Leases and Management Agreements with Five Star

Our Senior Living Communities Leased by Five Star. We are Five Star’s largest landlord and Five Star is our largest tenant. As of March 31, 2019 and 2018, we leased 184 and 185 senior living communities to Five Star, respectively. We lease senior living communities to Five Star pursuant to five master leases.

Five Star has announced that, due to current senior living industry conditions, its recurring operating losses and the risk that it may not be able to obtain sufficient funding for its operating requirements, a substantial doubt existed regarding Five Star's ability to continue as a going concern. On March 11, 2019, we entered into a letter agreement with Five Star, pursuant to which, with respect to our master leases with Five Star, we agreed to defer, until March 31, 2019, payment of the aggregate minimum rent due and payable by Five Star to us under the lease agreements for February 2019. On April 1, 2019, we entered into a transaction agreement with Five Star, or the Transaction Agreement, pursuant to which we agreed to modify our existing business arrangements with Five Star, subject to certain conditions and the receipt of various approvals, as further described in Note 14. We cannot be sure whether the transactions contemplated by the Transaction Agreement will be completed or whether Five Star will be able to continue as a going concern.

We recognized rental income payable by Five Star of $39,313 and $51,759 for the three months ended March 31, 2019 and 2018, respectively. These amounts exclude variable payments we received from Five Star of $538 and $1,374 for the three months ended March 31, 2019 and 2018, respectively. We determine actual variable payments due under our Five Star leases annually and recognize any resulting amount as rental income at year end when all contingencies are met. As of March 31, 2019 and December 31, 2018, we had rents receivable from Five Star of $22,000 and $18,697, respectively, which amounts are included in other assets in our condensed consolidated balance sheets. Rental income from Five Star represented 14.8% of our total revenues for the three months ended March 31, 2019, and the properties Five Star leases from us represented 26.5% of our real estate investments, at cost, as of March 31, 2019.

Pursuant to the terms of our leases with Five Star, for the three months ended March 31, 2019, we funded $22,579 of improvements to communities leased to Five Star. We did not fund any capital improvements at communities leased to Five Star for the three months ended March 31, 2018.

Our Senior Living Communities Managed by Five Star. As of March 31, 2019 and 2018, Five Star managed 76 and 72 senior living communities for our account, respectively. We lease our senior living communities that are managed by Five Star and include assisted living units or SNF units to our TRSs, and Five Star manages these communities pursuant to long term management and pooling agreements. As further described in Note 14, pursuant to the Transaction Agreement we have agreed to replace our long term management and pooling agreements with Five Star with new management agreements, subject to certain conditions and the receipt of various approvals.

We incurred management fees payable to Five Star of $3,789 and $3,494 for the three months ended March 31, 2019 and 2018, respectively. These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

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



Revenue from contracts with customers:	Three Months Ended March 31, 2019
Basic housing and support services	$	87,412
Medicare and Medicaid programs	8,745
Private pay and other third party payer SNF services	11,888
Total residents fees and services	$	108,045

Five Star also provides certain other services directly to residents at some of the senior living communities it manages for our account, such as rehabilitation services. At senior living communities Five Star manages for us where Five Star provides rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay Five Star for those rehabilitation services. At senior living communities Five Star manages for us where Five Star provides both inpatient and outpatient rehabilitation services, we generally pay Five Star for these services and charges for these services are included in amounts charged to residents, third party payers or government programs. We incurred fees payable to Five Star of $1,675 and $1,699 for the three months ended March 31, 2019 and 2018, respectively, for rehabilitation services Five Star provided at senior living communities it manages for us; we include these amounts in property operating expenses in our condensed consolidated statement of comprehensive income.