Five Star Quality Care March 2016

Five Star Quality Care March 2016

Disclaimer. THIS PRESENTATION CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. OUR FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS. FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. YOU SHOULD NOT PLACE UNDUE RELIANCE UPON ANY FORWARD LOOKING STATEMENT. EXCEPT AS REQUIRED BY APPLICABLE LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. Note: Data throughout this presentation is based on December 31, 2015 results, unless otherwise noted. Excludes one community with 32 units reported in discontinued operations. Five Star Quality Care, Inc. 2

Investment highlights. One of the largest publicly traded senior living operators in the U.S. Private pay revenues account for 78% of total senior living revenues. Industry demographics and supply/demand trends are favorable. Internal and external growth opportunities. Strong and well managed balance sheet. Current valuation provides a compelling investment opportunity. The Forum at Deer Creek Deerfield Beach, FL 293 Units Five Star Quality Care, Inc. 3

Five Star is one of the largest public operators of senior living communities in the U.S. Five Star operates a total of 274 high quality senior living communities with 31,417 units across the U.S. Leases 181 communities with 20,012 units. Owns 33 private pay communities with 3,215 units. Manages 60 senior living communities with 8,190 units. Premier Residences of Boca Raton. 214 units. Senior Living Revenues Private Pay Revenues Unit Breakdown Owned 10% IL/AL 47% Other 1% (1) CCRC 36% SNF 16% Private Pay 78% Medicare 11% Medicaid 11% Leased 64% (1) Other senior living revenue relates primarily to rehabilitation and other specialty service revenues provided at the senior living communities owned and leased by Five Star. Managed 26% Five Star Quality Care, Inc. 4

Five Star across the senior living spectrum. Independent Living Residents have a high degree of independence in large, private units. Daily meals, housekeeping and social activities are provided. Assisted Living One bedroom units with small kitchenettes. Services include laundry, medication management and daily living assistance. Nursing care available. Alzheimer s / Memory Care A dedicated, secure wing within assisted living or a stand alone community. Bridge to Rediscovery program. Skilled Nursing / CCRC Nursing care offered for IL / AL residents who require additional care. Focus on short-term private pay and Medicare patients. Rehab to Home units. Skilled Nursing / Free Standing One or two beds per room. Extensive nursing care to residents 24 hours per day. Includes post-acute care and long-term chronic care. Unit Type Leased Owned Managed Total Independent Living 6,460 842 3,447 10,749 Assisted Living 6,769 1,863 3,505 12,137 Alzheimer s / Memory Care 2,090 510 766 3,366 Skilled Nursing / CCRC 1,954-472 2,426 AL 39% IL 34% Skilled Nursing / Free Standing 2,739 - - 2,739 Total 20,012 3,215 8,190 31,417 SNF CCRC 8% SNF 9% ALZ 10% Five Star Quality Care, Inc. 5

Scale and diversification of operations across 32 states. Total unit capacity of 31,417 191 230 1,455 5% 310 123 1,783 6% 287 1,262 4% Top 10 states based on units 209 801 808 657 2,148 7% 302 434 187 899 116 1,673 5% 985 532 938 315 1,212 4% 1,008 NJ - 1,045 DE 989 1,117 MD - 1,266 4% 1,821 6% 1,647 5% All other states where FVE operates 4,667 15% Five Star Quality Care, Inc. 6

Units Industry demographics and supply/demand trends are favorable. Millions Fragmented industry is positioned for consolidation. In the U.S. there are approximately 22,100 senior housing properties with almost 2.85 million units. (1) Total capitalization of the senior housing market is estimated at $304.6 billion (implied value). (1) The 10 largest senior housing operators (both public and private) control 26.8% of units in the largest 100 metropolitan markets. (1) New supply is modest in comparison to aging population growth and overall penetration rates. 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Senior Housing Supply-Demand Trends (1) Forecast 91% 90% 89% 88% 87% 86% Age 85 + Population (2) 20 18 16 14 12 10 8 6 4 2 0 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 8% 7% 6% 5% 4% 3% 2% 1% 0% Inventory Growth Absorption Occupancy 85+ Population Growth Rate (%) (1) Source: National Investment Center for the Seniors Housing and Care Industry (NIC). (2) Source: U.S. Census Bureau. Five Star Quality Care, Inc. 7

Recent acquisitions expected to drive growth and revenue diversification. Five Star continues to add private pay communities to its portfolio. November 2015: Acquired two 100% private pay senior living communities in Tennessee with 152 independent living units on our own balance sheet for $26M. Expected to increase annual revenue by $3.9M and contribute ~ $2M of EBITDA. May 2015: Began to manage 14 private pay, assisted living communities in four states with a total of 838 units. Expected to contribute $1M of management fee revenue per annum. May 2015: Began to manage a private pay, independent living community in Georgia which shares a campus with Assisted Living and Memory Care communities we already manage. The Grand Victorian, Pekin, IL, 61 units. Five Star Quality Care, Inc. 8

New managed properties. Morningside of Sterling, Sterling, IL, 91 units. Amber Ridge Assisted Living, Moline, IL, 46 units. Morningside of Godfrey, Godfrey, IL, 78 units. Morningside of Fayetteville, Fayetteville, AR, 67 units. Five Star Quality Care, Inc. 9

Addition by subtraction: increased focus on core business of operating high quality private pay senior living communities. Sale of Rehab Hospitals. Were heavily dependent upon Medicare/Medicaid. Realized cash proceeds of $8.0 million. Reduced annual rent obligations by $11.5 million. Sale of Pharmacy Business. Was heavily dependent on Medicare. Sold for $39.0 million. Recognized capital gain of $23.0 million. Sale of Skilled Nursing Facilities. Total number of Skilled Nursing Facilities has decreased to 31, down from 56. Five Star Quality Care, Inc. 10

Rehab to Home initiative. Impacts skilled nursing units within a CCRC. Converting semi private units into private rooms with updated bathrooms, flat screen TV s, high quality in-room dining services and refurbished private rehab areas. Utilized by short-term Medicare patients needing rehab following a procedure like a hip or knee replacement. Five Star s Rehab to Home Initiative. 3 projects completed with more slated to start in 2016. Current projects in South Carolina and Indiana. CCRC conversion case study: Myrtle Beach, SC. Units converted: 24. Open for nine months. Annualized Medicare A revenue growth: $900,000, or 33%. Annualized community NOI: $260,000 vs. negative NOI. Five Star Quality Care, Inc. Note: Medicare revenue and NOI are based on annualized results since the project was completed compared to the prior period. 11

Elevating the dining experience. Five Star has partnered with Celebrity Chef, Brad Miller, former contestant on Hell s Kitchen and current restaurant owner (2 locations in Santa Monica, CA). Hosting community events and chef competitions around the country. Incorporating new signature dishes in Five Star menus. Dining is a major consideration for residents when selecting a community; these initiatives set an unprecedented culinary standard. Celebrity Chef Program awarded Best of the Best award by ALFA in May, 2015. Referral sources attend events, creating positive buzz at the communities and ultimately improve occupancy. In 2015, Brad Miller helped launch Five Star Culinary Institute. Over 100 community chefs attended. Five Star Quality Care, Inc. 12

Lifestyle360: A new approach to resident wellness. Lifestyle360 is a holistic approach to active community living. Research-based activities and wellness program predicated on Maslow s Hierarchy of Needs. Activities and events are based on five dimensions of wellness: intellectual, social, physical, emotional and spiritual. Proven results and beneficial to the overall health and wellness of our residents. All Five Star communities will offer at least one activity or event that corresponds to each of the five dimensions. Programs resonate well with residents, increase referrals and further differentiate Five Star from the competition. Five Star Quality Care, Inc. 13

Operating performance. Significant opportunity to grow occupancy; fourth quarter senior living occupancy at 85.0% is below the company s historical high of 92% achieved prior to the recession. IL/AL occupancy is 87.6%. Fourth quarter senior living average monthly rate was up approximately 1.6% from the previous year. Annual average monthly rate growth is expected to be between 2-3%. Senior Living Occupancy Senior Living Average Monthly Rate 90% 88% 86% 84% 88.3% 88.6% 89.2% 89.1% 88.0% 85.9% 85.8% 86.1% 86.2% 85.5% 83.8% 83.3% 83.2% 83.6% 83.8% 87.5% 87.4% 87.6% 85.1% 85.0% 85.0% 83.3% 82.8% 82.9% 5.0% 4.0% 3.0% $4,650 $4,600 $4,550 82% 80% 80.4% 79.7% 79.3% 79.3% 78.6% 78.4% 79.3% 78.5% 2.0% 1.0% $4,500 $4,450 78% 0.0% $4,400 Total Senior Living IL/AL CCRC SNF Average Monthly Rate Year Over Year Growth Five Star Quality Care, Inc. 14

Millions Growth in private pay revenues. EBITDAR (1) and Private Pay Revenues (2) $240 $230 $220 $210 $200 $190 $180 $190.0 $215.1 $223.7 73.2% $234.5 76.1% $232.6 76.6% $224.6 77.2% $234.4 77.7% 80% 78% 76% 74% 72% $170 $160 $150 69.3% 70.9% 2009 2010 2011 2012 2013 2014 2015 70% 68% EBITDAR Private Pay Revenues (1) Earnings before interest, taxes, depreciation, amortization and rent expense. Excludes non-recurring items. (2) Includes revenues from leased and owned communities. Five Star Quality Care, Inc. 15

Recent financial results. For the three months ended For the year ended December 31, December 31, ($ in 000 s) 2015 2014 2015 2014 Senior living revenue $281,178 $274,648 $1,113,971 $1,099,228 Management fee revenue 2,789 2,469 10,728 9,765 Reimbursed costs from managed communities 60,629 55,409 240,711 219,082 Total revenues $344,596 $332,526 $1,365,410 $1,328,075 Senior living wages and benefits $134,349 $131,080 $539,086 $533,549 Other senior living operating expenses 77,394 78,089 293,501 292,457 General and administrative 18,007 18,198 70,757 72,385 Costs incurred on behalf of managed communities 60,629 55,409 240,711 219,082 All other operating expenses 59,238 57,906 258,379 229,782 Total operating expenses $349,617 $340,682 $1,402,434 $1,347,255 EBITDA (1) $9,330 $9,190 $35,302 $27,234 EBITDAR (1) $59,390 $58,791 $234,377 $224,593 (1) Excludes non-recurring items. Five Star Quality Care, Inc. 16

Conservative balance sheet with room for growth. $100 million available under one revolving credit facility as of December 31, 2015. (1) Debt as a percent of book capital is a conservative 38% as of December 31, 2015. Property and equipment, net is $384 million and includes 33 communities owned by Five Star. Assets As of December 31, 2015 Liabilities and Shareholders Equity As of December 31, 2015 Cash and cash equivalents $14,672 $150 million revolving credit facility $50,000 Accounts receivable, net 37,829 $25 million revolving credit facility 0 Property and equipment, net 383,858 Mortgage notes 60,396 Other assets 95,411 Total debt 110,396 Other liabilities 236,922 Total Liabilities 347,318 Shareholders Equity 184,452 Total Assets $531,770 Total Liabilities and Shareholders Equity $531,770 Five Star Quality Care, Inc. (1) Excludes our $25 million revolving credit facility that expired in March 2016. 17

Five Star has a culture focused on cost control. 60% 50% 40% 30% 20% Senior Living Expenses as a Percent of Senior Living Revenues 49.1% 49.1% 48.6% 48.8% 48.5% 48.4% 23.6% 23.9% 24.4% 24.7% 26.6% 26.3% 10% 0% 2010 2011 2012 2013 2014 2015 Wages and Benefits (%) Other Operating Expenses (%) (1) 8% G&A as a Percent of Revenues (2) 7.0% 6% 4% 4.6% 3.7% 2% 0% FVE CSU BKD (1) Other operating expenses include utilities, food expense, property taxes, general maintenance and insurance expense. (2) Based on general and administrative expenses as a percent of total revenue for the quarter ended December 31, 2015, adjusted to exclude non-cash and/or non-recurring expenses. Five Star Quality Care, Inc. 18

Millions Investment in communities. Five Star has consistently invested capital into its communities to remain competitive and provide residents with high quality amenities and services. On a per unit basis, capital expenditures are approximately $1,000 per annum. $70 $60 $50 $40 $30 $20 $10 $0 Capital Investments 2009 2010 2011 2012 2013 2014 2015 FVE Funded Landlord Funded 2009 2010 2011 2012 2013 2014 2015 Total owned and leased units 22,066 22,176 23,765 22,972 22,972 23,101 23,227 Gross capital investment ($M) $62.0 $54.0 $60.9 $51.8 $53.8 $49.9 $57.6 Five Star funded capital ($M) $16.8 $22.1 $27.7 $26.9 $29.1 $24.1 $36.2 Five Star funded capital, per unit $761 $997 $1,166 $1,171 $1,268 $1,043 $1,559 Five Star Quality Care, Inc. 19

Investment highlights. One of the largest publicly traded senior living operators in the U.S. Private pay revenues account for 78% of total senior living revenues. Industry demographics and supply/demand trends are favorable. Internal and external growth opportunities. Strong and well managed balance sheet. Current valuation provides a compelling investment opportunity. Five Star Premier Residences of Plantation Plantation, FL 270 Units Five Star Quality Care, Inc. 20

Five Star Quality Care March 2016