1159281--2/19/2010--FIVE_STAR_QUALITY_CARE

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RISKS RELATED TO OUR BUSINESS A small percentage decline in our revenues or increase in our expenses could have a material negative impact upon our operating results. Circumstances that adversely affect the ability of seniors, or their families, to pay for our services could have a material adverse effect on us. Seniors' inability to sell real estate may delay their moving into senior living facilities. The failure of Medicare and Medicaid rates to match our costs will reduce our income. Our rehabilitation hospitals may be subject to Medicare reclassifications resulting in lower Medicare rates, or to retroactive repayments. Private third party payors continue to try to reduce health care costs. Healthcare reform legislation could reduce our income and increase our costs. Increases in our labor costs may have a material adverse effect on us. Successful union organization of our employees may adversely affect our business performance and results of operations. Our business is subject to extensive regulation which increases our costs and may result in losses. The nature of our business exposes us to litigation risks. Our growth strategy may not succeed. We continue to seek acquisitions and other strategic opportunities that may require a significant amount of management resources and costs. Failure to comply with laws governing the privacy and security of personal information, including information relating to health, could materially and adversely affect our financial condition and results of operations. Termination of assisted living resident agreements and resident attrition could adversely affect our revenues and earnings. Our business requires us to make significant capital expenditures to maintain and improve our facilities. Our business is highly competitive and we may be unable to operate profitably. We are subject to possible conflicts of interest; we have engaged in, and expect to continue to engage in, transactions with parties who may be considered related parties. Our leases of certain of our senior living communities are subordinated to mortgage debt of SNH, and a default by SNH could result in the termination of those leases. Disputes with SNH and RMR and shareholder litigation against us or our directors and officers may be referred to arbitration proceedings. Climate change legislation and resulting increased energy costs at our communities could materially and adversely affect our financial condition and results of operations. RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE Ownership limitations and anti-takeover provisions in our charter, bylaws and certain material agreements, as well as certain provisions of Maryland law, may prevent our shareholders from receiving a takeover premium or implementing beneficial changes. Our rights and the rights of our shareholders to take action against our directors and officers are limited. RISKS RELATED TO OUR NOTES AND COMMON SHARES Any notes we may issue will be effectively subordinated to the debts of our subsidiaries and to our secured debt. We may be required to prepay our debts upon a change of control. Our Notes may permit redemption before maturity, and our noteholders may be unable to reinvest proceeds at the same or a higher rate. There may be no public market for notes we may issue and one may not develop. Increased leverage may harm our financial condition and results of operations. We do not intend to pay cash dividends on our common shares in the foreseeable future. The price of our common shares has fluctuated, and a number of factors may cause our common share price to decline.

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1159281--2/19/2010--FIVE_STAR_QUALITY_CARE_INC