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Second Quarter Revenues of $274.5 million

Second Quarter Net Income of $4.2 million

Second Quarter Adjusted EBITDA of $8.6 million

Occupancy Increased 160 Basis Points in Second Quarter Compared to Last Year

NEWTON, Mass.–(BUSINESS WIRE)–(Nasdaq: FVE) today announced its financial results for the quarter and six months ended June 30, 2019.

“We are excited to report substantial progress during the quarter, our first profitable period since the second quarter of 2013,” stated Katie Potter, President and Chief Executive Officer of Five Star Senior Living Inc. “Notably, we are very pleased that there no longer exists a substantial doubt about our continuing as a going concern. Additionally, we are pleased that we generated Adjusted EBITDA of $8.6 million this quarter and occupancy at owned and leased communities has increased, or remained flat, for the last five consecutive quarters, increasing 160 basis points this quarter compared to last year. We remain on track regarding the restructuring of our business arrangements with Senior Housing Properties Trust and we made significant strides regarding this effort during the quarter, including receiving stockholder approval to move forward with the restructuring and closing on our new $65.0 million secured revolving credit facility.”

Financial Results for the quarter ended June 30, 2019:

  • Senior living revenue for the second quarter of 2019 increased 1.3% to $274.5 million from $270.9 million for the same period in 2018, primarily due to increases in occupancy and average monthly rates for residents who pay privately for services, as well as increases in revenues attributable to ancillary services, such as rehabilitation and wellness services. These increases were partially offset by Five Star’s sales during the first half of 2018 of four senior living communities to Senior Housing Properties Trust (Nasdaq: SNH), which communities Five Star now manages for SNH’s account, as well as a skilled nursing facility, or SNF, to a third party, and the sale during the second quarter of 2019 of three SNFs to a third party. Management fee revenue for the second quarter of 2019 increased 6.5% to $4.0 million from $3.8 million for the same period in 2018, primarily due to an increase in the number of managed communities to 77 from 75 for the same period in 2018.
  • Net income for the second quarter of 2019 was $4.2 million, or $0.08 per share, compared to a net loss of $20.9 million, or $0.42 per share, for the same period in 2018. Net income for the second quarter of 2019 included $1.1 million, or $0.02 per share, of costs related to the transaction agreement Five Star entered into with SNH on April 1, 2019, or the Transaction Agreement, and $0.4 million, or $0.01 per diluted share, of net severance costs incurred during the second quarter of 2019 related to payments owed to a former Five Star executive officer. Net loss for the second quarter of 2018 included a gain on sale of senior living communities of $1.5 million, or $0.03 per share, primarily due to Five Star’s sale in June 2018 of two senior living communities to SNH, which communities Five Star now manages for SNH’s account. Net income for the second quarter of 2019 increased approximately $25.0 million primarily due to a decrease in rent expense of $18.9 million attributable to the reduction in our minimum monthly rent payable to SNH pursuant to the Transaction Agreement.
  • Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the second quarter of 2019 was $6.9 million compared to $(11.3) million for the same period in 2018. EBITDA excluding certain items, or Adjusted EBITDA, for the second quarter of 2019 was $8.6 million compared to $(12.2) million for the same period in 2018. A reconciliation of net income (loss) determined in accordance with U.S. generally accepted accounting principles, or GAAP, to EBITDA and Adjusted EBITDA for the quarters ended June 30, 2019 and 2018 appears later in this press release.

Operating Results for the quarter ended June 30, 2019:

  • Occupancy at owned and leased senior living communities for the second quarter of 2019 increased 160 basis points to 83.0% compared to 81.4% for the same period in 2018.
  • Average monthly rates at owned and leased senior living communities for the second quarter of 2019 increased 0.8% to $4,745 from $4,709 for the same period in 2018.
  • The percentage of revenue derived from residents’ private resources at owned and leased senior living communities for the second quarter of 2019 was 79.1% compared to 78.0% for the same period in 2018.

Financial Results for the six months ended June 30, 2019:

  • Senior living revenue for the six months ended June 30, 2019 increased 1.1% to $551.4 million from $545.4 million for the same period in 2018, primarily due to increases in occupancy and average monthly rates for residents who pay privately for services, as well as increases in revenues attributable to ancillary services, such as rehabilitation and wellness services. These increases were partially offset by Five Star’s sales during the first half of 2018 of four senior living communities to SNH, which communities Five Star now manages 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. Management fee revenue for the six months ended June 30, 2019 increased 8.2% to $8.0 million from $7.4 million for the same period in 2018, primarily due to an increase in the number of managed communities to 77 from 75 for the same period in 2018.
  • Net loss for the six months ended June 30, 2019 was $29.0 million, or $0.58 per share, compared to a net loss of $28.8 million, or $0.58 per share, for the same period in 2018. Net loss for the six months ended June 30, 2019 included $8.8 million, or $0.18 per share, of costs related to the Transaction Agreement, $3.3 million, or $0.07 per share, related to long lived impairment charges recorded by Five Star to reduce the carrying value of certain long lived assets to their estimated fair values and $0.4 million, or $0.01 per share, of net severance costs incurred during the second quarter of 2019 related to payments owed to a former Five Star executive officer. Net loss for the six months ended June 30, 2018 included a gain on sale of senior living communities of $7.2 million, or $0.14 per share, primarily due to Five Star’s sale during the first half of 2018 of four senior living communities to SNH, which communities Five Star now manages for SNH’s account.
  • EBITDA for the six months ended June 30, 2019 was $(15.9) million compared to $(9.5) million for the same period in 2018. Adjusted EBITDA was $(3.3) million for the six months ended June 30, 2019 and $(15.9) million for the same period 2018. A reconciliation of net loss determined in accordance with GAAP to EBITDA and Adjusted EBITDA for the six months ended June 30, 2019 and 2018 appears later in this press release.

Restructuring of Business Arrangements with SNH:

As previously disclosed, in April 2019, Five Star entered into the Transaction Agreement with SNH, pursuant to which Five Star and SNH agreed to restructure their existing business arrangements, subject to certain conditions and the receipt of various approvals.

  • Effective January 1, 2020 (or January 1, 2021 if extended under the Transaction Agreement), or the Conversion Time, Five Star’s existing five master leases with SNH for SNH’s senior living communities leased to Five Star, as well as Five Star’s existing management agreements and pooling agreements with SNH for SNH’s senior living communities managed by Five Star for SNH’s account, will be terminated and replaced with new management agreements between Five Star and SNH for all of these senior living communities.
  • At the Conversion Time, Five Star will issue to SNH such number of Five Star common shares as is necessary to cause SNH to own, when considered together with Five Star common shares then owned by SNH, approximately 34% of Five Star’s then outstanding common shares, and SNH will declare a pro rata distribution to the holders of its common shares of beneficial interest of the right to receive, and Five Star will issue on a pro rata basis to such holders, a number of Five Star common shares which equals approximately 51% of Five Star’s then outstanding common shares, or, together, the Share Issuances; the noted percentage ownership amounts are post-issuance, giving effect to the Share Issuances. On June 11, 2019, Five Star’s stockholders approved the Share Issuances in satisfaction of one of the conditions to the restructuring of Five Star’s business arrangements with SNH.
  • At the Conversion Time, as consideration for the Share Issuances, SNH will provide to Five Star $75.0 million of additional consideration.
  • Commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to SNH by Five Star under Five Star’s master leases with SNH is $11.0 million, subject to adjustment and extension, and no additional rent is payable to SNH by Five Star from such date to the Conversion Time.
  • On April 1, 2019, SNH purchased from Five Star approximately $50.0 million of unencumbered fixed assets and improvements related to SNH’s senior living communities leased to and operated by Five Star, which amount was subsequently reduced to $49.2 million.
  • In connection with the Transaction Agreement, Five Star entered into a credit agreement with SNH pursuant to which SNH extended to Five Star a $25.0 million line of credit, which is secured by six senior living communities owned by Five Star. This line of credit matures at the Conversion Time, and there are currently no amounts outstanding under this line of credit.

Financing Activities:

In June 2019, Five Star entered into a new $65.0 million secured revolving credit facility, which replaced its previously existing secured revolving credit facility. At the time it entered into the new credit facility, Five Star had borrowings of approximately $51.5 million outstanding under its previous credit facility, which amount remained outstanding under the new credit facility until Five Star fully repaid that amount later in June 2019. The new credit facility matures in June 2021, and, subject to Five Star’s payment of extension fees and meeting other conditions, Five Star has the option to extend the stated maturity date of the new credit facility for a one year period. Five Star is required to pay interest at an annual rate of LIBOR plus 250 basis points per annum, or at a base rate, as defined in the agreement governing the credit facility, plus 150 basis points per annum, on borrowings under the new credit facility. Other terms of the new credit facility are substantially similar to those of Five Star’s previously existing credit facility.

Other:

  • In April 2019, Five Star and SNH entered into an agreement to sell to a third party two SNFs located in Wisconsin that SNH owns and leases to Five Star. Following completion of these sales, Five Star is not expected to operate those facilities.
  • Also in April 2019, Five Star began managing for SNH’s account a senior living community 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 Five Star and SNH.
  • In May 2019, Five Star and SNH sold to a third party three SNFs located in California that SNH owned and leased to Five Star, and Five Star no longer operates those facilities.
  • Also in May 2019, Five Star and SNH entered into an agreement to sell to a third party 15 SNFs located in Iowa, Nebraska and Kansas that SNH owns and leases to Five Star. Following completion of these sales, Five Star is not expected to operate those facilities.
  • On June 12, 2019, Five Star announced its intention to effect a 1:10 reverse stock split of its issued and outstanding shares of common stock on or before September 30, 2019. Five Star expects that, as a result of the reverse stock split, Five Star will regain compliance with Nasdaq listing standards.
  • On August 6, 2019, Five Star announced the appointment of Margaret Wigglesworth as Senior Vice President and Chief Operating Officer. Ms. Wigglesworth will lead Five Star’s operations and direct various aspects of its administrative functions. Ms. Wigglesworth joins Five Star with extensive management experience spanning nearly three decades, including previously held leadership roles at the International Council of Shopping Centers, Cresa and Colliers International Group Inc.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Executive Officer, Katherine Potter, and Executive Vice President, Chief Financial Officer and Treasurer, Jeffrey Leer, will host a conference call to discuss Five Star’s second quarter 2019 results.

The conference call telephone number is (877) 329-4332. Participants calling from outside the United States and Canada should dial (412) 317-5436. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Wednesday, August 14, 2019. To access the replay, dial (412) 317-0088. The replay pass code is 10132499.

A live audio webcast of the conference call will also be available in a listen-only mode on Five Star’s website, www.fivestarseniorliving.com. Participants wanting to access the webcast should visit Five Star’s website about five minutes before the call. The archived webcast will be available for replay on Five Star’s website following the call for about a week. The transcription, recording and retransmission in any way of Five Star’s second quarter 2019 conference call are strictly prohibited without the prior written consent of Five Star. Five Star’s website is not incorporated as part of this press release.

About Five Star Senior Living Inc.:

Five Star Senior Living Inc. is a senior living and healthcare services company. As of June 30, 2019, Five Star operated 282 senior living communities with 31,996 living units located in 33 states, including 205 communities (21,912 living units) that it owned or leased and 77 communities (10,084 living units) that it managed. These communities include independent living, assisted living, continuing care retirement and skilled nursing communities. Five Star is headquartered in Newton, Massachusetts.

 

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

)

 

FIVE STAR SENIOR LIVING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

(unaudited)

 

 

 

June 30,

 

December 31,

 

 

2019

 

2018

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

 

35,500

 

 

$

 

29,512

 

Accounts receivable, net of allowance

 

 

36,619

 

 

 

37,758

 

Due from related persons

 

 

3,698

 

 

 

7,855

 

Investments

 

 

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

 

 

 

 

 

 

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

 

 

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 (income) 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

 

 

FIVE STAR SENIOR LIVING INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands)

(unaudited)

Non-GAAP financial measures are financial measures that are not determined in accordance with GAAP. Five Star believes the non-GAAP financial measures presented in the table below are meaningful supplemental disclosures because they may help investors gain a better understanding of changes in Five Star’s operating results and its ability to pay rent or service debt, make capital expenditures and expand its business. These non-GAAP financial measures also may help investors make comparisons between Five Star and other companies on both a GAAP and a non-GAAP basis. Five Star believes that EBITDA and Adjusted EBITDA are meaningful financial measures that may help investors better understand its financial performance, including by allowing investors to compare Five Star’s performance between periods and to the performance of other companies. EBITDA and Adjusted EBITDA are used by management to evaluate Five Star’s financial performance and compare Five Star’s performance over time and to the performance of other companies. Five Star calculates EBITDA and Adjusted EBITDA as shown below. These measures should not be considered as alternatives to net income (loss) or operating income (loss), as indicators of Five Star’s operating performance or as measures of Five Star’s liquidity.

Contacts

Michael Kodesch, Director, Investor Relations

(617) 796-8245

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