in loss (gain) on sale of senior living communities in our condensed consolidated statements of operations.

We also provide certain other services to residents at some of the senior living communities we manage for the account of SNH, such as rehabilitation services. At senior living communities we manage for the account of SNH where we provide rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay us for those rehabilitation services. At senior living communities we manage for the account of SNH where we provide both inpatient and outpatient rehabilitation services, SNH generally pays us for these services and charges for such services are included in amounts charged to residents, third party payers or government programs. We earned revenues of $1,513 and $1,660 for the three months ended June 30, 2019 and 2018, respectively, and $3,188 and $3,359 for the six months ended June 30, 2019 and 2018, respectively, for rehabilitation services we provided at senior living communities we manage for the account of SNH and

that are payable by SNH. These amounts are included in senior living revenue in our condensed consolidated statements of operations.

In order to accommodate certain requirements of New York healthcare licensing laws, a part of the senior living community SNH owns, and we manage, located in Yonkers, New York is subleased by a subsidiary of SNH to D&R Yonkers LLC. As of June 30, 2019, D&R Yonkers LLC was owned by our former Executive Vice President, Chief Financial Officer and Treasurer and by SNH’s former president and chief operating officer. We count the part of this senior living community that we manage for D&R Yonkers LLC and the part of this senior living community that we manage for the account of SNH as one senior living community. We earned management fees of $69 for each of the three months ended June 30, 2019 and 2018, and $140 for each of the six months ended June 30, 2019 and 2018, under this management arrangement with D&R Yonkers LLC, which amounts are included in management fee revenue in our condensed consolidated statements of operations.

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Business Management Agreement with RMR LLC

6 Months Ended

Jun. 30, 2019

Management Agreement [Abstract]

Business Management Agreement with RMR LLC

Business Management Agreement with RMR LLC

The RMR Group LLC, or RMR LLC, provides us certain services that we require to operate our business and which relate to various aspects of our business. RMR LLC provides these services pursuant to a business management agreement. Pursuant to our business management agreement with RMR LLC, we incurred aggregate fees payable to RMR LLC of $2,338 and $2,257 for the three months ended June 30, 2019 and 2018, respectively, and $4,632 and $4,514 for the six months ended June 30, 2019 and 2018, respectively. In addition, we incurred internal audit costs of $71 and $54 for the three months ended June 30, 2019 and 2018, respectively, and $142 and $123 for the six months ended June 30, 2019 and 2018, respectively, that we reimbursed RMR LLC pursuant to our business management agreement. These amounts are included in general and administrative expenses in our condensed consolidated statements of operations. For further information about our relationship with RMR LLC, see our Annual Report.

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Related Person Transactions

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Related Person Transactions

Related Person Transactions

We have relationships and historical and continuing transactions with SNH, RMR LLC, ABP Trust, AIC and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and which have trustees, directors and officers who are also our Directors or officers.

SNH. SNH is currently one of our largest stockholders, owning, as of June 30, 2019, 4,235,000 of our common shares, or approximately 8.3% of our outstanding common shares. We lease from, and manage for the account of, SNH a majority of the senior living communities we operate. RMR LLC provides management services to both us and SNH and Adam D. Portnoy, the Chair of our Board of Directors and one of our Managing Directors, also serves as a managing trustee of SNH. SNH’s executive officers are officers of RMR LLC. Our Secretary also serves as a managing trustee and the secretary of SNH. On April 1, 2019, we entered into the Transaction Agreement with SNH, pursuant to which we agreed to modify our existing business arrangements with SNH, subject to certain conditions and the receipt of various approvals. See Notes 1 and 9 for more information regarding our relationships, agreements and transactions with SNH and certain parties related to it and us.

RMR LLC. We have an agreement with RMR LLC to provide management services to us. See Note 10 for more information regarding our management agreement with RMR LLC. Adam Portnoy is a managing director, president and chief executive officer of The RMR Group Inc., or RMR Inc., and is an executive officer and employee of RMR LLC; RMR Inc. is the managing member of RMR LLC. Our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer are officers and employees of RMR LLC. Our Secretary is a managing director, executive vice president, general counsel and secretary of RMR Inc. and is an officer and employee of RMR LLC.

ABP Trust. ABP Acquisition LLC, a subsidiary of ABP Trust is our largest stockholder, owning, as of June 30, 2019, 17,999,999 of our common shares, or approximately 35.4% of our outstanding common shares. Adam Portnoy is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc. Our Secretary is also an officer of ABP Trust.

We lease our headquarters from another subsidiary of ABP Trust. Our rent expense for our headquarters, including utilities and real estate taxes that we pay as additional rent, was $451 and $415 for the three months ended June 30, 2019 and 2018, respectively, and $971 and $879 for the six months ended June 30, 2019 and 2018, respectively. The adoption of ASC Topic 842 resulted in the recognition of a lease liability and right of use asset, which amount was $1,901 for each of the lease liability and the right of use asset as of June 30, 2019, with respect to our headquarters lease, using an IBR of 4.4%. The right of use

asset balance has been reduced by the amount of accrued lease payments, which have been deemed not material to our condensed consolidated financial statements.

AIC. We, ABP Trust, SNH and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders historically participated in a combined property insurance program arranged and reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage from unrelated third party insurance providers.

As of June 30, 2019 and December 31, 2018, our investment in AIC had a carrying value of $9,303 and $8,633, respectively. These amounts are presented as equity investment of an investee in our condensed consolidated balance sheets. We recognized income related to our investment in AIC, which amounts are presented as equity in earnings of an investee in our condensed consolidated statements of operations. Our other comprehensive income includes our proportionate part of unrealized gains (losses) on fixed income securities that are owned by AIC related to our investment in AIC.

Other. Pursuant to a letter agreement with Bruce J. Mackey Jr., our former President and Chief Executive Officer, we made a cash payment to him in the amount of $600 in January 2019. Additionally, we and RMR LLC made the first and second of four, equal quarterly release payments of $138 to Mr. Mackey, in cash, in March 2019 and June 2019, respectively, and made monthly transition payments to him, in cash, totaling $30 and $60 for the three and six months ended June 30, 2019, respectively; we paid 80% and RMR LLC paid 20% of those amounts. Mr. Mackey will continue to receive quarterly release payments and monthly transition payments until December 31, 2019, or such earlier date pursuant to the letter agreement, or Mr. Mackey's separation date; we will pay 80% and RMR LLC will pay 20% of those amounts. Our arrangement with Mr. Mackey meets the criteria in FASB ASC Topic 420, Exit or Disposal Cost Obligations, or ASC Topic 420, and, as a result, we recorded the full severance cost of $1,160 during the fourth quarter of 2018. Pursuant to the letter agreement, the vesting of any of our common shares previously granted to Mr. Mackey under our equity compensation plan that remain unvested will be accelerated upon Mr. Mackey's separation date.

Pursuant to a separation agreement with R. Scott Herzig, our former Senior Vice President of Senior Living Operations, we made a cash payment to him in the amount of $510 on January 11, 2019.

Effective May 31, 2019, Richard A. Doyle resigned his positions as our Executive Vice President, Chief Financial Officer and Treasurer. Pursuant to a letter agreement we, RMR LLC and Mr. Doyle entered into in connection with Mr. Doyle’s retirement, we and RMR LLC made a cash payment to him of $325 and a transition payment to him of $10 in June 2019; we paid 80% and RMR LLC paid 20% of those payments. Pursuant to the letter agreement, we and RMR LLC will make an additional cash payment of $325 to Mr. Doyle in December 2019 and transition payments to him of $10 per month until December 31, 2019, or such earlier date pursuant to the letter agreement, or Mr. Doyle's separation date; we will pay 80% and RMR LLC will pay 20% of those amounts. Our arrangement with Mr. Doyle meets the criteria in ASC Topic 420, and, as a result, we recorded the full severance cost of $568 during the second quarter of 2019, which is included in general and administrative expenses in our condensed consolidated statements of operations. Pursuant to the letter agreement, the vesting of any of our common shares previously granted to Mr. Doyle under our equity compensation plan that remain unvested will be accelerated upon Mr. Doyle's separation date.

For further information about these and other such relationships and certain other related person transactions, see our Annual Report.

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Legal Proceedings and Claims

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings and Claims

Legal Proceedings and Claims

We have been, are currently, and expect in the future to be involved in claims, lawsuits, and regulatory and other government audits, investigations and proceedings arising in the ordinary course of our business, some of which may involve material amounts. Also, the defense and resolution of these claims, lawsuits, and regulatory and other government audits, investigations and proceedings may require us to incur significant expense. We account for claims and litigation losses in accordance with FASB ASC Topic 450, Contingencies. Under FASB ASC Topic 450, loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment and are refined as additional information becomes known. Accordingly, we are often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded; then, as information

becomes known, the minimum loss amount is updated, as appropriate. A minimum or best estimate amount may be increased or decreased when events result in a changed expectation.

As previously disclosed, in July 2017, as a result of our compliance program to review records related to our Medicare billing practices, we became aware of certain potential inadequate documentation and other issues at one of our leased SNFs. This compliance review was not initiated in response to any specific complaint or allegation, but was a review of the type that we periodically undertake to test our compliance with applicable Medicare billing rules. As a result of these discoveries, we made a voluntary disclosure of deficiencies to the U.S. Department of Health and Human Services Office of the Inspector General, or the OIG, pursuant to the OIG's Provider Self-Disclosure Protocol. We submitted supplemental disclosures related to this matter to the OIG in December 2017 and March 2018. In June 2019, we settled this matter with the OIG without admitting any liability and agreed to pay approximately $1,139 in exchange for a customary release.

We previously accrued a liability of $1,139 related to this matter, all of which was accrued and unpaid at June 30, 2019. We subsequently paid this settlement in July 2019. At December 31, 2017, we accrued an estimated revenue reserve of $888 for historical Medicare payments we received and expected to repay as a result of this matter, which amount we reduced to $759 in March 2018. In addition, at December 31, 2017, we recorded an aggregate $658 expense for additional costs we incurred as a result of this matter, including estimated OIG imposed penalties of $444, which amount we reduced to $594 in March 2018, including a reduction in estimated OIG imposed penalties to $380, and recorded additional expenses of $55, $20 and $13 for further costs related to this matter for the three months ended March 31, 2018, June 30, 2018 and September 30, 2018, respectively. We did not recognize any expenses related to this matter in 2019.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Leases, lessee

Leases

On January 1, 2019, we adopted FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, we elected the practical expedients within FASB Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU No. 2016-02, that allow an entity to not reassess as of January 1, 2019 its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs.

In accordance with ASC Topic 842, at inception of a contract, we, as lessee, evaluate and determine whether such contract is or contains a lease based on whether such contract conveys the right to control the use of the identified asset. We apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. We have elected to apply the portfolio approach where possible in assessing our leases and performed an assessment of all our leases. In addition, we have elected the practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. As lessee, we lease senior living communities and our headquarters, and enter into contracts for the use and maintenance of various pieces of equipment that contain a lease. We have determined that none of these leases have met any of the criteria to be classified as a finance lease and, therefore, we have accounted for all of these leases as operating leases.

We have determined that our leases for the use and maintenance of equipment are short term leases. In accordance with ASC Topic 842, we have made an accounting policy election for our leases, which are determined to be short term leases, whereby we recognize the lease payments on a straight line basis over the lease term and variable lease payments in the period in which the obligations for those payments are incurred. Expense related to these leases is recognized in the statement of operations in other senior living operating expenses and is not material to our condensed consolidated financial statements.

We have determined that our leases for senior living communities and our headquarters are long term leases. In accordance with ASC Topic 842, a lessee is required to record a right of use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Accordingly, we have recorded a right of use asset and lease liability for all of our leased communities and our headquarters. We determined that the discount rate implicit in the leases was not readily available,

and therefore, in accordance with ASC Topic 842, we determined our incremental borrowing rate, or IBR, to calculate the right of use assets and lease liabilities. For purposes of determining the lease term, we concluded that it is not reasonably certain that our lease extensions will be exercised and, therefore, we included payments required to be made under the committed lease term in calculating the right of use assets and lease liabilities. Expense related to these leases is recognized in the statement of operations in rent expense, except for the expense related to our headquarters, which is recorded in general and administrative expenses. We recognize variable lease payments primarily relating to percentage rent paid under our leases with SNH, and operating costs such as insurance and real estate taxes, in the statement of operations in the period in which the obligations for those payments are incurred.

We have not capitalized any initial direct costs related to our leases as these costs are not material to our condensed consolidated financial statements.

ASC Topic 842 provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. In addition, ASC Topic 842 clarifies which ASC Topic (Topic 842 or FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606) applies for the combined component. Specifically, if the non-lease components associated with the lease component are the predominant component of the combined components, the lessor should account for the combined component in accordance with ASC Topic 606. Otherwise, the lessor should account for the combined component as an operating lease in accordance with ASC Topic 842. We have elected this practical expedient and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the leases and, therefore, we recognize revenue for these agreements under ASC Topic 606.

Leases, lessor

Leases

On January 1, 2019, we adopted FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, we elected the practical expedients within FASB Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU No. 2016-02, that allow an entity to not reassess as of January 1, 2019 its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs.

In accordance with ASC Topic 842, at inception of a contract, we, as lessee, evaluate and determine whether such contract is or contains a lease based on whether such contract conveys the right to control the use of the identified asset. We apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. We have elected to apply the portfolio approach where possible in assessing our leases and performed an assessment of all our leases. In addition, we have elected the practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. As lessee, we lease senior living communities and our headquarters, and enter into contracts for the use and maintenance of various pieces of equipment that contain a lease. We have determined that none of these leases have met any of the criteria to be classified as a finance lease and, therefore, we have accounted for all of these leases as operating leases.

We have determined that our leases for the use and maintenance of equipment are short term leases. In accordance with ASC Topic 842, we have made an accounting policy election for our leases, which are determined to be short term leases, whereby we recognize the lease payments on a straight line basis over the lease term and variable lease payments in the period in which the obligations for those payments are incurred. Expense related to these leases is recognized in the statement of operations in other senior living operating expenses and is not material to our condensed consolidated financial statements.

We have determined that our leases for senior living communities and our headquarters are long term leases. In accordance with ASC Topic 842, a lessee is required to record a right of use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Accordingly, we have recorded a right of use asset and lease liability for all of our leased communities and our headquarters. We determined that the discount rate implicit in the leases was not readily available,

and therefore, in accordance with ASC Topic 842, we determined our incremental borrowing rate, or IBR, to calculate the right of use assets and lease liabilities. For purposes of determining the lease term, we concluded that it is not reasonably certain that our lease extensions will be exercised and, therefore, we included payments required to be made under the committed lease term in calculating the right of use assets and lease liabilities. Expense related to these leases is recognized in the statement of operations in rent expense, except for the expense related to our headquarters, which is recorded in general and administrative expenses. We recognize variable lease payments primarily relating to percentage rent paid under our leases with SNH, and operating costs such as insurance and real estate taxes, in the statement of operations in the period in which the obligations for those payments are incurred.

We have not capitalized any initial direct costs related to our leases as these costs are not material to our condensed consolidated financial statements.

ASC Topic 842 provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. In addition, ASC Topic 842 clarifies which ASC Topic (Topic 842 or FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606) applies for the combined component. Specifically, if the non-lease components associated with the lease component are the predominant component of the combined components, the lessor should account for the combined component in accordance with ASC Topic 606. Otherwise, the lessor should account for the combined component as an operating lease in accordance with ASC Topic 842. We have elected this practical expedient and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the leases and, therefore, we recognize revenue for these agreements under ASC Topic 606.

Revenue Recognition

Revenue Recognition

We recognize revenue from contracts with customers in accordance with ASC Topic 606 using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within that portfolio. The five step model defined by ASC Topic 606 requires us to: (1) identify our contracts with customers; (2) identify our performance obligations under those contracts; (3) determine the transaction prices of those contracts; (4) allocate the transaction prices to our performance obligations in those contracts; and (5) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.

A substantial portion of our revenue at our independent living and assisted living communities relates to contracts with residents for housing services that are generally short term in nature and initially is subject to ASC Topic 842. As previously discussed, we have concluded that the non-lease components of these agreements are the predominant components of the contracts; therefore, we recognize revenue for these agreements under ASC Topic 606. Our contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short term in nature. We have determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when our performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.

Senior Living Revenue. Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services being provided are not material to our consolidated financial statements. Some of our senior living communities require payment of an entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in other current liabilities in our consolidated balance sheets. These deferred amounts then are amortized on a straight line basis into revenue over the term of the resident agreement. Revenue recorded and deferred in connection with community fees is not material to our consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in

accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.

In our SNFs and certain of our independent and assisted living communities where we provide SNF services, we are paid fixed daily rates from governmental and contracted third party payers, and we charge a predetermined fixed daily rate for private pay residents. These fixed daily rates and certain other fees are billed monthly in arrears. Although there are complex regulatory compliance rules governing fixed daily rates, we have no episodic payments or capitation arrangements. We currently use the “most likely amount” technique to estimate revenue in accordance with ASC Topic 606, although rates are generally known and considered fixed prior to services being performed, whether included in the resident agreement or contracted with governmental or third party payers. Rate adjustments from Medicare or Medicaid are recorded when known (without regard to when the assessment is paid or withheld), and subsequent adjustments to these amounts are recorded in revenues when known. Billings under certain of these programs are subject to audit and possible retroactive adjustment, and related revenue is recorded at the amount we ultimately expect to receive, which is inclusive of the estimated retroactive adjustments or refunds, if any, under reimbursement programs. Retroactive adjustments are recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Revenue is recognized when performance obligations are satisfied by transferring control of the service provided to the resident, which is generally when services are provided over the duration of care. We derived approximately 22.4% and 22.8% of our senior living revenues for the three months ended June 30, 2019 and 2018, respectively, and 23.0% and 23.2% for the six months ended June 30, 2019 and 2018, respectively, from payments under Medicare and Medicaid programs.

Management Fee Revenue and Reimbursed Costs Incurred on Behalf of Managed Communities. We manage senior living communities for the account of SNH pursuant to long term management agreements which provide for periodic management fee payments to us and reimbursement for our direct costs and expenses related to such communities. Management fees are determined by an agreed upon percentage of gross revenues (as defined) and recognized in accordance with ASC Topic 606 in the same period that we provide the management services to SNH, generally monthly. FASB ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. Where we are the primary obligor and therefore control the transfer of the goods and services with respect to any such operating expenses incurred in connection with the management of these communities, we recognize revenue when the goods have been delivered or the service has been rendered and we are due to be reimbursed from SNH. Such revenue is included in reimbursed costs incurred on behalf of managed communities in our consolidated statements of operations. The related costs are included in costs incurred on behalf of managed communities in our consolidated statements of operations. Amounts due from SNH related to management fees and reimbursed costs incurred on behalf of managed communities are included in due from related persons in our consolidated balance sheets.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). This ASU also changes the accounting for sale and leaseback transactions, such as our sale and leaseback transaction with SNH in June 2016, and any

associated deferred gain. In accordance with ASC Topic 842, if a previous sale and leaseback transaction was accounted for as a sale and operating leaseback in accordance with FASB ASC Topic 840, Leases, or ASC Topic 840, any deferred gain or loss not resulting from off-market terms shall be recognized as a cumulative-effect adjustment to equity. This ASU is effective for reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, or ASU No. 2018-11, which works to improve on certain aspects of ASU No. 2016-02 identified by stakeholders as problematic or difficult to implement, including the adoption method. ASU No. 2018-11 provides for a transition method option, allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, rather than restating comparative periods being presented. ASU No. 2018-11 also provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. We adopted these ASUs as required effective January 1, 2019 utilizing the modified retrospective transition method with no adjustments to comparative periods presented in accordance with ASU No. 2018-11.

The adoption of ASC Topic 842 resulted in the recognition of lease liabilities and right of use assets of approximately $1.5 billion as of January 1, 2019. Such amount of right of use assets was recognized based upon the amount of the recognized lease liabilities, adjusted for accrued lease payments, which are not material to our condensed consolidated financial statements as of January 1, 2019. We have also concluded that any previously unrecognized right of use assets needed to be reviewed for impairment effective January 1, 2019, which could have resulted in a reduction to the initially recognized right of use assets with a cumulative effect adjustment to beginning retained earnings as of January 1, 2019. We have completed the process of evaluating the initial right of use assets for impairment and have determined there were no indicators of impairment. Due to changes in how we account for the deferred gain on our sale and leaseback transaction described above effective with the adoption of these ASUs, on January 1, 2019, we recorded through retained earnings our total deferred gain of $67,473 on our consolidated balance sheets as of December 31, 2018, $55 of which was in accounts payable and accrued expenses, $6,723 of which was in other current liabilities, $1,217 of which was in other long term liabilities and the remaining $59,478 was separately stated on our consolidated balance sheets.

For the year ended December 31, 2018, a substantial portion of our senior living revenue at our independent living and assisted living communities related to housing services and was subject to ASC Topic 840, and revenue for additional requested services was recognized in accordance with ASC Topic 606. Upon adoption of Topic 842, we elected the lessor practical expedient within ASU No. 2018-11 and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component, either the lease or non-lease component, of the contracts rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the lease and, therefore, we recognize revenue for these agreements under ASC Topic 606. After the adoption of ASC Topic 842, the timing and pattern of revenue recognition are substantially the same as those prior to the adoption.

See also the discussion above under “Leases” and Note 9 for more information regarding the impact of these ASUs on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), which shortens the amortization period for certain callable debt securities held at a premium. Specifically, this ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The adoption of this ASU did not have a material impact on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), which permits an entity to reclassify the tax effects that remain recorded within other comprehensive income to retained earnings as a result of tax reform legislation that became effective in December 2017. The adoption of this ASU did not have a material impact on our consolidated financial statements.

On January 1, 2019, we adopted FASB ASU No. 2018-07, Compensation—Stock Compensation (Topic 718), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from non-employees. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.

This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current available for sale security other-than-temporary impairment model for debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. This ASU is effective for reporting periods beginning after December 15, 2019. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief which provides for an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. This ASU is effective for reporting periods beginning after December 15, 2019. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2018, the FASB also issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for reporting periods beginning after December 15, 2019. We are assessing the potential impact that the adoption of this ASU will have on our consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Revenue disaggregated by type of contract and payer

The following table presents revenue disaggregated by type of contract and payer:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue from contracts with customers:
Basic housing and support services (1)	$	163,615	$	161,778	$	326,390	$	323,882
Medicare and Medicaid programs (1)	61,443		61,824		126,764		126,427
Additional requested services, and private pay and other third party payer SNF services (1)	49,438		47,280		98,277		95,098
Management fee revenue	4,024		3,777		8,007		7,399
Reimbursed costs incurred on behalf of managed communities	77,219		68,439		151,824		135,809
Total revenues	$	355,739	$	343,098	$	711,262	$	688,615

(1) Included in senior living revenue in our consolidated statements of operations.

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

Property and equipment consists of the following:

	June 30, 2019			December 31, 2018
Land	$	12,155		$	16,383
Buildings and improvements	200,054			208,375
Furniture, fixtures and equipment	53,216			239,240
Property and equipment, at cost	265,425			463,998
Accumulated depreciation	(100,043		)	(220,125		)
Property and equipment, net	$	165,382		$	243,873

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Schedule of changes in accumulated other comprehensive income, net of tax

The following table details the changes in accumulated other comprehensive income, net of tax, for the six months ended June 30, 2019:

	Equity Investment of an Investee			Investments			Accumulated Other Comprehensive Income
Balance at January 1, 2019	$	(266	)	$	2,008		$	1,742
Unrealized loss on investments, net of tax	—			(221		)	(221		)
Equity in unrealized gain of an investee, net of tax	136			—			136
Realized loss on investments reclassified and included in net income (loss), net of tax	—			1			1
Balance at June 30, 2019	$	(130	)	$	1,788		$	1,658

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Fair Values of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured at fair value on a recurring and non recurring basis, categorized by the level of inputs used in the valuation of each asset

The tables below present the assets measured at fair value at June 30, 2019 and December 31, 2018 categorized by the level of inputs used in the valuation of each asset.

	As of June 30, 2019
			Quoted Prices in Active Markets for Identical  Assets		Significant  Other Observable  Inputs		Significant Unobservable  Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents(1)	$	27,846	$	27,846	$	—	$	—
Investments:
Equity investments(2)
Financial services industry	1,161		1,161		—		—
Healthcare	273		273		—		—
Technology	236		236		—		—
Other	4,312		4,312		—		—
Total equity investments	5,982		5,982		—		—
Debt investments:(3)
International bond fund(4)	2,642		—		2,642		—
High yield fund(5)	2,905		—		2,905		—
Industrial bonds	1,176		—		1,176		—
Technology bonds	2,172		—		2,172		—
Government bonds	9,514		9,514		—		—
Energy bonds	622		—		622		—
Financial bonds	1,763		—		1,763		—
Other	766		—		766		—
Total debt investments	21,560		9,514		12,046		—
Total investments	27,542		15,496		12,046		—
Total	$	55,388	$	43,342	$	12,046	$	—

	As of December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant  Other Observable Inputs		Significant  Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents(1)	$	23,390	$	23,390	$	—	$	—
Investments:
Equity investments(2)
Financial services industry	1,074		1,074		—		—
Healthcare	291		291		—		—
Technology	174		174		—		—
Other	3,927		3,927		—		—
Total equity investments	5,466		5,466		—		—
Debt investments(3)
International bond fund(4)	2,537		—		2,537		—
High yield fund(5)	2,669		—		2,669		—
Industrial bonds	1,692		—		1,692		—
Technology bonds	2,375		—		2,375		—
Government bonds	9,791		9,791		—		—
Energy bonds	595		—		595		—
Financial bonds	1,858		—		1,858		—
Other	1,268		—		1,268		—
Total debt investments	22,785		9,791		12,994		—
Total investments	28,251		15,257		12,994		—
Total	$	51,641	$	38,647	$	12,994	$	—

(1) Cash equivalents consist of short term, highly liquid investments and money market funds held principally for obligations arising from our self insurance programs. Cash equivalents are reported in our condensed consolidated balance sheets as cash and cash equivalents and current and long term restricted cash. Cash equivalents include $23,577 and $19,529 of balances that are restricted at June 30, 2019 and December 31, 2018, respectively.

(2) The fair value of our equity investments is readily determinable. During the six months ended June 30, 2019 and 2018, we received gross proceeds of $1,664 and $561, respectively, in connection with the sales of equity investments and recorded gross realized gains totaling $282 and $65, respectively, and gross realized losses totaling $45 and $4, respectively.

(3) As of June 30, 2019, our debt investments, which are classified as available for sale, had a fair value of $21,560 with an amortized cost of $19,633; the difference between the fair value and amortized cost amounts resulted from unrealized gains of $1,932, net of unrealized losses of $5. As of December 31, 2018, our debt investments had a fair value of $22,785 with an amortized cost of $21,806; the difference between the fair value and amortized cost amounts resulted from unrealized gains of $1,276, net of unrealized losses of $296. Debt investments include $12,433 and $13,943 of balances that are restricted as of June 30, 2019 and December 31, 2018, respectively. At June 30, 2019, none of the securities we hold have been in a loss position for less than 12 months and 10 of the investments we hold, with a fair value of $2,548, have been in a loss position for greater than 12 months. We do not believe these investments 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 investments remain strong with solid fundamentals, or we intend to hold these investments until recovery, and other factors that support our conclusion that the loss is temporary. During the six months ended June 30, 2019 and 2018, we received gross proceeds of $2,782 and $4,420, respectively, in connection with the sales of debt investments and recorded gross realized gains totaling $6 and $9, respectively, and gross realized losses totaling $7 and $80, respectively. We record gains and losses on the sales of these investments using the specific identification method.

(4) The investment strategy of this fund is to invest principally in fixed income securities issued by non-U.S. issuers. 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.

(5)

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.

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Indebtedness (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Summary of mortgages

The following table is a summary of this mortgage note as of June 30, 2019:

Balance as of			Contractual Stated		Effective			Monthly
June 30, 2019			Interest Rate		Interest Rate		Maturity Date	Payment		Lender Type
$	7,971	(1)	6.20	%	6.70	%	September 2032	$	72	Federal Home Loan Mortgage Corporation

(1)

Contractual principal payment excluding unamortized discount and debt issuance costs of $266.

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Leases with SNH and HCP and Management Agreements with SNH (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Lease Summary

The following table is a summary of our leases with SNH and with HCP as of June 30, 2019:

						Future Minimum Rents for the Twelve Months Ending June 30,
	Number of Properties	Current Expiration Date	Remaining Renewal Options	Annual Minimum Rent as of June 30, 2019		2020		2021		2022		2023		2024		Thereafter		Total		IBR		Lease Liability (1)
1. Lease No. 1 for SNFs and independent and assisted living communities	81	December 31, 2024	Two 15-year renewal options.	$	31,826	$	31,826	$	31,826	$	31,826	$	31,826	$	15,913	$	—	$	175,043	4.53	%	$	154,706
2. Lease No. 2 for SNFs and independent and assisted living communities	45	June 30, 2026	Two 10-year renewal options.	39,956		39,956		39,956		39,956		39,956		39,956		39,956		279,692		4.64	%	238,423
3. Lease No. 3 for independent and assisted living communities	17	December 31, 2028	Two 15-year renewal options.	26,679		26,679		26,679		26,679		26,679		26,679		93,376		253,450		4.6	%	205,016
4. Lease No. 4 for SNFs and independent and assisted living communities	29	April 30, 2032	Two 15-year renewal options.	25,788		25,788		25,788		25,788		25,788		25,788		176,215		330,943		4.64	%	249,089
5. Lease No. 5 for independent and assisted living communities	9	December 31, 2028	Two 15-year renewal options.	6,921		6,921		6,921		6,921		6,921		6,921		24,222		65,748		4.6	%	53,182
6. One HCP lease	4	April 30, 2028	One 10-year renewal option.	2,825		2,881		2,937		2,986		3,058		3,119		9,175		26,981		4.6	%	22,007
Totals	185			$	133,995	$	134,051	$	134,107	$	134,156	$	134,228	$	118,376	$	342,944	$	1,131,857			$	922,423

(1)    Total lease liability does not include the lease liability related to our headquarters of $1,901.

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Basis of Presentation and Organization (Details)	6 Months Ended
	Jun. 30, 2019 USD ($) segment state living_unit community bed property suite apartment	Aug. 06, 2019 USD ($)	May 31, 2019 USD ($)	Apr. 30, 2019 USD ($)	Apr. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jun. 30, 2018 property
Real estate properties
Accumulated deficit	$ 254,197,000					$ 292,636,000
Number of operating segments | segment	2
Number of reportable segments | segment	1
Line of Credit | SNH Credit Facility
Real estate properties
Maximum borrowing capacity					$ 25,000,000
SNH
Real estate properties
Percentage of real estate properties operated	91.50%
Number of communities operating | property	258
Revolving credit facility | Line of Credit | Prior secured revolving credit facility, maturing June 2019
Real estate properties
Maximum borrowing capacity	$ 54,000
Revolving credit facility | Line of Credit | Secured Revolving Credit Facility Maturing February 2021
Real estate properties
Maximum borrowing capacity	65,000,000
Repayment of debt	51,484,000
Debt outstanding	0
Transaction Agreement | Line of Credit | SNH Credit Facility
Real estate properties
Maximum borrowing capacity	25,000,000				25,000,000
Transaction Agreement | SNH
Real estate properties
Monthly minimum rent	11,000,000				11,000,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations
Real estate properties
Amount of improvements for property and equipment under lease agreement			$ 116,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations | SNH
Real estate properties
Amount of improvements for property and equipment under lease agreement				$ 35,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations | Transaction Agreement | SNH
Real estate properties
Amount of improvements for property and equipment under lease agreement	$ 49,155,000				$ 50,000,000
Senior living communities
Real estate properties
Number of properties operated | property	282
Number of states in which real estate properties are located | state	33
Number of living units in properties operated | living_unit	31,996
Number of properties owned and operated | property	20
Number of living units in properties owned and operated | living_unit	2,108
Number of units in properties leased and operated | living_unit	19,804
Number of properties managed | property	77						75
Number of units in properties managed | living_unit	10,084
Number of communities operating | community	185
Independent and assisted living communities
Real estate properties
Number of properties operated | property	256
Number of living units in properties operated | living_unit	29,768
SNF
Real estate properties
Number of properties operated | property	26
Number of living units in properties operated | living_unit	2,228
Independent living apartment
Real estate properties
Number of living units in properties operated | apartment	11,134
Assisted living suites
Real estate properties
Number of living units in properties operated | suite	16,470
Skilled nursing units
Real estate properties
Number of living units in properties operated | bed	4,392
Subsequent Event | Revolving credit facility | Line of Credit | Secured Revolving Credit Facility Maturing February 2021
Real estate properties
Debt outstanding		$ 0

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jan. 01, 2019	Dec. 31, 2018	Jan. 01, 2018	Jun. 30, 2016
Disaggregation of Revenue [Line Items]
Percentage senior living revenues	22.40%	22.80%	23.00%	23.20%
Revenue from contracts with customers	$ 355,739	$ 343,098	$ 711,262	$ 688,615
Lease liability	922,423		922,423
Right of use assets	909,267		909,267
Cumulative effect in connection with the adoption of FASB ASU					$ 67,473		$ 0
Deferred gain on sale and leaseback transaction	0		0			$ 59,478		$ 82,644
Accounting Standards Update 2016-02
Disaggregation of Revenue [Line Items]
Lease liability					1,500,000
Right of use assets					1,500,000
Basic housing and support services
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	163,615	161,778	326,390	323,882
Medicare and Medicaid programs
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	61,443	61,824	126,764	126,427
Additional requested services, and private pay and other third party payer SNF services
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	49,438	47,280	98,277	95,098
Management fee revenue
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	4,024	3,777	8,007	7,399
Reimbursed costs incurred on behalf of managed communities
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 77,219	$ 68,439	$ 151,824	$ 135,809
Minimum
Disaggregation of Revenue [Line Items]
Payment terms			30 days
Maximum
Disaggregation of Revenue [Line Items]
Payment terms			1 year
Accounts payable and accrued expenses
Disaggregation of Revenue [Line Items]
Deferred gain on sale and leaseback transaction						55
Other current liabilities
Disaggregation of Revenue [Line Items]
Deferred gain on sale and leaseback transaction						6,723
Other long term liabilities
Disaggregation of Revenue [Line Items]
Deferred gain on sale and leaseback transaction						1,217
Deferred gain on sale and leaseback transaction
Disaggregation of Revenue [Line Items]
Deferred gain on sale and leaseback transaction						$ 59,478
Accumulated Deficit
Disaggregation of Revenue [Line Items]
Cumulative effect in connection with the adoption of FASB ASU					67,473		$ 1,947
Accumulated Deficit | Accounting Standards Update 2016-02
Disaggregation of Revenue [Line Items]
Cumulative effect in connection with the adoption of FASB ASU					$ 67,473

XML

Property and Equipment (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	May 31, 2019	Apr. 30, 2019	Apr. 01, 2019	Dec. 31, 2018
Property and Equipment
Property and equipment, at cost	$ 265,425,000		$ 265,425,000					$ 463,998,000
Accumulated depreciation	(100,043,000)		(100,043,000)					(220,125,000)
Property and equipment, net	165,382,000		165,382,000					243,873,000
Depreciation expense	2,941,000	$ 8,957,000	11,106,000	$ 17,797,000
Impairment charges recorded as a result of long lived assets	112,000	$ 365,000	3,260,000	$ 365,000
Disposal Group, Held-for-sale, Not Discontinued Operations
Property and Equipment
Amount of improvements for property and equipment under lease agreement	10,807,000		10,807,000
Disposal Group, Held-for-sale, Not Discontinued Operations | SNH
Property and Equipment
Amount of improvements for property and equipment under lease agreement	3,545,000		3,545,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations
Property and Equipment
Amount of improvements for property and equipment under lease agreement					$ 116,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations | SNH
Property and Equipment
Amount of improvements for property and equipment under lease agreement						$ 35,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations | Transaction Agreement | SNH
Property and Equipment
Amount of improvements for property and equipment under lease agreement	49,155,000		49,155,000				$ 50,000,000
Land
Property and Equipment
Property and equipment, at cost	12,155,000		12,155,000					16,383,000
Buildings and improvements
Property and Equipment
Property and equipment, at cost	200,054,000		200,054,000					208,375,000
Furniture, fixtures and equipment
Property and Equipment
Property and equipment, at cost	53,216,000		53,216,000					$ 239,240,000
SNH | Disposal Group, Held-for-sale, Not Discontinued Operations
Property and Equipment
Amount of improvements for property and equipment under lease agreement	$ 3,545,000		$ 3,545,000

XML

Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Changes in accumulated other comprehensive income
Beginning balance	$ 105,388	$ 136,763	$ 71,169	$ 144,994
Unrealized loss on investments, net of tax	(16)	(43)	(221)	(440)
Equity in unrealized gain of an investee, net of tax			136
Realized loss on investments reclassified and included in net income (loss), net of tax			1
Ending balance	109,746	116,186	109,746	116,186
Equity Investment of an Investee
Changes in accumulated other comprehensive income
Beginning balance			(266)
Unrealized loss on investments, net of tax			0
Equity in unrealized gain of an investee, net of tax			136
Realized loss on investments reclassified and included in net income (loss), net of tax			0
Ending balance	(130)		(130)
Investments
Changes in accumulated other comprehensive income
Beginning balance			2,008
Unrealized loss on investments, net of tax			(221)
Equity in unrealized gain of an investee, net of tax			0
Realized loss on investments reclassified and included in net income (loss), net of tax			1
Ending balance	1,788		1,788
Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income
Beginning balance	1,606	1,596	1,742	4,036
Ending balance	$ 1,658	$ 1,633	$ 1,658	$ 1,633

XML

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Provision (benefit) for income taxes	$ (705)	$ 281	$ 785	$ 537

XML

Earnings Per Share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
Potentially dilutive restricted unvested common shares, not included in diluted EPS calculation (in shares)	1,355,405	1,245,186	1,218,752	1,255,478

XML

Fair Values of Assets and Liabilities - Recurring Measurements (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) security	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Fair Values of Assets and Liabilities
Cash equivalents	$ 27,846		$ 23,390
Equity investments	5,982		5,466
Debt investments	21,560		22,785
Total investments	27,542		28,251
Total	55,388		51,641
Restricted cash	23,577		19,529
Gross proceeds from sale of equity securities	1,664	$ 561
Gross realized gains recorded on sale of equity securities	282	65
Gross realized losses recorded on sale of equity securities	45	4
Amortized cost of available for sale debt securities	19,633		21,806
Unrealized gains on available for sale debt securities	1,932		1,276
Unrealized losses on available for sale debt securities	$ 5		296
Number of available for sale debt securities in a loss position less than 12 months | security	0
Number of available for sale debt securities in a loss position 12 months or longer | security	10
Fair value of debt securities which are in loss position for greater than 12 months	$ 2,548
Gross proceeds from sale of available for sale debt securities	2,782	4,420
Gross realized gains recorded on sale of debt securities	6	9
Gross realized losses recorded on sale of debt securities	7	$ 80
Mortgage notes payable	7,355		7,533
Financial services industry
Fair Values of Assets and Liabilities
Equity investments	1,161		1,074
Healthcare
Fair Values of Assets and Liabilities
Equity investments	273		291
Technology
Fair Values of Assets and Liabilities
Equity investments	236		174
Other
Fair Values of Assets and Liabilities
Equity investments	4,312		3,927
International bond fund
Fair Values of Assets and Liabilities
Debt investments	2,642		2,537
High yield fund
Fair Values of Assets and Liabilities
Debt investments	2,905		2,669
Industrial bonds
Fair Values of Assets and Liabilities
Debt investments	1,176		1,692
Technology bonds
Fair Values of Assets and Liabilities
Debt investments	2,172		2,375
Government bonds
Fair Values of Assets and Liabilities
Debt investments	9,514		9,791
Energy bonds
Fair Values of Assets and Liabilities
Debt investments	622		595
Financial bonds
Fair Values of Assets and Liabilities
Debt investments	1,763		1,858
Other
Fair Values of Assets and Liabilities
Debt investments	766		1,268
Restricted debt securities
Fair Values of Assets and Liabilities
Debt investments	12,433		13,943
Quoted Prices in Active Markets for Identical Assets
Fair Values of Assets and Liabilities
Cash equivalents	27,846		23,390
Equity investments	5,982		5,466
Debt investments	9,514		9,791
Total investments	15,496		15,257
Total	43,342		38,647
Quoted Prices in Active Markets for Identical Assets | Financial services industry
Fair Values of Assets and Liabilities
Equity investments	1,161		1,074
Quoted Prices in Active Markets for Identical Assets | Healthcare
Fair Values of Assets and Liabilities
Equity investments	273		291
Quoted Prices in Active Markets for Identical Assets | Technology
Fair Values of Assets and Liabilities
Equity investments	236		174
Quoted Prices in Active Markets for Identical Assets | Other
Fair Values of Assets and Liabilities
Equity investments	4,312		3,927
Quoted Prices in Active Markets for Identical Assets | International bond fund
Fair Values of Assets and Liabilities
Debt investments	0		0
Quoted Prices in Active Markets for Identical Assets | High yield fund
Fair Values of Assets and Liabilities
Debt investments	0		0
Quoted Prices in Active Markets for Identical Assets | Industrial bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Quoted Prices in Active Markets for Identical Assets | Technology bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Quoted Prices in Active Markets for Identical Assets | Government bonds
Fair Values of Assets and Liabilities
Debt investments	9,514		9,791
Quoted Prices in Active Markets for Identical Assets | Energy bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Quoted Prices in Active Markets for Identical Assets | Financial bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Quoted Prices in Active Markets for Identical Assets | Other
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Other Observable Inputs
Fair Values of Assets and Liabilities
Cash equivalents	0		0
Equity investments	0		0
Debt investments	12,046		12,994
Total investments	12,046		12,994
Total	12,046		12,994
Significant Other Observable Inputs | Financial services industry
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Other Observable Inputs | Healthcare
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Other Observable Inputs | Technology
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Other Observable Inputs | Other
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Other Observable Inputs | International bond fund
Fair Values of Assets and Liabilities
Debt investments	2,642		2,537
Significant Other Observable Inputs | High yield fund
Fair Values of Assets and Liabilities
Debt investments	2,905		2,669
Significant Other Observable Inputs | Industrial bonds
Fair Values of Assets and Liabilities
Debt investments	1,176		1,692
Significant Other Observable Inputs | Technology bonds
Fair Values of Assets and Liabilities
Debt investments	2,172		2,375
Significant Other Observable Inputs | Government bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Other Observable Inputs | Energy bonds
Fair Values of Assets and Liabilities
Debt investments	622		595
Significant Other Observable Inputs | Financial bonds
Fair Values of Assets and Liabilities
Debt investments	1,763		1,858
Significant Other Observable Inputs | Other
Fair Values of Assets and Liabilities
Debt investments	766		1,268
Significant Unobservable Inputs
Fair Values of Assets and Liabilities
Cash equivalents	0		0
Equity investments	0		0
Debt investments	0		0
Total investments	0		0
Total	0		0
Significant Unobservable Inputs | Financial services industry
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Unobservable Inputs | Healthcare
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Unobservable Inputs | Technology
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Unobservable Inputs | Other
Fair Values of Assets and Liabilities
Equity investments	0		0
Significant Unobservable Inputs | International bond fund
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | High yield fund
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | Industrial bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | Technology bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | Government bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | Energy bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | Financial bonds
Fair Values of Assets and Liabilities
Debt investments	0		0
Significant Unobservable Inputs | Other
Fair Values of Assets and Liabilities
Debt investments	0		0
Carrying value
Fair Values of Assets and Liabilities
Mortgage notes payable	7,705		9,357
Estimated fair value | Significant Unobservable Inputs
Fair Values of Assets and Liabilities
Mortgage notes payable	$ 7,872		$ 8,986

XML

Indebtedness - Debt Instruments Summary (Details)	1 Months Ended	3 Months Ended		6 Months Ended
	Feb. 28, 2018 USD ($) community	Jun. 30, 2019 USD ($) community agreement	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) living_unit community agreement	Jun. 30, 2018 USD ($)	Apr. 01, 2019 USD ($)	May 31, 2018 USD ($)
Indebtedness
Amount of fees paid in connection with closing credit facility				$ 1,271,000	$ 0
Letters of credit outstanding		$ 26,476,000		26,476,000
Mortgage notes
Indebtedness
Interest expense and other associated costs incurred		$ 131,000	$ 334,000	$ 265,000	772,000
Senior living communities | Mortgage notes
Indebtedness
Number of real estate properties mortgaged | community		1		1
Standby letters of credit
Indebtedness
Number of irrevocable standby letters of credit agreements | agreement		7		7
Standby letters of credit | Workers' compensation insurance program
Indebtedness
Letter of credit amount securing workers' compensation insurance program			23,237,000		$ 23,237,000		$ 22,700,000
Extension term				1 year
Standby letters of credit | Certain of our other obligations
Indebtedness
Debt outstanding		$ 2,516,000		$ 2,516,000
Letters of credit outstanding		3,238,000		3,238,000
Letters of credit outstanding collateralized by cash equivalents		$ 723,000		$ 723,000
Number of letters of credit outstanding collateralized by cash equivalents | agreement		4		4
Number of irrevocable standby letters of credit agreements | agreement		6		6
Prior secured revolving credit facility, maturing June 2019 | Senior living communities
Indebtedness
Number of real estate properties securing borrowings on the new credit facility | community				11
Number of units in real estate properties securing borrowings on the new credit facility | living_unit				1,245
Prior secured revolving credit facility, maturing June 2019 | Revolving credit facility | Line of Credit
Indebtedness
Maximum borrowing capacity		$ 54,000		$ 54,000
Amount of fees paid in connection with closing credit facility				$ 1,279,000
Quarterly commitment fee on the unused part of borrowing availability				0.35%
Weighted average annual interest rate				4.99%	6.50%
Letters of credit outstanding		2,516,000	62,484,000	$ 2,516,000	$ 62,484,000
Interest expense and other associated costs incurred		$ 775,000	270,000	$ 1,547,000	535,000
Prior secured revolving credit facility, maturing June 2019 | LIBOR | Revolving credit facility | Line of Credit
Indebtedness
Variable rate basis				2.50%
Interest rate at period end		4.93%		4.93%
Prior secured revolving credit facility, maturing June 2019 | Base Rate | Revolving credit facility | Line of Credit
Indebtedness
Variable rate basis				1.50%
Interest rate at period end		7.00%		7.00%
Secured Revolving Credit Facility Maturing February 2021 | Revolving credit facility | Line of Credit
Indebtedness
Maximum borrowing capacity		$ 65,000,000		$ 65,000,000
Extension term				1 year
Weighted average annual interest rate				4.94%
Debt outstanding		$ 0		$ 0
Federal National Mortgage Association mortgage | Senior living communities | Mortgage notes
Indebtedness
Number of properties sold | community	1
Early repayment of debt	$ 16,776,000
Contractual stated interest rate	6.64%
Gain on early extinguishment of debt	$ 543,000
Commercial Lender Mortgage | Senior living communities | Mortgage notes
Indebtedness
Number of properties sold | community	2
Early repayment of debt	$ 16,588,000
Contractual stated interest rate	5.75%
Gain on early extinguishment of debt	$ 638,000
SNH Credit Facility | Line of Credit
Indebtedness
Maximum borrowing capacity						$ 25,000,000
Cash Equivalents | Standby letters of credit | Workers' compensation insurance program
Indebtedness
Collateral securing workers' compensation insurance program			21,535,000		21,535,000
Debt and Equity Investments | Standby letters of credit | Workers' compensation insurance program
Indebtedness
Collateral securing workers' compensation insurance program			$ 5,842,000		$ 5,842,000

XML

Indebtedness - Payments of Principal and Interest (Details) - September 2032 $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Indebtedness
Unamortized discount and debt issuance costs	$ 266
Mortgage notes
Indebtedness
Debt outstanding	$ 7,971
Contractual stated interest rate	6.20%
Effective Interest Rate	6.70%
Monthly Payment	$ 72

XML

Leases with SNH and HCP and Management Agreements with SNH - Narrative (Details)		1 Months Ended			2 Months Ended	3 Months Ended			6 Months Ended
	May 31, 2019 USD ($)	May 30, 2019 USD ($) property	Apr. 30, 2019 USD ($) property lease	Jun. 30, 2018 USD ($) community property	Mar. 31, 2019 USD ($)	Jun. 30, 2019 USD ($) community property term renewal_term	Jun. 30, 2018 USD ($) community property	Mar. 31, 2018 USD ($) community	Jun. 30, 2019 USD ($) community property lease term renewal_term	Jun. 30, 2018 USD ($) community property	Apr. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)	Feb. 28, 2018	Jun. 30, 2016 USD ($)
Leases
Number of properties leased and operated | property						185,000			185,000
Total annual rent payable to SNH						$ 133,995,000			$ 133,995,000
Rent expense - topic 842						33,262,000			87,804,000
Rent expense - topic 840							$ 52,113,000			$ 104,358,000
Percentage rent - 2019						0			1,547,000
Percentage rent - 2018							1,290,000			2,681,000
Deferred gain on sale and leaseback transaction						0			0			$ 59,478,000		$ 82,644,000
Increase in rent payable to SNH, due to terms of leases									680,000
Gain (loss) recorded as a result of sale SNFs						(101,000)	1,509,000		(101,000)	7,193,000
Revenues form senior living communities						355,739,000	343,098,000		711,262,000	688,615,000
Transaction Agreement
Leases
Percentage of outstanding common shares owned by SNH before transaction			34.00%
Percentage of outstanding common shares issued to SNH			51.00%
Total annual rent payable to SNH				$ 207,007,000		131,170,000	207,007,000		131,170,000	207,007,000
Rent expense - topic 842						32,490,000			86,272,000
Rent expense - topic 840							51,391,000			102,913,000
Amortization of lease inducement and deferred gain associated with sale and leaseback transaction							1,689,000			3,380,000
Amortization of lease inducement						472,000			472,000
Decrease in rent payable to SNH					$ 13,840,000
Amount or outstanding rent, not required to pay due to modification of leases					$ 13,840,000
Management fee revenue
Leases
Revenues form senior living communities						4,024,000	$ 3,777,000		8,007,000	$ 7,399,000
Disposal Group, Disposed of by Sale, Not Discontinued Operations
Leases
Carrying value of properties	$ (396,000)
Property plant and equipment related to the carrying value of senior living communities	116,000
Accrued real estate taxes related to the senior living communities	512,000
Decrease in annual rent payable due to sale	$ 831,000
Disposal Group, Held-for-sale, Not Discontinued Operations
Leases
Property plant and equipment related to the carrying value of senior living communities						10,807,000			10,807,000
Line of Credit | SNH Credit Facility
Leases
Line of credit from SNH in connection with the transaction agreement											$ 25,000,000
Line of Credit | SNH Credit Facility | Transaction Agreement
Leases
Line of credit from SNH in connection with the transaction agreement						$ 25,000,000			$ 25,000,000		25,000,000
Interest rate on borrowed amounts						6.00%			6.00%
Number of secured real estate mortgages | community						6			6
Senior living communities
Leases
Number of properties managed | property				75		77	75		77	75
Senior living communities | HCP
Leases
Number of properties leased and operated | community						4			4
Number of renewal options | renewal_term						1			1
Renewal option term						10 years			10 years
Senior living communities | Minimum | HCP
Leases
Annual escalator with HCP lease						2.00%			2.00%
Senior living communities | Maximum | HCP
Leases
Annual escalator with HCP lease						4.00%			4.00%
Senior living communities | Mortgage notes | Commercial Lender Mortgage
Leases
Interest rate on borrowed amounts													5.75%
SNH
Leases
Outstanding rent due and payable to SNH						$ 10,910,000			$ 10,910,000			$ 18,781,000
SNH | Transaction Agreement
Leases
Monthly minimum rent						$ 11,000,000			$ 11,000,000		11,000,000
Management fee as a percent of gross revenues						5.00%			5.00%
Percentage of fees related to the new management agreement						15.00%			15.00%
Incentive management fee maximum						1.50%			1.50%
Transaction cost						$ 1,133,000			$ 8,808,000
SNH | 2017 Transaction Agreement
Leases
Management fee term									15 years
Management fee, number of renewal terms | term						2			2
Management fee renewal term									5 years
Percentage, target EBITDA threshold						90.00%			90.00%
EBITDA threshold, consecutive measurement period									2 years
EBITDA threshold, Measurement period									3 years
EBITDA threshold, measurement period | term						2			2
Revenue percentage in which the new management agreement may not be terminated						20.00%			20.00%
SNH | Other Services Provided to Residents at Managed Communities
Leases
Rehabilitation service revenue						$ 1,513,000	$ 1,660,000		$ 3,188,000	$ 3,359,000
SNH | Management fee revenue
Leases
Revenues form senior living communities						3,802,000	$ 3,465,000		7,521,000	6,888,000
SNH | Disposal Group, Disposed of by Sale, Not Discontinued Operations
Leases
Carrying value of properties			$ (128,000)
Property plant and equipment related to the carrying value of senior living communities			35,000
Accrued real estate taxes related to the senior living communities			$ 163,000
SNH | Disposal Group, Disposed of by Sale, Not Discontinued Operations | Transaction Agreement
Leases
Property plant and equipment related to the carrying value of senior living communities						49,155,000			49,155,000		$ 50,000,000
SNH | Disposal Group, Held-for-sale, Not Discontinued Operations
Leases
Property plant and equipment related to the carrying value of senior living communities						$ 3,545,000			$ 3,545,000
SNH | Improvements to communities
Leases
Leasehold improvements sold to lessor										$ 8,529,000
SNH | Senior living communities
Leases
Number of properties leased and operated | community				184		181	184		181	184
Number of master leases | lease			5						5
Number of communities managed | community										75
SNH | Senior living communities | D&R Yonkers LLC
Leases
Number of communities managed | community									1
SNH | Senior living communities | June 2018 Florida Living Unit Leased Acquired by Related Party
Leases
Increase in rent payable to SNH, due to terms of leases				$ 14,000
SNH | Senior living communities | 2017 Transaction Agreement | January and February 2018 sales group
Leases
Sales price, excluding closing costs								$ 41,917,000
Aggregate carrying value of communities sold								$ 19,425,000
Number of senior living communities sold in transaction agreement with SNH | community								2
Net of mortgage debt and premiums								$ 17,356,000
Principle amount of mortgages and premiums assumed by SNH								$ 16,776,000
Gain generated from sale of communities							$ 0			$ 5,684,000
SNH | Senior living communities | 2017 Transaction Agreement | June 2018 Sales Group
Leases
Sales price, excluding closing costs				23,300,000
Aggregate carrying value of communities sold				$ 5,163,000
Number of senior living communities sold in transaction agreement with SNH | community				2
Net of mortgage debt and premiums				$ 17,226,000			17,226,000			17,226,000
Principle amount of mortgages and premiums assumed by SNH				16,588,000
Gain generated from sale of communities							1,549,000			1,549,000
SNH | Senior living communities | Management fee revenue
Leases
Revenues form senior living communities						$ 153,000	243,000		$ 346,000	371,000
SNH | Senior living communities | Management fee revenue | D&R Yonkers LLC
Leases
Revenues form senior living communities						69,000	69,000		$ 140,000	140,000
SNH | Senior living communities | Disposal Group, Disposed of by Sale, Not Discontinued Operations | May 2019 Sale of Skilled Nursing Facilities in California
Leases
Number of properties sold | property		3
Sales price, excluding closing costs		$ 21,500,000
SNH | Senior living communities | Disposal Group, Disposed of by Sale, Not Discontinued Operations | May 2019 Sale of Skilled Nursing Facilities in Iowa
Leases
Number of properties sold | property		15
Sales price, excluding closing costs		$ 8,000,000
SNH | Senior living communities | Disposal Group, Disposed of by Sale, Not Discontinued Operations | April 2019 Sale of Skilled Nursing Facilities in Wisconsin
Leases
Number of properties sold | property			2
Sales price, excluding closing costs			$ 11,000,000
SNH | Senior living communities | Disposal Group, Disposed of by Sale, Not Discontinued Operations | June 2018 Sale of Skilled Nursing Facility in California
Leases
Sales price, excluding closing costs				$ 6,500,000
SNH | Senior living communities | Disposal Group, Held-for-sale, Not Discontinued Operations | Senior Living Communities Held Under Master Leases Set to Terminate
Leases
Number of master leases | lease									5
Carrying value of properties						(872,000)			$ (872,000)
Property plant and equipment related to the carrying value of senior living communities						10,656,000			10,656,000
Restricted cash related to carrying value of the senior living communities						42,000			42,000
Prepaid and other current assets related to the senior living communities						178,000			178,000
Goodwill and other intangible assets related to the senior living communities						191,000			191,000
Accrued real estate taxes related to the senior living communities						9,815,000			9,815,000
Security deposits and current portion of continuing care contracts related to the senior living communities						2,124,000			2,124,000
Operating income (loss) generated by the leased senior living communities						$ 18,565,000	$ (6,958,000)		$ 10,538,000	$ (7,358,000)
SNH
Leases
Percentage rent						4.00%			4.00%
SNH | Senior living communities | Disposal Group, Disposed of by Sale, Not Discontinued Operations | June 2018 Sale of Skilled Nursing Facility in California
Leases
Number of properties sold | property				1
Decrease in annual rent payable due to sale				10.00%
Shares Issued | Transaction Agreement
Leases
Additional consideration from share issuances			$ 75,000,000

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Leases with SNH and HCP and Management Agreements with SNH - Summary of Leases (Details) $ in Thousands	Jun. 30, 2019 USD ($) property renewal_term
Lessee, Lease, Description [Line Items]
Number of Properties | property	185,000
Annual Minimum Rent as of June 30, 2019	$ 133,995
2020	134,051
2021	134,107
2022	134,156
2023	134,228
2024	118,376
Thereafter	342,944
Total	1,131,857
Lease Liability	$ 922,423
Lease No. 1 for SNFs and independent and assisted living communities
Lessee, Lease, Description [Line Items]
Renewal option term	15 years
Number of Properties | property	81,000
Number of renewal options | renewal_term	2
Annual Minimum Rent as of June 30, 2019	$ 31,826
2020	31,826
2021	31,826
2022	31,826
2023	31,826
2024	15,913
Thereafter	0
Total	$ 175,043
IBR	4.53%
Lease Liability	$ 154,706
Lease No. 2 for SNFs and independent and assisted living communities
Lessee, Lease, Description [Line Items]
Renewal option term	10 years
Number of Properties | property	45,000
Number of renewal options | renewal_term	2
Annual Minimum Rent as of June 30, 2019	$ 39,956
2020	39,956
2021	39,956
2022	39,956
2023	39,956
2024	39,956
Thereafter	39,956
Total	$ 279,692
IBR	4.64%
Lease Liability	$ 238,423
Lease No. 3 for independent and assisted living communities
Lessee, Lease, Description [Line Items]
Renewal option term	15 years
Number of Properties | property	17,000
Number of renewal options | renewal_term	2
Annual Minimum Rent as of June 30, 2019	$ 26,679
2020	26,679
2021	26,679
2022	26,679
2023	26,679
2024	26,679
Thereafter	93,376
Total	$ 253,450
IBR	4.60%
Lease Liability	$ 205,016
Lease No. 4 for SNFs and independent and assisted living communities
Lessee, Lease, Description [Line Items]
Renewal option term	15 years
Number of Properties | property	29,000
Number of renewal options | renewal_term	2
Annual Minimum Rent as of June 30, 2019	$ 25,788
2020	25,788
2021	25,788
2022	25,788
2023	25,788
2024	25,788
Thereafter	176,215
Total	$ 330,943
IBR	4.64%
Lease Liability	$ 249,089
Lease No. 5 for independent and assisted living communities
Lessee, Lease, Description [Line Items]
Renewal option term	15 years
Number of Properties | property	9,000
Number of renewal options | renewal_term	2
Annual Minimum Rent as of June 30, 2019	$ 6,921
2020	6,921
2021	6,921
2022	6,921
2023	6,921
2024	6,921
Thereafter	24,222
Total	$ 65,748
IBR	4.60%
Lease Liability	$ 53,182
One HCP lease
Lessee, Lease, Description [Line Items]
Renewal option term	10 years
Number of Properties | property	4,000
Number of renewal options | renewal_term	1
Annual Minimum Rent as of June 30, 2019	$ 2,825
2020	2,881
2021	2,937
2022	2,986
2023	3,058
2024	3,119
Thereafter	9,175
Total	$ 26,981
IBR	4.60%
Lease Liability	$ 22,007
Headquarters
Lessee, Lease, Description [Line Items]
Lease Liability	$ 1,901

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Business Management Agreement with RMR LLC - Narrative (Details) - Reit Management And Research LLC - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Business Management Agreement [Line Items]
Business management fees	$ 2,338	$ 2,257	$ 4,632	$ 4,514
Reimbursable expenses, internal audit costs	$ 71	$ 54	$ 142	$ 123

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Related Person Transactions (Details) $ in Thousands			1 Months Ended			3 Months Ended			6 Months Ended		12 Months Ended
	May 31, 2019 USD ($)	Jan. 11, 2019 USD ($)	Dec. 31, 2019 USD ($)	Jun. 30, 2019 USD ($) company shares	Jan. 31, 2019 USD ($)	Jun. 30, 2019 USD ($) company shares	Dec. 31, 2018 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) company shares	Jun. 30, 2018 USD ($)	Dec. 31, 2019	Mar. 31, 2019 installment_payment
Related Party Transaction [Line Items]
Rent expense								$ 52,113		$ 104,358
Lease liability				$ 922,423		$ 922,423			$ 922,423
Right of use assets				909,267		909,267			909,267
Equity investment of an investee				$ 9,303		$ 9,303	$ 8,633		$ 9,303
SNH
Related Party Transaction [Line Items]
Number of shares owned (in shares) | shares				4,235,000		4,235,000			4,235,000
Percentage of outstanding common shares owned				8.30%		8.30%			8.30%
ABP Trust
Related Party Transaction [Line Items]
Number of shares owned (in shares) | shares				17,999,999		17,999,999			17,999,999
Percentage of outstanding common shares owned				35.40%		35.40%			35.40%
Rent expense						$ 451		$ 415	$ 971	$ 879
Lease liability				$ 1,901		1,901			1,901
Right of use assets				$ 2,119		$ 2,119			$ 2,119
Incremental borrowing rate				4.40%		4.40%			4.40%
AIC
Related Party Transaction [Line Items]
Number of companies in related party entity | company				4		4			4
Equity investment of an investee				$ 9,303		$ 9,303	8,633		$ 9,303
Severance, Cash Payment | Chief Executive Officer
Related Party Transaction [Line Items]
Cash payments for severance					$ 600
Severance, Cash Payment | Chief Financial Officer
Related Party Transaction [Line Items]
Cash payments for severance				325
Severance, Cash Payment | Subsequent Event | Chief Financial Officer
Related Party Transaction [Line Items]
Cash payments for severance			$ 325
Severance, Release Payments | Chief Executive Officer
Related Party Transaction [Line Items]
Cash payments for severance									138
Number of installment payments | installment_payment												4
Severance, Transition Payments | Chief Financial Officer
Related Party Transaction [Line Items]
Cash payments for severance	$ 10			$ 10
Severance | Chief Executive Officer
Related Party Transaction [Line Items]
Severance costs							$ 1,160
Severance | Senior Vice President
Related Party Transaction [Line Items]
Cash payments for severance		$ 510
Severance | Chief Financial Officer
Related Party Transaction [Line Items]
Severance costs									568
Chief Executive Officer | Severance, Transition Payments
Related Party Transaction [Line Items]
Cash payments for severance						$ 30			$ 60
Chief Executive Officer | Severance
Related Party Transaction [Line Items]
Percentage of severance payments paid										80.00%
Chief Executive Officer | Severance | Subsequent Event
Related Party Transaction [Line Items]
Percentage of severance payments paid											80.00%
Chief Executive Officer | RMR LLC | Severance
Related Party Transaction [Line Items]
Percentage of severance payments paid									20.00%
Chief Executive Officer | RMR LLC | Severance | Subsequent Event
Related Party Transaction [Line Items]
Percentage of severance payments paid											20.00%
Chief Financial Officer | Severance
Related Party Transaction [Line Items]
Percentage of severance payments paid	80.00%
Chief Financial Officer | RMR LLC | Severance
Related Party Transaction [Line Items]
Percentage of severance payments paid	20.00%

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Legal Proceedings and Claims (Details) - Office of the Inspector General		1 Months Ended		3 Months Ended			6 Months Ended
	Dec. 31, 2017 USD ($)	Jun. 30, 2019 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Jun. 30, 2019 USD ($) property
Loss Contingencies [Line Items]
Estimated minimum loss							$ 0
Unfavorable regulatory action
Loss Contingencies [Line Items]
Litigation settlement		$ 1,139,000
Litigation settlement liability		$ 1,139,000					1,139,000
Litigation expense	$ 658,000		$ 594,000				$ 0
Unfavorable regulatory action | Health Care Organization, resident service revenue
Loss Contingencies [Line Items]
Accrual for loss contingency	888,000		759,000			$ 759,000
Unfavorable regulatory action | Imposed Penalties
Loss Contingencies [Line Items]
Litigation expense	$ 444,000		$ 380,000
Unfavorable regulatory action | Other costs of services
Loss Contingencies [Line Items]
Litigation expense				$ 13,000	$ 20,000	$ 55,000
Senior living communities | SNF, California | SNH
Loss Contingencies [Line Items]
Number of potentially inadequate documents | property							1

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Label	Element	Value
Restricted Cash and Cash Equivalents, Excluding Disposal Groups and Discounted Operations	fve_RestrictedCashandCashEquivalentsExcludingDisposalGroupsandDiscountedOperations	$ 24,909,000
Restricted Cash and Cash Equivalents, Excluding Disposal Groups and Discounted Operations	fve_RestrictedCashandCashEquivalentsExcludingDisposalGroupsandDiscountedOperations	21,683,000
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Disposal Group, Including Discontinued Operations	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsDisposalGroupIncludingDiscontinuedOperations	42,000
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Disposal Group, Including Discontinued Operations	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsDisposalGroupIncludingDiscontinuedOperations	0
AOCI Attributable to Parent [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ (1,947,000)