American Health Properties, Inc. reports strong first quarter results for Core Group and $50 million of new commitments.

DENVER--(BUSINESS WIRE)--April 22, 1997--

Psychiatric Group operating results moderately lower and

impairment charge recorded for two facilities

The Board of Directors of American Health Properties, Inc. declared a first quarter dividend of $.525 per share on the Company's Core Group Common Stock (NYSE:AHE) and a first quarter dividend of $.75 per Psychiatric Group Depositary Share (NASDAQ:AHEPZ) payable May 21, 1997 to shareholders of record May 7, 1997.

Highlights: Core Group Common Stock (NYSE:AHE)

The Core Group dividend remains at the same level as the January dividend, consistent with the Company's previously announced plan to generally review the dividend on an annual basis. Core Group funds from operations (FFO) for the first quarter of 1997 was $13,543,000 ($.58 per share) compared to $12,825,000 ($.55 per share), for the first quarter of 1996, an increase of 5.6% in gross FFO.

The Core Group had a strong quarter for investments with over $50 million in new commitments in assisted living, skilled nursing and long-term acute care (LTAC) hospital facilities.

The Company meaningfully reduced its cost of debt during the first quarter. On January 23, l997, the Company completed its first public debt offering. It issued a total of $220 million of senior unsecured notes comprised of $100 million of notes due January 15, 2002 with a coupon of 7.05% and $120 million of notes due January 15, 2007 with a coupon of 7.50%. The Company used the net proceeds to repay all outstanding borrowings under its $150 million bank facility and to repay all of its $152 million of outstanding private placement debt in late February 1997. The debt prepaid had an average interest rate of approximately 11%. In connection with the prepayment of this debt, the Company incurred a extraordinary charge of $11,427,000 consisting of a make-whole premium and other costs related to the prepayment. This charge had no impact on FFO or dividends for the quarter.

Joseph P. Sullivan, Chairman, President and Chief Executive Officer of the Company, stated, "The first quarter results for the Core Group reflect the positive benefits of the Company's financial and investment initiatives. We significantly lowered our cost of capital during the quarter. Our investment strategy is relationship based. We are diversifying the core portfolio by acquiring a range of health care facilities managed by experienced operators. This quarter's $50 million of commitments include first-time relationships with Integrated Living Communities, Inc. and Covenant Care, Inc. We also completed our first merchant banking investment with a $1.5 million purchase of equity in Spectrum Comprehensive Care, Inc. The Core Group portfolio, reflecting seasoned assets, is doing well with the cash flows of these facilities covering the operators' obligations to us by more than three times. We are now well-positioned to continue to build the portfolio."

Highlights: Psychiatric Group Depositary Shares (NASDAQ:AHEPZ)

The financial performance of the psychiatric portfolio, as reflected by the Psychiatric Group Depositary Shares, was down from the fourth quarter of 1996. Psychiatric Group FFO for the first quarter of l997 decreased to $1,716,000 ($.82 per depositary share) compared to $1,821,000 ($.87 per depositary share) for the fourth quarter of 1996. Consistent with the Board's announced policy of setting the Psychiatric Group's dividend each quarter based on FFO for the related quarter, the Psychiatric Group's first quarter dividend was decreased to $.75 per depositary share.

The previously reported financial and operational problems at the two Florida psychiatric hospitals significantly worsened during the first quarter of 1997. After reviewing the decreased census levels that were well below the owners' and operator's expectations, operational and financial problems of the hospitals and various alternatives for the facilities, the Psychiatric Group recorded an $11 million charge (3.3% of the Company's total equity) in the first quarter for impairment of the carrying value of these two investments. This charge had no current impact on FFO or dividends for the Psychiatric Group for the quarter, although it is likely that the difficulties at the two Florida facilities will have a negative impact on FFO and dividend levels for the Psychiatric Group in the future. The Psychiatric Group received base rent payments from these two facilities in the first quarter totaling $325,000 ($.16 per depositary share). The impairment charge had no impact on net income, dividends or FFO for the Core Group. The Psychiatric Group will continue to work closely with the owners and their operator to assess the range of options potentially available for these facilities.

Joseph P. Sullivan, Chairman, President and Chief Executive Officer of the Company, stated, "This was a difficult quarter for the Psychiatric Group. Although the FFO for the quarter was relatively strong, it became necessary to adjust the carrying value of two investments. In the Psychiatric Group, we feel we have a number of fine operators dedicated to providing quality care within a difficult reimbursement environment. We will continue to work closely with each of them as they try to respond effectively to their individual markets, consistent with what we believe is in the best long-term interests of our shareholders. At times, this may require a change of operator or consideration of alternative uses for a facility."

Core Group Discussion:

Core Group FFO increased 5.6% on a gross basis to $13,543,000 ($.58 per share) for the first quarter of 1997 from $12,825,000 ($.55 per share) for the first quarter of 1996. The Core Group's first quarter dividend of $.525 per share represents a payout ratio of approximately 91% of FFO. As a result of the Company's recent public debt offering, the prepayment of its existing private placement debt and the benefits of new investments, the Company anticipates that the Core Group's payout ratio may decline in future quarters of 1997.

Core Group net income before extraordinary loss for the first quarter of l997 increased 6.6% to $9,930,000 ($.42 per share) on revenues of $21,322,000 as compared to net income of $9,319,000 ($.40 per share) on revenues of $20,186,000 for the first quarter of 1996.

The Core Group has agreed to provide real estate financing to three different operators aggregating approximately $50 million. Of this amount, approximately $46 million has been committed to five assisted living and two skilled nursing projects to be constructed over the next 12 to 15 months and $4.4 million has been committed to the financing of an existing LTAC hospital within the next two months. An additional $30 million of financing has been committed to these operators to fund future acquisitions or projects to be agreed upon.

During the first quarter of 1997, the Core Group made a $1.5 million preferred stock equity investment in Spectrum Comprehensive Care, Inc., an emerging private operator of LTAC facilities in both freestanding and hospital locations. This investment represents an interest in the operating company of approximately 8%. The Core Group also continued to fund the acquisition and renovation of a $6.2 million freestanding LTAC hospital in Amarillo, Texas for this same operator.

The Core Group completed $4 million of construction funding for the Pine Haven II Alzheimer's Community in southwest Houston, Texas and commenced the lease on this facility.

Psychiatric Group Discussion:

Psychiatric Group FFO decreased to $.82 per depositary share for the first quarter of 1997 from $.87 per depositary share in the fourth quarter of 1996.

The Psychiatric Group dividend for the first quarter of 1997 has been decreased to $.75 per depositary share from $.80 per depositary share for the fourth quarter of 1996. It continues to be the policy of the Board to review the dividend for the Psychiatric Group on a quarterly basis and to maintain a dividend payout ratio for each quarter in excess of 90% of the related quarter's FFO. The Psychiatric Group's first quarter dividend of $.75 per depositary share represents a payout ratio of approximately 91% of FFO.

As a result of a review of the significantly deteriorated financial circumstances at the two Florida psychiatric hospitals (The Retreat and Northpointe Behavioral Health System), the Psychiatric Group recorded an impairment loss to reduce the carrying value of these assets by $11 million. After this charge, the Psychiatric Group's total equity is approximately $37 million or $17.64 per depositary share. There is no current impact on FFO as a result of this charge. However, the ultimate resolution of the financial situation at these two Florida facilities could significantly reduce or eliminate rental income from these facilities, which would have a correspondingly negative impact on FFO and dividend levels for the Psychiatric Group in the future. The Psychiatric Group received base rent payments from these two facilities in the first quarter totaling $325,000 ($.16 per depositary share). Primarily as a result of the impairment charge, the Psychiatric Group had a net loss for the first quarter of 1997 of ($9,470,000) or (($4.52) per depositary share) on revenues of $2,401,000 as compared to net income of $1,635,000 ($.78 per depositary share) on revenues of $2,427,000 for the fourth quarter of 1996. Excluding the impairment loss, net income for the first quarter of 1997 would have been $1,530,000 ($.73 per depositary share). Psychiatric Group operating results for the comparable periods primarily reflect a decrease in revenues due to the partial deferral of rent and interest at the two Florida psychiatric facilities.

The Company remains committed to optimizing the value of each of the investments in the Psychiatric Group's portfolio over time, and continues to closely monitor the fundamental changes occurring in the psychiatric industry, specific developments affecting individual operators and the potential impact on individual facilities in the portfolio. The Company recognizes that a successful response to these changes and developments may require the restructuring of individual facilities, a change in operator or other actions. Operators may request interim rent or interest relief while a facility is being restructured to meet the needs of its local or regional market. Each such request is evaluated based on its merits and in the context of what is believed to be in the best long-term interests of the Psychiatric Group and the operator. The Company believes that setting the dividend rate each quarter is also consistent with this period of change in the industry.

During the first quarter of 1997, the Psychiatric Group continued to be in active dialogue with each of its operators.

The two Four Winds facilities, Four Winds Hospital - Katonah and Four Winds Hospital - Saratoga, continue to maintain strong clinical reputations and are operating with very high levels of inpatient census. Both facilities are working to develop an integrated behavioral health care delivery system in lower and upper New York state. Although such a system is intended to create a cost- effective response to the potential negative consequences of the expected changes in Medicaid reimbursement and the increase in managed care penetration in the state of New York, it is not possible to predict the impact and timing of such changes and whether the proposed system will be successful in that new environment.

As previously reported, the two Florida psychiatric facilities (The Retreat and Northpointe Behavioral Health System) have been experiencing cash flow and operational difficulties during l997 and 1996 which have negatively impacted their ability to pay their rental and interest obligations to the Psychiatric Group as they become due. In late 1996, the owners of The Retreat and Northpointe were named, along with operators of other psychiatric facilities in Florida, in a lawsuit filed by several large insurance companies alleging widespread irregularities with respect to operations in years prior to 1995. Adverse publicity from the lawsuit appears to have materially exacerbated the operational and financial difficulties of Northpointe and The Retreat. Such operational and financial difficulties significantly worsened during the first quarter of 1997. The census at Northpointe in l997 has been falling significantly below the levels projected by the owner at the end of 1996 and has now reached a level which makes it appear unlikely that the facility can be financially successful as currently operated.

Although Northpointe made its monthly contractual base rent payments of $50,000 during the fourth quarter of 1996 and for January 1997, it has been unable to pay its subsequent monthly contractual rent and interest obligations in spite of numerous operational efforts, including appointing a new executive director and marketing director during this period. The owner and the Psychiatric Group are currently exploring a range of options including the transfer of the hospital to a new operator or possible alternative uses for the 22 acre campus. As a result of this review, the Psychiatric Group recorded an impairment loss in the first quarter of 1997 and reduced the carrying value of its investment by $5,100,000 to $2,000,000. Total rent paid by Northpointe during 1996 was $200,000 or $.10 per depositary share. Rent paid by Northpointe in the first quarter of 1997 was $50,000 or $.02 per depositary share.

The Retreat made all of its contractual rent and interest payments to the Psychiatric Group in l996. Adverse publicity from the aforementioned lawsuit also began having a negative impact on The Retreat during the first quarter of 1997. The facility has been experiencing a deterioration of its cash flow and a decline in census during 1997. Although The Retreat made its contractual base rent and interest payments in 1997 through April, The Retreat made its February l997 contractual base rent payment of $92,000 from lease reserve funds and has not yet paid its additional rent for the first quarter of 1997 of approximately $45,000. The owner is undertaking a number of initiatives designed to improve the existing situation, however, under the current circumstances, there can be no assurance that The Retreat will be able to continue to meet its obligations, and it is likely that rent and interest relief will be necessary. Additionally, due to the volatile circumstances at The Retreat, the owner and the Psychiatric Group are currently exploring various alternatives for the facility. The Retreat, constructed in 1989, is comprised of five modern facilities on a nine acre campus in Sunrise, Florida. As a result of recent deterioration of The Retreat's census levels and cash flows and based on discussions with the owner, the Psychiatric Group recorded an impairment loss in the first quarter of 1997 and reduced the carrying value of its investment by $5,900,000 to $3,400,000. The quarterly contractual base rent obligation of The Retreat is $275,000 or $.13 per depositary share.

Rock Creek Center (RCC) met all of its financial obligations to the Psychiatric Group during the quarter. During the first quarter of 1996, it had experienced operational and cash flow difficulties as a result of lower than expected census and certain payor reimbursement issues. The Psychiatric Group advanced $214,000 on behalf of the operator to pay property taxes on the facility in 1996, and reached an agreement with the operator for the deferral of base rent payments while the operator took certain actions to stabilize operations and implement its revised business plan. After a period of partial rental payments, full monthly base rent payments of $83,000 have been paid since November 1996. The Psychiatric Group's property tax advance has been reduced by monthly payments to $78,000 as of March 31, 1997. The deferred rental obligations are to be paid in the future only when the facility's cash exceeds a specified level. To date, no deferred rental payments have been paid. Total rental payments received from RCC in the first quarter were $273,000 or $.13 per depositary share.

The $2,500,000 balance outstanding under a revolving credit agreement provided to RCC by the Psychiatric Group matures in June 1997. The Psychiatric Group believes that an extension of the revolving credit agreement to correspond with the December 1997 expiration of RCC's current lease term will be negotiated. Any further extensions will be addressed in connection with lease renewal negotiations. Although the Psychiatric Group believes that the lease will be renewed, there can be no assurance that the lease will be renewed or that, if renewed, the annual minimum rent payments will remain at the current level of $1,000,000.

The Board of Directors of the Company will continue to review the Psychiatric Group dividend on a quarterly basis. The level of dividends of the Psychiatric Group in the past year have varied quarter-to-quarter. In light of the uncertainty surrounding the ultimate financial outcome of the two Florida investments, it is likely that the next quarter dividend will be adjusted downward to reflect an expected loss of some or all of the income from those assets. In addition to the foregoing developments, future cash flows of the Psychiatric Group will be affected by the level of additional rent and interest, the amount of additional financial advisory fees and if necessary, various costs which might be incurred in an effort to protect and maintain its investments and to pursue alternatives.

Cautionary Statement Regarding Future Results and Forward-Looking Statements

Statements that are not historical facts contained in this press release are forward-looking statements that involve risks and uncertainties that could cause actual results to differ from projected results. Certain factors that could cause actual results to differ materially include, among others: the financial success of the operations conducted at the Company's facilities and the financial strength of the operators of such facilities, the continuing ability of operators to meet their obligations to the Company under existing or restructured agreements, changes in operators or ownership of operators, the viability of alternative uses for the Company's properties when necessary, changes in government policy relating to the health care industry including reductions in reimbursement levels under the Medicare and Medicaid programs, operators' continued eligibility to participate in the Medicare or Medicaid programs, reductions in reimbursement by other third-party payors, lower occupancy levels at the Company's facilities, the strength and financial resources of the Company's competitors, the availability and cost of capital, the Company's ability to make additional real estate investments at attractive yields and changes in tax laws and regulations affecting real estate investment trusts.

Summary Background Information

The Common Stock represents the Company's approximately $600 million of core investments in acute care hospitals, rehabilitation hospitals, a long-term acute care hospital, assisted living facilities, skilled nursing facilities, Alzheimer's care facilities and a medical office building (the "Core Group"). The Psychiatric Group Depositary Shares represent the Company's $52 million of investments in five psychiatric hospitals (the "Psychiatric Group"). The assets, liabilities, revenues and expenses of the Company have been allocated between the Core Group and the Psychiatric Group.

American Health Properties, Inc. is a real estate investment trust (REIT) specializing in quality health care facilities. The Company currently has in excess of $650 million of investments in health care facilities located in 17 states. -0-

                  AMERICAN HEALTH PROPERTIES, INC.
                FINANCIAL HIGHLIGHTS - FIRST QUARTER
              (In thousands except per share amounts)
                            (Unaudited)

                    Consolidated     Core Group     Psychiatric Group
                                 Three Months Ended March 31,
                         1997    1996    1997    1996    1997    1996

Revenues
Rental income          17,810  17,298  17,229  16,717     581     581
Mortgage interest
  income                1,517   1,493       0       0   1,517   1,493
Additional rental and
  interest income       2,976   2,948   2,772   2,766     204     182
Other interest income   1,030     382     931     283      99      99
Interest on loans to
  Psychiatric Group         0       0     390     420       0       0
                       23,333  22,121  21,322  20,186   2,401   2,355
Expenses
Depreciation and
  amortization          3,828   3,725   3,642   3,539     186     186
Interest Expense        6,107   5,766   6,107   5,766       0       0
Interest on loans from
  Core Group                0       0       0       0     390     420
General and
  administrative        1,891   1,822   1,596   1,505     295     317
Impairment loss on real
  estate investments and
  other notes
  receivable           11,000       0       0       0  11,000       0
                       22,826  11,313  11,345  10,810  11,871     923
Minority Interest          47      57      47      57       0       0

Net Income (Loss)
  Before Extraordinary
  Item                    460  10,751   9,930   9,319  (9,470)  1,432
Extraordinary Loss
 On Debt Prepayment   (11,427)      0 (11,427)      0       0       0

Net Income (Loss)     (10,967) 10,751  (1,497)  9,319  (9,470)  1,432

Funds From Operations  15,259  14,443  13,543  12,825   1,716   1,618

Per Share Amounts
Net Income (Loss)Before
  Extraordinary Item                  $  0.42 $  0.40 $(4.52) $  0.68
Extraordinary Loss On
  Debt Prepayment                     $ (0.48)$     0 $    0  $     0
Net Income (Loss)                     $ (0.06)$  0.40 $(4.52) $  0.68
Funds From Operations                 $  0.58 $  0.55 $ 0.82  $  0.77
Dividends Declared                    $ 0.525 $ 0.505 $ 0.75  $  0.70

Average Shares Outstanding             23,547  23,500   2,096   2,091

Balance Sheet Information            As of March 31,
                    1997     1996     1997     1996     1997     1996
Total Assets    $570,547 $581,378 $531,986 $531,540 $ 51,883 $ 64,449
Total Debt      $225,642 $208,432 $225,642 $208,432 $ 13,322 $ 14,611
Total Shareholders'
  Equity        $320,666 $350,826 $283,702 $302,708 $ 36,964 $ 48,118

CONTACT: American Health Properties, Inc., Denver

Joseph P. Sullivan, 303/796-9793