American Health Properties Inc. Reports Core Group Third Quarter FFO Increase of 10.5% Over Prior Year; Psychiatric Group Operating Results Slightly Lower.

DENVER--(BUSINESS WIRE)--Oct. 20, 1997--The Board of Directors of American Health Properties, Inc. today announced that the Company had declared a third quarter dividend of $.525 per share on the Company's Core Group Common Stock (NYSE:AHE) and a third quarter dividend of $.62 per Psychiatric Group Depositary Share (NASDAQ:AHEPZ) payable November 18, 1997 to shareholders of record November 4, 1997.

Highlights: Core Group Common Stock (NYSE:AHE)

The Core Group dividend remains at the same level as the second quarter of 1997, consistent with the Company's program of reviewing the dividend level on an annual basis. Core Group funds from operations (FFO) for the third quarter of 1997 was $14,781,000 ($.63 per share) compared to $13,416,000 ($.57 per share) for the third quarter of 1996, an increase of over 10%.

Joseph P. Sullivan, Chairman, President and Chief Executive Officer of the Company, stated, "The third quarter results for the Core Group continue to reflect the positive benefits of the Company's financial and investment initiatives. The Company's financial position and liquidity are at a very strong level. The Core Group's portfolio of seasoned assets continues to perform well, with the operators' cash flows at these facilities covering their obligations to the Core Group by approximately three times on average. The real estate and health care expertise of our newest Board members, James D. Harper, Jr. and John P. Mamana, M.D., and our new General Counsel, Steven A. Roseman, has been helpful in the expansion of our investment strategy in the medical office building and physician clinic areas.

"The Company has signed letters of intent and is currently negotiating or has under contract investments in a number of seasoned existing medical office buildings and similar facilities, which if closed, would aggregate approximately $130 million of total investment. Each of the proposed investments are part of integrated health care delivery systems and several of the properties are master leased to leading health care providers. Although the Company anticipates closing approximately $100 million of these proposed investments in the fourth quarter of 1997 and the remainder in the first quarter of 1998, there can be no assurance as to the actual timing of such closings or that the proposed investments will ultimately be closed. We expect the Company to benefit from the further diversification that would result from the closing of these proposed investments."

Highlights: Psychiatric Group Depositary Shares (NASDAQ:AHEPZ)

The financial performance of the psychiatric portfolio, as reflected by the Psychiatric Group Depositary Shares, was down slightly from the second quarter of 1997. Psychiatric Group FFO for the second quarter of l997 decreased to $1,369,000 ($.65 per depositary share) compared to $1,391,000 ($.66 per depositary share) for the second quarter of 1997. 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 third quarter dividend was reduced to $.62 per depositary share from $.63 per depositary share for the second quarter of 1997.

As previously reported, the carrying values of the Psychiatric Group's two Florida psychiatric investments, The Retreat and Northpointe Behavioral Health System (Northpointe), were written down in the first quarter of 1997 to $3,400,000 and $2,000,000, respectively. Subsequently, the financial and operational problems at these two hospitals continued to worsen. The owner of the Northpointe hospital ceased operations during the second quarter of 1997. A restructuring of The Retreat's obligations to the Psychiatric Group was completed shortly after the end of the third quarter of 1997. The Retreat's restructured base rent is $35,000 per month and additional rent will not accrue or be payable until August 1, 2000. The Psychiatric Group received $105,000 ($.05 per depositary share) for past base rent from the Retreat and such payment was recognized as income in the third quarter. In addition, the Psychiatric Group received a note for approximately $500,000, representing a consolidation of previous obligations owed by the Retreat. The note has a term of 32 months with monthly payments of approximately $18,000 scheduled to commence January 1, 1998. The note has not been recognized for financial accounting purposes. The Psychiatric Group is continuing to evaluate and pursue various alternatives for the two Florida facilities.

Joseph P. Sullivan, Chairman, President and Chief Executive Officer of the Company, stated, "The majority of the assets in the Psychiatric Group continued to perform well during the quarter, and we believe the Psychiatric Group has a number of fine operators dedicated to providing quality care in a difficult reimbursement environment. The restructured agreement with The Retreat is a positive step in stabilizing the cash flow and operations of this facility. We are continuing our efforts to diligently evaluate and pursue various alternatives for the Northpointe facility, including conversion of the facility to an alternative use or sale of the property. We will continue to work closely with each of our operators 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 the restructuring of an operator's obligations, a change of operator or consideration of various alternatives for a facility."

Core Group Discussion: -0-

-- Core Group FFO increased over 10% to $14,781,000 ($.63 per share) for the third quarter of 1997 from $13,416,000 ($.57 per share) for the third quarter of 1996. The Core Group's third quarter dividend of $.525 per share represents a payout ratio of approximately 83% of FFO. -- Core Group net income for the third quarter of l997 increased 12% to $11,087,000 ($.47 per share) on revenues of $21,204,000 as compared to net income of $9,873,000 ($.42 per share) on revenues of $20,344,000 for the third quarter of 1996. -- The Core Group continued to fund the acquisition and renovation of a $6.2 million freestanding LTAC hospital in Amarillo, Texas to be operated by Spectrum Comprehensive Care, Inc., an emerging private operator of LTAC facilities in both freestanding and hospital locations. The Company has agreed to provide an additional $9.4 million of real estate financing to this same operator. -- The Core Group continued to fund a $17 million commitment to provide construction and lease financing for two skilled nursing facilities in Las Vegas, Nevada to be operated by Covenant Care, Inc., an experienced operator of such facilities. -- As previously announced, the Core Group has agreed to provide $50 million of real estate financing to an operator of assisted living facilities. Of this amount, approximately $29 million has been committed to five specific projects. An additional $21 million of financing has been committed to this operator to fund future acquisitions or projects to be agreed upon. The operator has undergone a change in ownership during the year and is presently reevaluating which investment opportunities it may ultimately pursue, which could impact the amount of the Core Group's financing commitment that is ultimately used.

Psychiatric Group Discussion:

-- Psychiatric Group FFO decreased to $.65 per depositary share for the third quarter of 1997 from $.66 per depositary share in the second quarter of 1997. -- The Psychiatric Group dividend for the third quarter of 1997 has been reduced to $.62 per depositary share from $.63 per depositary share for the second quarter of 1997. It continues to be the policy of the Board to review the dividend for the Psychiatric Group on a quarterly basis and to maintain when possible a dividend payout ratio for each quarter in excess of 90% of the related quarter's FFO. The Psychiatric Group's third quarter dividend of $.62 per depositary share represents a payout ratio of approximately 95% of FFO. -- 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, changes in available reimbursement (including the potentially adverse impact in 1998 and beyond of new TEFRA limits enacted as part of the Omnibus Budget Reform Act of 1997), specific developments affecting individual operators, the performance of these operators under their agreements with the Psychiatric Group 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 agreements affecting individual facilities, a change in operator or other actions. Operators may continue to request interim rent or interest relief while obligations in respect of a facility are being restructured to meet the needs of its local or regional market and changes in available reimbursement. 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 also is consistent with this period of change in the industry. -- During the third quarter of 1997, the Psychiatric Group continued to be in active dialogue with each of its operators.

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 -- The two Four Winds facilities, Four Winds Hospital - Katonah and
    Four Winds Hospital - Saratoga, continue to maintain strong
    clinical reputations and are operating with high levels of
    inpatient census.  Both facilities have been working to develop
    an integrated behavioral health care delivery system in lower
    and upper New York state.  Such a system has been intended to
    create a cost-effective response to the potential negative
    reimbursement consequences of the expected movement to a managed
    Medicaid care environment within New York which is likely to
    accelerate during early 1998.  However, it is not possible to
    predict the impact of such changes or whether the operator's
    system will be successful in such an environment, and the
    Psychiatric Group can not be assured that some restructuring of
    the operator's obligations to the Psychiatric Group will not be
    required for the operator to remain competitive in such an
    environment.

 -- As previously reported, 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 materially exacerbated the operational
    and financial difficulties of Northpointe and The Retreat.  The
    Psychiatric Group previously recorded an $11,000,000 charge in
    the first quarter of 1997 for impairment of the carrying values
    of these two Florida psychiatric investments.  The Retreat's
    carrying value was reduced to $3,400,000 and Northpointe's
    carrying value was reduced to $2,000,000.  Prior to the lawsuit,
    these two facilities were already experiencing cash flow and
    operational difficulties during 1996 which negatively impacted
    their ability to pay their rental and interest obligations to the
    Psychiatric Group as they became due.  The financial and
    operational problems at these two hospitals continued to worsen
    during 1997.  The owner of the Northpointe hospital ceased
    operations during the second quarter of 1997.  The Psychiatric
    Group will incur $75,000 per quarter ($.04 per depositary share)
    to maintain and protect this property while various alternatives
    are evaluated and pursued, including conversion of the facility
    to an alternative use or sale of the property.  A restructuring
    of The Retreat's obligations to the Psychiatric Group was
    completed shortly after the end of the third quarter of 1997.
    The Retreat's restructured base rent is $35,000 per month and
    additional rent will not accrue or be payable until August 1,
    2000.  The Psychiatric Group received $105,000 ($.05 per
    depositary share) for past base rent from the Retreat and such
    payment was recognized as income in the third quarter.  In
    addition, the Psychiatric Group received a note for approximately
    $500,000, representing a consolidation of previous obligations
    owed by the Retreat.  The note has a term of 32 months with
    monthly payments of approximately $18,000 scheduled to commence
    January 1, 1998.  The note has not been recognized for financial
    accounting purposes.  Although the restructured agreement with
    The Retreat is a positive step in stabilizing the cash flow and
    operations of this facility, the Psychiatric Group cannot be
    assured that the The Retreat will be able to continue to meet its
    restructured obligations or continue operations, even after a
    potential change in the owner and operator or additional
    financial assistance.  The Psychiatric Group will continue to
    consider new owners and operators for the hospital and evaluate
    various other alternatives for the facility.

 -- Rock Creek Center (RCC) has met all of its rent and interest
    obligations to the Psychiatric Group during 1997.  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
    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
    deferred rental obligations of $333,000 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 and the
    Psychiatric Group cannot be assured that RCC will be able to make
    payment of the deferred rent in the future.

 -- The current term of the RCC lease expires in December 1997.  The
    lease agreement provides the operator with an option to renew the
    lease for an additional five-year term at fair market rental.
    Although the Psychiatric Group believes that the lease will be
    renewed, the Psychiatric Group cannot be assured 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.
    Furthermore, the $2,500,000 balance outstanding under RCC's
    revolving credit agreement matured June 30, 1997.  The
    Psychiatric Group is considering the operator's suggestion to
    extend the maturity of the revolving credit agreement to
    correspond with the expiration of RCC's current lease term.
    Meanwhile, the operator has continued to make interest
    payments on the outstanding past due balance.  Should the lease
    not be renewed or the revolving loan not be repaid or extended, a
    significant negative impact to the Psychiatric Group may result.

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The Board of Directors of the Company will continue to review the Psychiatric Group dividend on a quarterly basis. Historically, the level of dividends of the Psychiatric Group have varied quarter-to-quarter. In light of the uncertainty surrounding the Psychiatric Group investments, there can be no assurance that further write-downs will not be required and it is possible that future quarterly dividends will be adjusted downward if a reduction or loss of income from Psychiatric Group investments occurs. In addition to the foregoing, future cash flows and dividends of the Psychiatric Group will be affected by changes in the level of additional rent and interest, the amount of additional financial advisory fees and, to the extent 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. Readers are encouraged to review the Company's Annual Report on Form 10-K for the year ended December 31, 1996 for a fuller discussion of such factors.

Summary Background Information

The Common Stock represents the Company's approximately $600 million of core investments in acute care hospitals, rehabilitation hospitals, long-term acute care hospitals, assisted living facilities, skilled nursing facilities, Alzheimer's care facilities and medical office buildings (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 18 states. -0-

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

                          Consolidated    Core Group  Psychiatric Group
                                Three Months Ended September 30,
                           1997    1996    1997    1996    1997    1996
Revenues
Rental income           $17,945  17,315  17,590  16,911     355     404
Mortgage interest income  1,613   1,493      97       0   1,516   1,493
Additional rental and
  interest income         3,124   3,092   2,939   2,882     185     210
Other property income        73       0      73       0       0       0
Other interest income       195     238     113     126      82     112
Interest on loans to
  Psychiatric Group           0       0     392     425       0       0

                         22,950   22,138 21,204  20,344   2,138   2,219
Expenses
Depreciation and
  amortization            3,910   3,761   3,722   3,575     188     186
Property operating          204      11     129      11      75       0
Interest expense          4,533   5,285   4,533   5,285       0       0
Interest on loans from
  Core Group                  0       0       0       0     392     425
General and
  administrative          1,987   1,876   1,685   1,546     302     330

                         10,634  10,933  10,069  10,417     957     941

Minority Interest            48      54      48      54       0       0

Net Income              $12,268  11,151  11,087   9,873   1,181   1,278

Funds From Operations   $16,150  14,880  14,781  13,416   1,369   1,464

Per Share Amounts
Net Income                              $  0.47 $  0.42 $  0.56 $  0.61
Funds From Operations                   $  0.63 $  0.57 $  0.65 $  0.70
Dividends Declared                      $ 0.525 $ 0.505 $  0.62 $  0.65

Average Shares Outstanding               23,649  23,522   2,099   2,093

                                      As of September 30,
                           1997    1996    1997    1996    1997    1996
Balance Sheet Information
Total Assets           $579,593 579,127 541,104 529,639  51,351  63,794
Total Debt             $234,307 210,044 234,307 210,044  12,862  14,306
Total Shareholders'
  Equity               $320,851 347,125 284,041 299,142  36,810  47,983


                    AMERICAN HEALTH PROPERTIES, INC.
                  FINANCIAL HIGHLIGHTS - YEAR TO DATE
                (In thousands except per share amounts)
                             (Unaudited)

                          Consolidated    Core Group  Psychiatric Group
                                 Nine Months Ended September 30,
                           1997    1996    1997    1996    1997    1996
Revenues
Rental income           $53,572  51,693  52,294  50,343   1,278   1,350
Mortgage interest income  4,661   4,479     112       0   4,549   4,479
Additional rental and
  interest income         9,247   9,103   8,691   8,491     556     612
Other property income       107       0     107       0       0       0
Other interest income     1,467     911   1,201     605     266     306
Interest on loans to
  Psychiatric Group           0       0   1,176   1,272       0       0

                         69,054  66,186  63,581  60,711   6,649   6,747
Expenses
Depreciation and
  amortization           11,627  11,204  11,065  10,646     562     558
Property operating          292      33     192      33     100       0
Interest expense         15,118  16,564  15,118  16,564       0       0
Interest on loans from
  Core Group                  0       0       0       0   1,176   1,272
General and
  administrative          5,815   5,645   4,918   4,672     897     973
Impairment loss on real
  estate investments and
  other notes receivable 11,000       0       0       0  11,000       0

                         43,852  33,446  31,293  31,915  13,735   2,803

Minority Interest           142     169     142     169       0       0

Net Income (Loss) Before
  Extraordinary Item     25,060  32,571  32,146  28,627  (7,086)  3,944
Extraordinary Loss On
  Debt Prepayment       (11,427)      0 (11,427)      0       0       0

Net Income (Loss)       $13,633  32,571  20,719  28,627  (7,086)  3,944

Funds From Operations   $47,602  43,679  43,126  39,177   4,476   4,502

Per Share Amounts
Net Income (Loss) Before
  Extraordinary Item                    $  1.36 $  1.22 $ (3.38)$  1.89
Extraordinary Loss On Debt Prepayment   $ (0.48)$     0 $     0 $     0
Net Income (Loss)                       $  0.88 $  1.22 $ (3.38)$  1.89
Funds From Operations                   $  1.83 $  1.67 $  2.13 $  2.15
Dividends Declared                      $ 1.575 $ 1.515 $  2.00 $  2.00

Average Shares Outstanding               23,585  23,511   2,097   2,092

CONTACT: American Health Properties, Denver

Joseph P. Sullivan 303/796-9793

Michael J. McGee, 303/796-9793