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Investor Presentation May 2020 “To honor and enrich the journey of life, one experience at a time.”
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Page 1: Investor Presentations1.q4cdn.com/858151462/files/doc_presentations/FVE...This presentation contains statements that constitute forward-looking statements within the meaning of the

InvestorPresentationMay 2020

“To honor and enrich the journey of life, one experience at a time.”

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Warning Concerning Forward-Looking Statements

34

32

32 25,80

236

268CMPANYBEGAN

AGEILITYPHYSICAL THERAPYSOLUTIONS’ CLINICS

RESIDENTSIN OUR CARE

STATES WHEREIN OUR CARE

TOTAL $ RAISEDFOR WALK TO END ALZHEIMER’S

SINCE 2017

23,500

TEAMMEMBERS

RANKING ON 2019

LIST OF 50 LARGEST

U.S. SENIRHOUSING OPERATORS

COMPILED BY

AMERICANSENIORS HOUSING

ASSOCIATION (ASHA)

RANKING ON 2019

J.D. POWERSENIOR LIVINGSATISFACTION STUDY

This presentation contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. 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 arebased upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and our actual results may differ materially from those contained in, or implied by, our forward-looking statements. Forward-looking statements in this presentation relate to various aspects of our business, including our ability to operate our senior living communities profitably, our ability to grow revenues at thesenior living communities we manage and to increase the fees we earn from managing senior living communities, our expectation to focus our expansion activities on internal growth from our existing senior livingcommunities and the ancillary 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, includingrehabilitation and wellness services and other services we may provide, whether the aging U.S. population and increasing life spans of older adults will increase the demand for senior living communities, health andwellness centers and other healthcare related properties and services, our ability to comply and to remain in compliance with applicable Medicare, Medicaid and other federal and state regulatory, rulemaking and rate-setting requirements, our ability to access or raise debt or equity capital and our ability to sell communities we may offer for sale.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, such as the impact of conditions in the economy and the capital markets on us andour residents and other customers, competition within the senior living and other health and wellness related services businesses, older adults delaying or forgoing moving into senior living communities or purchasinghealth and wellness services from us, increases in our labor costs or in costs we pay for goods and services, increases in tort and insurance liability costs, our operating leverage, actual and potential conflicts of interestwith our related parties, changes in Medicare or Medicaid policies and regulations, or the possible repeal, replacement or modification of Medicare, Medicaid or other existing or proposed legislation or regulations,which could result in reduced Medicare or Medicaid rates or 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 non-payments of government payments to us, compliance with, and changes to, federal, state and local laws and regulations that could affect our services or impose requirements, costs and administrativeburdens that may reduce our ability to operate our business profitably, our exposure to litigation and regulatory and government proceedings, continued efforts by third party payers to reduce costs, and acts ofterrorism, outbreaks of pandemics, including COVID-19, or other manmade or natural disasters. For example: (a) challenging conditions in the senior living industry continue to exist and our business and our operationsremain subject to substantial risks, many of which are beyond our control; as a result, our operations may not be profitable in the future and we may realize losses; (b) we may not successfully execute our strategicgrowth initiatives, (c) we may not be able to successfully integrate, operate and profitably manage our senior living communities; (d) we cannot be sure that we will enter additional management arrangements withDiversified Healthcare Trust (DHC); (e) our belief that the aging of the U.S. population and increasing life spans of older adults will increase demand for senior living communities and services may not be realized or maynot result in increased demand for our services; (f) our investments in our workforce and continued focus on reducing our employee turnover level by enhancing our competitiveness in the marketplace with respect tocash compensation and other benefits may not be successful and may not result in the benefits we expect to achieve through such investments; (g) our marketing initiatives may not succeed in increasing our occupancyand revenues, and they may cost more than any increased revenues they may generate; (h) our strategic investments to enhance efficiencies in and benefits from our purchasing of services may not be successful orgenerate the returns or savings we expect; (i) circumstances that adversely affect the ability of older adults 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 residents’ family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics generally, could affect therevenues and profitability of our senior living communities; (j) residents who pay for our services with their private resources may become unable to afford our services, resulting in decreased occupancy and decreasedrevenues at our senior living communities; (k) the various federal and state government agencies that pay us for the services we provide to some of our residents are experiencing budgetary constraints and may lowerthe Medicare, Medicaid and other rates they pay us; (l) we may be unable to repay or refinance our debt obligations when they become due; (m) certain aspects of our operations and future growth we may pursue inour business may require significant amounts of working capital and require us to make significant capital expenditures; accordingly, we may not have sufficient cash liquidity; (n) the amount of available borrowingsunder 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; (o) the availability of borrowings under our creditfacility is subject to our satisfying certain financial covenants and other conditions that we may be unable to satisfy; (p) our actions and approach to managing our insurance costs may not be successful and could resultin our incurring significant costs and liabilities that we will be responsible for funding; (q) contingencies in any applicable acquisition or sale agreements we or DHC have entered into, or may enter into, may not besatisfied and our and DHC's applicable acquisitions or sales, and any related management arrangements we may expect to enter into, may not occur, may be delayed or the terms may change; (r) we may not be able tosell communities that we may seek to sell on terms acceptable to us or otherwise; (s) the advantages we believe we may realize from our relationships with related parties may not materialize; (t) operating deficienciesor 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 and (u) the COVID-19pandemic may continue to adversely affect our business, operating results and financial condition for an indefinite period of time, including by decreasing the occupancy of our senior living communities, causingstaffing and supply shortages and increasing the costs of operating our senior living facilities.

Our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the period ended March 31, 2020 and our other filings with the Securities and Exchange Commission(SEC) identify 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 relianceupon 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.

Non-GAAP Financial MeasuresThis presentation contains non-GAAP financial measures including earnings before interest, income tax, depreciation and amortization (EBITDA), Adjusted EBITDA and Adjusted Free Cash Flow. Reconciliations for thesemetrics to the closest U.S. generally accepted accounting principles (GAAP) metrics are herein.

Note: Data throughout this presentation is based on March 31, 2020 results, unless otherwise noted. Also, statements about the industry and demographics relate to the United States.

2

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Business at a GlanceOperates and manages a total of 265 communities with 30,673 units across 32 states in the U.S.(1)(2)

Medicare10%

Medicaid6%

Private Pay84%

AL

41%

IL

36%

ALZ

12%

CCRC

7%

SNF

4%

Total Portfolio PrivatePay Revenues (2)

Revenues By Contract Type (2) Total Portfolio BreakdownBy Units (2)

(1) Data is as of and for the quarter ended March 31, 2020.

(2) Excludes three senior living communities sold on April 1, 2020.

3

• Operates 203 outpatient rehabilitation clinics, 48% more than a year ago.

• 41 inpatient clinics within Five Star communities.

• Expansion into non-traditional markets provides new opportunities for accelerated growth.

All other states

Top 10 states

National Operator with Scale and Diversification

Rehabilitation

and Wellness

36%

Management

Fees

28%

Owned and Leased

Senior Living

36%

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Senior Living Spectrum

(1) Data presented as of March 31, 2020.

(2) Excludes data from three senior living communities sold on April 1, 2020.

(3) Managed on behalf of Diversified Healthcare Trust (NASDAQ: DHC).

(4) The unit count represents only the SNF units at our CCRCs.

(5) Leased from Healthpeak Properties Inc. (NYSE: PEAK).

Independent Living (IL) Assisted Living (AL)Alzheimer’s (ALZ)/

Memory Care

Continued Care Retirement

Community (CCRC)

Stand-Alone Skilled Nursing

(SNF)

▪ Residents have a high

degree of independence in

large, private units.

▪ Daily meals, housekeeping

and social activities are

provided.

▪ One bedroom functional

units with kitchenettes.

▪ Services include laundry,

medication management

and assistance with

activities of daily living.

▪ Nursing care available.

▪ A dedicated, secure unit in

assisted living or a stand

alone community.

▪ Bridge to Rediscovery

program.

▪ Accommodations for

independent living, assisted

living, and nursing care,

offering a continuum of

care.

▪ Healthcare units with

intensive rehabilitation

capabilities.

▪ High level of medical care

provided by licensed health

professions.

▪ Short term care for

rehabilitation from illness or

injury, or long term care for

chronic medical conditions

Managed(2)(3): 10,496 Managed(2)(3): 11,229 Managed(2)(3): 3,239 Managed(2)(3)(4): 2,186 Managed(3): 1,211

Owned: 564 Owned: 1,274 Owned: 270 Owned: - Owned: -

Leased: - Leased(5): 177 Leased(4): 27 Leased: - Leased: -

Total Living Units: 11,060 Total Living Units: 12,680 Total Living Units: 3,536 Total Living Units: 2,186 Total Living Units: 1,211

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A New TransitionCompleted Transaction with DHC

Completed the restructuring of Five Star’s business arrangements with DHC.

✓ On January 1, 2020, entered into new management agreements to operate all senior living communities we leased from, and managed for the account of, DHC, as of December 31, 2019.

✓ Financial restructuring immediately improved Five Star’s financial position and liquidity.

Highlights of New Management Agreements.

✓ A 15-year term commenced on January 1, 2020, with two, five-year extensions at Five Star’s option, subject to maintaining portfolio financial performance.

✓ A base management fee of 5% of gross revenues at the community level and a 3% fee on capital projects managed by Five Star.

✓ An incentive fee of 15% of annual property level EBITDA on a combined basis for the total portfolio in excess of a performance target, subject to a limit of up to 1.5% of portfolio gross annual revenues, beginning in 2021.

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The Five Star Value

Exceptional Resident Experience:

▪ Created a new function dedicated to maintaining an exceptional resident experience.

Team Member Engagement:

▪ Achieve continued reduction in turnover rates.

▪ Commitment to team members through recognition and learning and development.

Operational Efficiency:

▪ Drive RevPAR (1) accretion throughout 2020.

▪ Execute rate efficiencies (RevPOR) (2) by balancing occupancy with rate.

▪ Improved operating cost structure for targeted savings of $8-$10 million annually upon stabilization of implemented programs.

Continued Growth:

▪ Grow rehabilitation and wellness services segment through Ageility division. In the first quarter of 2020, Ageility experienced revenue growth of 22% over the prior year quarter (3), and contributed 35% of our overall operating revenues.

▪ Fitness platform capabilities to expand beyond rehabilitation services.

▪ Evaluation of new concierge services offerings.

▪ Active Adult target demographic. Effective December 2019, Five Star now oversees the management of its first 55+ Active Adult community in Plano, TX.

Exceptional Resident Experience

Team Member Engagement

Operational Efficiency Continued Focus on Growth

(1) RevPAR defined as revenue per available room.

(2) RevPOR defined as revenue per occupied room.

(3) Compared to Pro Forma Q1 2019. For a reconciliation of Pro Forma data, see Appendix.

Our success is built on four foundational elements that drive performance, loyalty and competitiveness.

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Exceptional Resident ExperienceOur focus on the resident experience is grounded in market research and a deep understanding of our customer. We take a holistic approach across all verticals to elevate, enhance and enrich our residents’ lives:

▪ Resident Engagement and Services: Comprehensive resident programming, including Lifestyle 360, our signature resident enrichment program founded on the five dimensions of wellness, and Bridge to Rediscovery, a groundbreaking program designed to enable our memory care residents to enjoy fulfilling and positive lives.

▪ Culinary: Our dining experience offers exceptional and creative chef crafted meals, focusing on nutritional health, seasonal variety and social engagement.

▪ Facilities and Grounds: Local excellence, design and flair is supported by a central facilities function and a robust capital management program.

▪ Safety and Compliance: Our roots in clinical excellence, and emphasis on resident provide a strong foundation for our signature resident experience.

7

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Team Member Engagement

Attracting, inspiring and retaining great talent remains the biggest challenge and opportunity in our industry.

We are a service organization and our people are our most important asset. Investing in our people will drive an exceptional resident and client experience.

Key initiatives:

▪ Attract and select talented individuals uniquely suited to be successful at Five Star

▪ Build upon our new learning management platform to provide training and development opportunities for all team members.

▪ Execute on recognition through rewards and career advancement.

▪ Grow and foster a culture of accountability, transparency and innovation.

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Operational Efficiency

National company with the ability to support communities at scale

▪ Launched J.D. Power certification program in 2018 to establish foundational framework of operational excellence within our communities. To date, we have 32 communities that have been certified.

▪ Revenue management program to develop dynamic pricing by combining internal data points in conjunction with external market research to optimize the maximum profitability output of each community.

▪ Strategic sourcing designed to govern consistency in spend practices throughout the organization, leverage scale for better pricing, and tighten controls to achieve maximum cost efficiencies.

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▪ Five Star's internal operational excellence framework is founded on the operational best practices outlined in the J.D. Power Senior Living Community Certification Program and is intended to drive consistently high performance and profitability across our portfolio.

▪ Our operating standards continue to evolve with the intention of creating consistent procedures across key areas of community-level management: Community Leadership, Financial Management, Occupancy Management, Team Management and Resident Experience.

▪ These standards play an instrumental role in fostering high-performing teams, provides our community leadership with standards and best practices to deliver excellence and financial results, and enables them to focus on what is most important: their residents and team members.

Operational Excellence

Operational Efficiency10

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Program

▪ Refined, systematic and centralized pricing, by combining internal sales and financial data with external market research.

▪ Synthesizing occupancy with rate optimization combined with cost structure to achieve maximum profitability output.

▪ All Five Star communities are now enrolled in our proprietary revenue management program.

▪ The RevPAR Penetration Index (comparing Five Star’s RevPAR to that of the competition) is an indication of whether or not an advantage is achieved in a particular market faster than competition.

▪ Continually refine the program to become more responsive to changes in the market.

Revenue Management

(1) This includes communities that were continuously operated since January 1, 2019.

Operational Efficiency

Comparable Community RevPAR (1)Comparable Community Occupancy (1)

$3,778

$3,000

$3,100

$3,200

$3,300

$3,400

$3,500

$3,600

$3,700

$3,800

$3,900

$4,000

1Q 19 2Q 19 3Q 19 4Q 19 1Q 20

82.7%

75.0%

77.0%

79.0%

81.0%

83.0%

85.0%

87.0%

89.0%

1Q 19 2Q 19 3Q 19 4Q 19 1Q 20

11

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Strategic Sourcing

Operational Efficiency

Senior Living Operating Expense as a % of Revenue

Initiative

▪Designed to evaluate spend governance practices throughout the organization.

▪ Leverage scale for efficient pricing.

▪ Evaluated potential benefits of streamlining sourcing opportunities within senior living operating costs.

▪ Perceived benefits to changes in policy as well as process to enhance governance, tighten controls and improve vendor relationships.

Focus on improved outcomes

▪ Plan to achieve $8 million to $10 million annually of cost efficiency savings upon completion of roll-out of initiatives which is expected to take 9-12 months.

12

70.9%

64.0%

66.0%

68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

86.0%

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020

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Continued Growth

Five Star continues to diversify its revenue stream by investing in ancillary businesses to deliver innovative and differentiated offerings to older adults and caregivers.

The company continues to explore and evaluate ancillary services that complement our existing lines of business within the traditional senior living market, leading with our rehabilitation and wellness services segment, primarily consisting of Ageility rehabilitation and fitness.

As the Five Star vision evolves to include a broader range of service offerings for older adults, we are focused on exploring next generation market opportunities.

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Operates 203 outpatient rehabilitation clinics, a 48% increase in clinics year-over-year, with 51 clinics that are unaffiliated with Five Star.

Produced $21 million dollars in revenues for the first quarter of 2020,an approximately 22% increase on a pro forma basis from the same quarter in the prior year.(1)

Ageility represents approximately 35% of Five Star’s operating revenues as of March 31, 2020.

Ageility’s expansion into non-traditional markets like active adult communities is providing new opportunities for accelerated growth.

Ability to expand capabilities into a fitness offerings designed to target a broader older adult demographic beyond traditional rehabilitation service offerings.

Orthopedic

Rehab

Fitness / Wellness

Program

Fall Prevention /

Balance

Cognitive / Memory

Enhancement

Continued Growth

Revenues by Quarter(dollars in thousands)

Inpatient and Outpatient Clinics

14

(1) Compared to Pro Forma Q1 2019. For a reconciliation of Pro Forma data, see Appendix.

183 187212

231244

0

50

100

150

200

250

300

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020

$21,043

$-

$5,000

$10,000

$15,000

$20,000

$25,000

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020

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Strong Management Team

Katie PotterPresident and Chief Executive Officer

Ms. Potter is President and Chief Executive Officer of Five Star. Ms. Potter previously served as Executive Vice President

and General Counsel since 2018, Senior Vice President and General Counsel since 2016, and Vice President and

General Counsel since 2012. Prior to joining Five Star, Ms. Potter practiced law at Sullivan & Worcester LLP and Burns &

Levinson LLP, where she focused on corporate law matters, including securities, mergers and acquisitions, corporate

governance and other transactional matters.

Jeff LeerExecutive Vice President, Chief Financial Officer and Treasurer

Mr. Leer is Executive Vice President, Chief Financial Officer and Treasurer of Five Star. Prior to joining Five Star, Mr. Leer

served as Chief Financial Officer and Treasurer of Office Properties Income Trust and he has been serving as Senior

Vice President of The RMR Group LLC, where he has been responsible for the day to day oversight of the accounting and

finance support functions of The RMR Group and its various affiliates. Prior to joining The RMR Group LLC, Mr. Leer held

various accounting and finance positions at several multi-national Fortune 500 companies as well as the public

accounting firm, Vitale, Caturano PC (predecessor to RSM US LLP). Mr. Leer is also a certified public accountant.

Margaret WigglesworthSenior Vice President and Chief Operating Officer

Ms. Wigglesworth is Senior Vice President and Chief Operating Officer of Five Star. Ms. Wigglesworth has held

various executive roles at large organizations over the past three decades where she was responsible for

operations and change management. Prior to joining Five Star, Ms. Wigglesworth held positions at International

Council of Shopping Centers, Cresa and Colliers International USA.

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Industry TrendsLife is a Journey. Who you travel with matters.

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

4

8

12

16

20

15

20

20

20

25

20

30

20

35

Millio

ns

85+ Population Growth Rate (%)

Favorable long-term industry demographics coupled with Five Star’s understanding of changing consumer preferences indicate a positive outlook.

(40)

(20)

-

20

40

60

80

100

120

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

20

17

Q4

20

18

Q1

20

18

Q2

20

18

Q3

20

18

Q4

20

19

Q1

20

19

Q2

20

19

Q3

20

19

Q4

20

20

Q1

20

20

Q2

20

20

Q3

20

20

Q4

Bp

s

Net Supply Growth (bps, Right Axis) Supply Growth (%, Left Axis)

Absorption (%, Left Axis)

Compelling Long-Term Demographics

▪ Senior living targeted demographic of 85+ population is projected to grow

over 30% in the next five years.

▪ National healthcare spending is projected to grow at an average rate of

5.7% per year and reach $6.0 trillion by 2027.(3)

Operating Environment Easing

▪ Absorption was roughly in line with supply in Q1 2020.

▪ Combined with the favorable demographic outlook, we believe the supply-

demand imbalance that has persisted in recent history is shifting in favor

of senior living.

Age 85+ Population Growth(1)

(1) Source: U.S. Census Bureau, “2014 National Population Projections”.

(2) Source: NIC Map © Data Service, as of Q4 2019. For more information on the NIC MAP © Data Service, please visit www.nic.org/NIC-map

(3) Source: Centers for Medicare & Medicaid Services, www.cms.gov.

Senior Living Supply-Demand Trends(2)

17

NIC Actuals NIC Forecast2020E – 2035E

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Strategic PartnershipsFive Star is focused on collaborating with like-minded organizations that have shared values and a common goal of honoring and enriching the lives of older adults.

MIT Agelab™

▪ Access to insightful research.

▪ Network of potentialstrategic partners.

▪ Branding and differentiation opportunities.

▪ Hosted MIT AgeLab’s first national OMEGA Summit (Opportunities for Multigenerational Exchange, Growth and Action) to inspire innovative and differentiated programming for our communities and career opportunities in the senior living industry for the students involved.

National Senior Games™

▪ Demonstrated affinity with wellness of older adults.

▪ Strategic positioning opportunities for both Five Star and Ageility.

Aging2.0™

▪ Platform for Five Star to collaborate with other industry leaders in aging services and related fields to address biggest challenges and opportunities focused on older adult demographic.

▪ Strategic alignment across industries and related fields will create an interdisciplinary, intergenerational and interactive ecosystem of innovative products and services for older adults.

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COVID-19 ResponseLife is a Journey. Who you travel with matters.

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COVID-19 Response Phases

Phase I

•Execute proactive and effective response to COVID-19 crisis with focus on clinical frameworks and procedures, operational support and business continuity, robust communication and financial analysis.

•Continue to build and refine foundational capabilities to support COVID-19 response and beyond.

Phase II

•Assess impact of COVID-19 crisis, leverage organizational learnings to adapt and appropriately evolve strategic initiatives.

Phase III

•Move beyond COVID-19 response with renewed strategic intent and demonstrate measurable progress towards evolved vision.

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Key Focus Areas

Committed to Protecting our Residents, Patients and Team MembersFive Star established a cross-functional, inter-departmental COVID-19 task force to implement a multi-

pronged mitigation strategy, monitor updates from the Center for Disease Control and Prevention and federal,

state and local regulatory authorities and maintain enhanced infection control policies, procedures and

protocols.

Secure premises to reduce transmission:

•Enforced strict visitation protocols, restricting all non-essential visitors and halting all non-critical renovations and construction.

•Screen essential visitors and team members, including taking temperatures and requiring hand sanitization.

Enhance virus detection to identify

existing cases:

•Closely monitor the health of residents and team members with daily surveillance and screening.

•Implemented contact tracing and universal testing protocols to drive proactive

identification.

Implement robust infection control to

reduce transmission:

•Implemented intensive housekeeping protocols and consistent personal protective usage.

•Reorient dining protocols, including suspension of communal dining, catering, hospitality stations and self-service buffets.

•Eliminated social events and non-medical resident outings and routine social visits.

Provide resident support:

•Provided devices and connectivity options for interaction with family members, as well as virtual programming opportunities and distance learning.

•Organized complimentary counseling and support services for all residents.

COVID-19 Response

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Financial Overview

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Key Financial Metrics

Strong Balance Sheet as of March 31, 2020

▪ Liquidity.

▪ $37 million of unrestricted cash and cash equivalents on hand.

▪ Generated Adjusted Free Cash Flow of $9 million.

▪ No outstanding balance on $65 million revolving credit facility.

▪ Net working capital of $65 million.

Financial Performance

▪ Generated Adjusted EBITDA of $12 million for the quarter, which excludes one-time expenses of $24 million attributable to the restructuring with DHC.

▪ Achieved $4 million, or 22% (1), growth in Ageility due to the stabilization of 2019 opened clinics.

▪ Executed savings on strategic sourcing initiative of $0.3 million through March 31, 2020.

COVID-19 Impact in Q2 2020

▪ Expected declines in census.

▪ Increased costs related to personal protective equipment, labor and other operating costs.

▪ Delayed construction management projects.

23

(1) Compared to Pro Forma Q1 2019. For a reconciliation of Pro Forma data, see Appendix.

Financial Overview

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24Financial Overview

Condensed Consolidated Balance Sheets (in thousands)(unaudited)

March 31,

2020

December 31,

2019

Assets

Cash and cash equivalents $ 36,641 $ 31,740

Accounts receivable, net of allowance 10,941 34,190

Due from related person 40,949 5,533

Property and equipment, net 164,274 167,247

Other assets 93,943 107,083

Total assets $ 346,748 $ 345,793

Liabil ities and Shareholders' Equity

Revolving credit facility $ - $ -

Mortgage notes payable 7,445 7,533

Total debt 7,445 7,533

Accounts payable, accrued expenses and accrued

compensation and benefits 54,763 119,752

Other liabilities 83,931 98,527

Total liabilities 146,139 225,812

Total shareholders’ equity 200,609 119,981

Total l iabil ities and shareholders’ equity $ 346,748 $ 345,793

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EBITDA and Adjusted EBITDA(in thousands)(unaudited)

25Financial Overview

(1) Represents the excess of the fair value of the Share Issuances of $97,899 compared to the consideration of $75,000 paid by DHC.

(2) Costs incurred related to the Restructuring Transactions.

March 31, 2020

Pro Forma

March 31, 2019

Net (loss) income $ (17,209) $ 2,823

Add (less):

Interest and other expense 382 230

Interest, dividend and other income (339) (156)

Provision for income taxes 1,408 998

Depreciation and amortization expense 2,701 2,778

EBITDA (13,057) 6,673

Add (less):

Long-lived asset impairment - 3,148

Unrealized loss (gain) on equity investments 1,462 (366)

Loss on termination of leases(1) 22,899 -

Transaction costs(2) 1,095 -

Adjusted EBITDA $ 12,399 $ 9,455

For the three months ended

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Condensed Consolidated Statement of OperationsCompared to Q1 2019 Pro Forma Results(in thousands)(unaudited)

26Financial Overview

March 31, 2020

Pro Forma

March 31, 2019

Revenues:

Senior living $ 21,338 $ 20,845

Management fees 17,051 18,211

Rehabilitation and wellness services 21,043 17,293

Total management and operating revenues 59,432 56,349

Reimbursed community-level costs incurred on behalf

of managed communities 232,016 253,110

Other reimbursed expenses 5,997 -

Total revenues 297,445 309,459

Operating Expenses:

Senior living wages and benefits 10,202 9,477

Other senior living operating expenses 3,294 6,813

Rehabilitation and wellness services expenses 16,566 14,707

Community-level costs incurred on behalf of managed

communities 232,016 253,110

Rent expense 1,177 963

Other 25,566 21,356

Toal operating expenses 288,821 306,426

Loss on termination of leases 22,899 -

Other expense (income) 1,526 (788)

Provision for income taxes 1,408 998

Net (loss) income $ (17,209) $ 2,823

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Owned Senior Living Communities(as of March 31, 2020)(dollars in thousands)(unaudited)

27

(1) AL is primarily an assisted living community and IL is primarily an independent living community.

(2) Encumbered property under our $65.0 million revolving credit facility.

(3) Encumbered property under our $7.4 million mortgage note.

No. Community Name State

Property

Type( 1)

Living

Units

Quarterly

Senior Living

Revenue

Gross

Carrying

Value

Net Carrying

Value

Date

Acquired

Year Built or

Most Recent

Renovation

1. Morningside of Decatur (2) Alabama AL 49 338$ 3,628$ 2,198$ 11/19/2004 1999

2. Morningside of Auburn Alabama AL 42 427 2,261 1,571 11/19/2004 1997

3. The Palms of Fort Myers (2) Florida IL 218 1,913 30,453 15,523 4/1/2002 1988

4. Five Star Residences of Banta Pointe (3) Indiana AL 121 808 18,222 12,962 9/29/2011 2006

5. Five Star Residences of Fort Wayne (2) Indiana AL 154 1,217 25,632 18,062 9/29/2011 1998

6. Five Star Residences of Clearwater Indiana AL 88 391 9,742 5,658 6/1/2011 1999

7. Five Star Residences of Lafayette (2) Indiana AL 109 593 15,509 10,788 6/1/2011 2000

8. Five Star Residences of Noblesville (2) Indiana AL 151 1,369 25,070 17,942 7/1/2011 2005

9. The Villa at Riverwood (2) Missouri IL 110 649 6,835 3,277 4/1/2002 1986

10. Carriage House Senior Living North Carolina AL 98 1,126 8,399 5,499 12/1/2008 1997

11. Forest Heights Senior Living North Carolina AL 111 914 13,567 9,074 12/1/2008 1998

12. Fox Hollow Senior Living (2) North Carolina AL 77 984 11,026 7,392 7/1/2000 1999

13. Legacy Heights Senior Living (2) North Carolina AL 116 1,610 12,527 8,218 12/1/2008 1997

14. Morningside at Irving Park North Carolina AL 91 687 6,803 3,840 11/19/2004 1997

15. Voorhees Senior Living (2) New Jersey AL 104 1,172 10,241 6,252 7/1/2008 1999

16. Washington Township Senior Living (2) New Jersey AL 103 1,017 10,159 6,245 7/1/2008 1998

17. The Devon Senior Living Pennsylvania AL 84 782 6,817 3,915 7/1/2008 1985

18. The Legacy of Anderson South Carolina IL 101 594 1,352 503 12/1/2008 2003

19. Morningside of Springfield (2) Tennessee AL 54 465 3,654 1,835 11/19/2004 1984

20. Huntington Place Wisconsin AL 127 786 17,399 11,503 7/15/2010 1999

Total 2,108 17,842$ 239,296$ 152,257$


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