American Retirement Shifts Development Program and Comments On Third Quarter Earnings.

NASHVILLE, Tenn.--(BW HealthWire)--Oct. 18, 1999--

American Retirement Corporation (NYSE:ACR), a leading national provider of senior living care, today announced that, due to a changing development environment, the Company decided during the third quarter to shift its growth strategy from development to more acquisitions of existing communities. As part of this decision, the Company put on hold several planned and early-stage construction projects currently in its development pipeline and suspended all new free-standing assisted living development, resulting in a significant reduction of anticipated development fee revenues in the third quarter. Third quarter earnings are also expected to be impacted by the losses associated with a recently acquired community, two expansions that opened during the quarter and isolated operating variances experienced by four stabilized communities. Based on preliminary information, the Company's third quarter earnings per share are expected to be approximately $.12 per fully diluted share. This is below the current consensus estimates of $.22 to $.23 per share.

The Company's decision to de-emphasize development activity in favor of acquisitions is due to a recent spike in construction costs as well as the Company's belief that there will be an increasing availability of existing properties for sale at attractive prices because of significant changes in the senior living market. Prior to the end of the third period, the Company made the decision to delay until 2000 two major expansions of existing communities that were planned to start in the third and fourth quarters, to put on temporary hold four projects that were in pre-construction or early-stage construction and to stop all new construction of free-standing assisted living. As a result, third quarter results will be impacted by a reduction of over $1.2 million of development fees that the Company anticipated recording (approximately $.05 per share).

After removing projects which will no longer be developed, the Company's development pipeline now comprises 17 projects (1,647 units) under construction and the four projects on hold. Fifteen of the 17 projects will open in the next nine months, so that by the middle of next year, ARC anticipates that it will have only 2 to 6 free-standing assisted living communities under construction or development. The Company plans to continue its program of expanding existing well-established communities. Currently the Company has 5 expansions, with 218 total units, under construction. Five more expansions are pending, though two of these, which are major expansions, have now been delayed awaiting more favorable construction conditions. The Company believes that it has adequate financing sources to complete its construction and expansion pipeline.

In addition to the lower than anticipated development fees described above, expected results for the quarter will be affected by certain operational variances. Unanticipated delays of approximately one month each in the opening of two on-balance sheet existing community expansions resulted in higher than expected start-up losses. These losses contributed to a shortfall of approximately $.01 per share. During the quarter, ARC acquired a pre-stabilized assisted living community on its balance sheet, which contributed losses of about $.01 per share. The Company had not anticipated acquiring a pre-stabilized asset on its balance sheet during the quarter, so although the asset is operating as expected, it nevertheless represents a negative variance to plan. In addition, operating variances related to four of the Company's existing locations will contribute $.04 to the shortfall. The causes of these variances are location specific, including unusually high attrition at one location, construction-related occupancy problems at another and greater than expected summer seasonality at two others.

In spite of the isolated operating variances, the Company believes that its fundamental business continues to be strong. September showed extremely strong occupancy growth company-wide. Occupancy at the end of the third quarter versus the end of the second quarter for all communities, including newly opened, owned, leased and managed, improved from 85% to 87%. Furthermore, occupancy at all communities open for at least six months improved from 90 to 92%.

Commenting on the Company's strategy shift, CEO Bill Sheriff said, "With the current environment, we believe our decision to shift strategy is clearly a good long-term business decision, which, unfortunately, impacts our current and near-term bottom line. We expect to have significant opportunities to continue to grow our Senior Living Networks through acquisitions. In fact, during the quarter the Company added three communities under management contracts with options to purchase, and each of the communities is located within one of our Networks."

Regarding the anticipated operating results, Mr. Sheriff commented, "While we are disappointed in the performance of a few of our communities, those communities are already showing improvement. Our strong occupancy numbers make the platform for earnings improvement in the fourth quarter very likely. We expect the Company's cash flow to continue to build and our asset values to continue to increase. We have a solid debt service coverage level and the Company remains on a solid financial base. However, as we look to future earnings results, the shift in our development strategy will have an impact. For example, there will be a similar reduction in development fees in the fourth quarter. While the specific community operating results will continue to improve, our greater emphasis on acquisitions may result in more start-up losses taken into the Company earnings statements than previously planned."

American Retirement Corporation is a national senior living and health care services provider offering a broad range of care and services to seniors, including independent living, assisted living, skilled nursing and Alzheimer's care. The Company's strategy is to develop senior living networks in major metropolitan regions. These networks are made up of large continuing care retirement communities and smaller free-standing assisted living residences located in the same markets. The Company believes that this hub and spoke approach produces management efficiencies and market penetration by offering a range of senior living arrangements at various price levels. American Retirement Corporation currently operates 53 senior living communities in 16 states with an aggregate capacity for approximately 13,500 residents. Approximately 95 percent of the Company's revenues come from private pay sources.

This press release and statements made by or on behalf of American Retirement Corporation relating hereto may be deemed to constitute forward-looking information made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties, including the difficulty of predicting future financial performance, market conditions, and the time by which occupancy levels or operating results are expected to improve, the difficulty of finding attractive acquisition candidates, and those described in American Retirement Corporation's Annual Report on Form 10-K for the year ended December 31, 1998 under the caption "Risk Factors" and in American Retirement's other filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included herein, American Retirement Corporation's actual results could differ materially from such forward-looking statements. American Retirement Corporation does not undertake any obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.