AMERICAN HEALTH PROPERTIES INC, 10-K405, 1995-03-23

AMERICAN HEALTH PROPERTIES INC
10-K405, 1995-03-23
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-9381

American Health Properties, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE 95-4084878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6400 SOUTH FIDDLER'S GREEN CIRCLE
SUITE 1800
ENGLEWOOD, COLORADO 80111
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (303) 796-9793
Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED

COMMON STOCK NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

As of March 1, 1995 there were 20,865,539 shares of American Health Properties,
Inc. Common Stock, $.01 par value, outstanding. The aggregate market value of
Common Stock held by non-affiliates of the Registrant, based on the closing
price of these shares on such date was approximately $453,974,347. For the
purposes of the foregoing calculation only, all directors and executive officers
of the registrant have been deemed affiliates.

The following document is incorporated by reference into this Form 10-K: proxy
statement for May 19, 1995 annual meeting of shareholders -- incorporated into
Part III.
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TABLE OF CONTENTS

PART I

<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 10
Item 3. Legal proceedings........................................................... 10
Item 4. Submission of matters to a vote of security holders......................... 10

PART II
Item 5. Market for registrant's common stock and related stockholder matters........ 10
Item 6. Selected financial data..................................................... 11
Item 7. Management's discussion and analysis of financial condition and results of
operations.................................................................. 11
Item 8. Financial statements and supplementary data................................. 15
Item 9. Changes in and disagreements with accountants on accounting and financial
disclosure.................................................................. 15

PART III
Item 10. Directors and executive officers of the registrant.......................... 16
Item 11. Executive compensation...................................................... 16
Item 12. Security ownership of certain beneficial owners and management.............. 16
Item 13. Certain relationships and related transactions.............................. 16

PART IV
Item 14. Exhibits, financial statement schedules, and reports on Form 8-K............ 16
</TABLE>
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PART I

ITEM 1. BUSINESS.

GENERAL

American Health Properties, Inc. (the "Company," which term refers to the
Company and its subsidiaries unless the context otherwise requires) is a
self-administered real estate investment trust ("REIT") that commenced
operations in 1987. The Company has investments in health care facilities,
including 13 acute care hospitals, three rehabilitation hospitals and five
psychiatric hospitals, all of which are operated by qualified third party health
care providers, and a medical office building. As of December 31, 1994, the net
book value of the Company's assets was $579.5 million. Of the Company's real
estate assets at that date, 80% in net book value represented the acute care
segment, 6% in net book value represented the rehabilitation segment, 13% in net
book value represented the psychiatric segment and 1% in net book value
represented the medical office building segment. As of December 31, 1994, 89% in
net book value were held in fee and 11% in net book value were held as
mortgages. The Company sold its psychiatric property in Torrance, California in
October 1994 for $5.8 million and sold two of its psychiatric hospital
investments in Massachusetts in February 1995 for $13.8 million.

The facilities are diversified geographically across 12 states, are
distributed among large and small population centers, and are operated by 12
experienced management companies. These operators include, among others,
American Medical International, Inc. ("AMI"), Columbia/HCA Healthcare
Corporation ("Columbia/HCA"), Continental Medical Systems, Inc., HealthTrust,
Inc. -- The Hospital Company ("HealthTrust"), NovaCare, Inc., Paracelsus
Healthcare Corporation, Quorum Health Group, Inc. ("Quorum") and Dynamic Health,
Inc. Facilities operated by AMI represented 50% of the Company's revenues for
the year ended December 31, 1994. AMI has merged with National Medical
Enterprises, Inc. ("NME") pursuant to which AMI has become a wholly-owned
subsidiary of NME and NME has changed its name to Tenet Healthcare Corporation.
Columbia/HCA has entered into an agreement with HealthTrust pursuant to which
HealthTrust is to become a wholly-owned subsidiary of Columbia/HCA. The
transaction is subject to certain conditions, including certain regulatory
approvals. The Company's psychiatric hospitals are managed by independent,
private local operators.

Approximately 70% of the Company's property revenues for the year ended
December 31, 1994 were secured by corporate guarantees. Also, as of December 31,
1994, letters of credit from commercial banks and cash deposits aggregating
$17.9 million were available to the Company as security for lease and
construction development obligations. Leases for nine of the Company's
facilities, representing 72% of the Company's 1994 property revenues, contain
cross-default provisions.

The nature of health care delivery in the United States is currently
undergoing change and further review at both the national and state levels.
Generally accepted goals of reform continue to include controlling costs and
improving access to medical care. The Company's Board and management are
monitoring potential changes closely. The Company believes that these potential
changes may pose risks for certain institutions that are unwilling or unable to
respond. However, the Company believes that this changing health care
environment will provide the Company with new opportunities for investment in
its current facilities as well as new facilities.

The Company recognizes that the health care industry in the United States
is undergoing significant evolution. The ongoing changes in the health care
industry include trends toward shorter lengths of hospital stay, increased
outpatient services, downward pressure on reimbursement rates from government,
insurance company and managed care payors and an increasing trend toward
capitation of health care delivery costs (delivery of services on a fixed price
basis to a defined group of covered parties). Outpatient business is expected to
increase as advances in medical technologies allow more procedures to be
performed on an outpatient basis. Payors continue to direct more patients from
inpatient care to outpatient care. The portion of providers' patient services
reimbursed under Medicare and Medicaid continues to increase as the population
ages and states expand Medicaid programs. States and insurance companies
continue to negotiate actively the amounts they will pay for services. In
addition, the entrance of insurance companies into managed care

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programs is accelerating the introduction of managed care in new localities. As
a result, the revenues and margins may decrease at the Company's hospitals.

Notwithstanding the potential for increasing government regulation, the
Company believes that health care will continue to be delivered on a local basis
and that well-managed, high-quality, cost-controlled facilities will continue to
be an integral part of local health care delivery systems. The Company also
believes that certain acute care hospitals will need to reconfigure or expand
existing facilities or to affiliate themselves with other providers so as to
become part of comprehensive and cost-effective health care systems. Such
systems will likely include lower cost treatment settings, such as ambulatory
care clinics, outpatient surgery centers, skilled nursing facilities and medical
office buildings. In general, the Facilities are part of local health delivery
systems or are in the process of becoming integrated into such systems.

The Company was organized in Delaware on December 17, 1986, and commenced
operations in February 1987. The Company's principal executive offices are
located at 6400 South Fiddler's Green Circle, Suite 1800, Englewood, Colorado
80111, and its telephone number is (303) 796-9793.

THE FACILITIES

The Company's 22 facilities consist of 12 acute care hospitals owned by the
Company (the "Acute Care Hospitals"), three rehabilitation hospitals owned by
the Company (the "Rehabilitation Hospitals"), an acute care hospital currently
under construction in Austin, Texas to which the Company has made a
participating mortgage loan ("Austin Diagnostic Hospital"), five psychiatric
hospitals, three of which are owned by the Company and two to which the Company
has made mortgage loans (the "Psychiatric Hospitals"), and one medical office
building owned by the Company (together, the "Facilities").

The Acute Care Hospitals provide a wide range of services which may include
fully-equipped operating and recovery rooms, obstetrics, radiology, intensive
care, open-heart surgery and coronary care, neurosurgery, neonatal intensive
care, magnetic resonance imaging, nursing units, oncology, clinical
laboratories, respiratory therapy, physical therapy, nuclear medicine,
rehabilitation services and outpatient services.

The Rehabilitation Hospitals provide acute rehabilitation care on a
multi-disciplinary, physician-directed basis to severely disabled patients. In
addition to general medical rehabilitation programs, the Rehabilitation
Hospitals offer a number of specialty programs, including pulmonary, ventilator,
neurobehavioral, brain injury and pain programs. Each of the Rehabilitation
Hospitals is operated pursuant to a joint venture between a publicly-held,
national rehabilitation hospital operator and a local health care provider.

The Company is funding a $30 million participation in an $86 million
participating mortgage loan to Austin Diagnostic Hospital, a 158-bed acute care
hospital and medical office building currently under construction in Austin,
Texas. Austin Diagnostic Hospital is owned by a joint venture comprised of
HealthTrust and The Austin Diagnostic Clinic Association ("ADC"), the largest
primary care and multi-specialty physician group practice in the Austin area.
HealthTrust will manage the facility upon completion of construction, which is
scheduled for the second quarter of 1995.

The Psychiatric Hospitals provide a wide range of inpatient and outpatient
care for children, adolescents and adults, including specialized care relating
to eating disorders, substance abuse and psychiatric illness. Fundamental
changes in the psychiatric industry in recent years have reduced the
facility-specific operating cash flow at the Psychiatric Hospitals. These
changes have had and could continue to have an adverse effect on the results of
operations of the Psychiatric Hospital operators and borrowers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Operating Results -- Future Operating Results."

The Company owns a 60,000 square-foot medical office building located in
Murrieta, California known as Walsh Medical Arts Center. The medical office
building is located across the street from Sharp Healthcare Murrieta, a
developing medical campus that includes 49 acute care beds and 42 skilled
nursing beds operated by Sharp Healthcare System of San Diego.

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The following is a listing of the Facilities as of March 1, 1995. Unless
otherwise indicated, all Facilities listed are owned by the Company:

THE FACILITIES

<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL TERM
ACQUIRED/ TOTAL BASE RENT/ OF LEASE/
DESCRIPTION & LOCATION OPERATOR FUNDED INVESTMENT(1) INTEREST(2) MORTGAGE(3)
- -------------------------------------------- ------------------------ ---------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACUTE CARE HOSPITALS
Cleveland Regional Medical Center Dynamic Health, Inc. 1994 $ 8,300 $ 812 2003
Cleveland, Texas
Concho Valley Regional Hospital Quorum Health Group, 1991 16,452 1,478 2001
San Angelo, Texas Inc.
Desert Valley Hospital Quorum Health Group, 1994 24,000 2,654 2004
Victorville, California Inc.(4)
Elmwood Medical Center Paracelsus Healthcare 1990 42,823 5,451 2004
Jefferson, Louisiana Corporation
Frye Regional Medical Center American Medical 1987 45,449 5,265 1999
Hickory, North Carolina International, Inc.(5)
Halstead Hospital Paracelsus Healthcare 1993 14,250 1,600 2003
Halstead, Kansas(6) Corporation
Irvine Medical Center American Medical 1991 75,000 10,057 2004
Irvine, California International, Inc.(5)
Kendall Regional Medical Center Columbia/HCA 1987 69,012 7,884 1999
Miami, Florida Healthcare
Corporation(7)
Lucy Lee Hospital American Medical 1987 23,566 2,731 1999
Poplar Bluff, Missouri International, Inc.(5)
North Fulton Medical Center American Medical 1987 46,191 5,471 1999
Roswell, Georgia International, Inc.(5)
Palm Beach Gardens Medical Center American Medical 1987 45,648 5,283 1999
Palm Beach Gardens, Florida International, Inc.(5)
Tarzana Regional Medical Center American Medical 1987 73,700 8,308 2004
Tarzana, California International, Inc.(5)
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Total Acute Care Hospitals $ 484,391 $ 56,994
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REHABILITATION HOSPITALS
HCA Wesley Rehabilitation Hospital Continental Medical 1992 $ 14,597 $ 1,615 2002
Wichita, Kansas Systems, Inc.(8)
MountainView Regional NovaCare, Inc.(8) 1991 11,718 1,358 2001
Rehabilitation Hospital
Morgantown, West Virginia
Northwest Arkansas Continental Medical 1991 9,086 1,064 2001
Rehabilitation Hospital Systems, Inc.(8)
Fayetteville, Arkansas
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Total Rehabilitation Hospitals $ 35,401 $ 4,037
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PSYCHIATRIC HOSPITALS
Four Winds Psychiatric Hospital Four Winds, Inc. 1988 $ 27,600 $ 3,600 2002
Katonah, New York(9)
Four Winds Psychiatric Hospital FW of Saratoga, Inc. 1989 18,225 2,264 1999
Saratoga Springs, New York(9)
Less: Mortgage note receivable N/A N/A (7,950) N/A N/A
impairment reserve
The Manors The Anclote Psychiatric 1990 6,523 600 2000
Tarpon Springs, Florida Hospital, Ltd.
The Retreat The Retreat Psychiatric 1990 11,934 1,100 2000
Sunrise, Florida Hospital Ltd.
Rock Creek Center DHP, L.P. 1989 5,812 1,000 1997
Lemont, Illinois
--------- --------
Total Psychiatric Hospitals $ 62,144 $ 8,564
========= ========
</TABLE>

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(1) Reflects gross investments less write-downs, except Austin Diagnostic
Medical Center, which reflects the Company's total investment commitment.

(2) Reflects contract rate of annual base rent or interest.

(3) Each lease and mortgage provides the lessee or borrower with renewal
options to extend the term of the lease or mortgage beyond the primary
term.

(4) Quorum is the operator and Desert Valley Hospital, Inc. is the lessee.

(5) AMI has merged with NME pursuant to which AMI has become a wholly-owned
subsidiary of NME and NME has changed its name to Tenet Healthcare
Corporation.

(6) The Company's investment in Halstead Hospital was consummated on June 30,
1993 by the acquisition of ten year industrial revenue bonds secured by the
hospital, which the Company expects to exchange for ownership of the
hospital at the end of the ten year term.

(7) Columbia/HCA has entered into an agreement with HealthTrust pursuant to
which HealthTrust is to become a wholly-owned subsidiary of Columbia/HCA.
The transaction is subject to certain conditions, including certain
regulatory approvals.

(8) Such Rehabilitation Hospital is leased by a joint venture comprised of the
operator and other health care providers.

(9) Investment held in the form of a mortgage rather than owned by the Company.

(10) Base interest for the first two years is 9.75%. The interest rate in years
three through ten will be 10.25%. The interest rate will reset in years 11
and 21 to the greater of the then current loan rate or 450 basis points
over the then current ten year Treasury rate. Beginning in year three,
monthly principal payments are required based on a thirty year
amortization.

(11) Based on scheduled completion date of facility.

See the Notes to the Consolidated Financial Statements and Schedule
III -- Real Estate and Accumulated Depreciation included in this Annual Report
on Form 10-K for additional information regarding the Leased Properties (as
defined below) and the mortgage loans and for the carrying value and accumulated
depreciation of the Leased Properties.

LEASES AND MORTGAGE LOANS

The Company owns the 12 Acute Care Hospitals, the three Rehabilitation
Hospitals, three of the Psychiatric Hospitals and one medical office building,
which are collectively referred to herein as the "Leased Properties" or
individually as a "Leased Property."

Leases.

General. The leases for the Leased Properties provide for base rental
rates which generally range from 8.9% to 13.4% per annum of the acquisition
price less write-downs of the related Leased Property. Rental rates vary by
lease, taking into consideration many factors, including, but not limited to,
credit of the lessee, operating performance of the Leased Property, interest
rates, and location, type and physical condition of the

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Leased Property. The leases provide for additional rents which are based upon a
percentage of increased revenues over specific base period revenues of the
related Leased Properties.

The obligations under the leases are generally guaranteed by the parent
corporation of the lessee, if the lessee is a subsidiary, or has some other form
of credit enhancement such as a letter of credit or a security deposit. Certain
of the Company's leases are with subsidiaries of the operator's described above
and are non-recourse to such operators. Approximately 70% of the Company's
property revenues for the year ended December 31, 1994 were secured by corporate
guarantees. Also, as of December 31, 1994, letters of credit from commercial
banks and cash deposits aggregating $17.9 million were available to the Company
as security for lease and construction development obligations.

The leases are on a triple "net" basis, and the lessee is responsible
thereunder, in addition to the base and additional rents, for all additional
charges, including every fine, penalty, interest and cost which may be levied
for non-payment or late payment thereof, all taxes, assessments, levies, fees,
water and sewer rents and charges, all governmental charges with respect to the
Leased Property and all utility and other charges incurred with the operation of
the Leased Property. Each lessee is required, at its expense, to maintain the
Leased Property in good order and repair. The Company is not required to repair,
rebuild or maintain the Leased Properties.

Acute Care Hospitals. The Acute Care Hospital leases provide for a fixed
term of from ten to 17 years and one or more renewal options of from five to ten
years each. In addition to monthly base rent, all of the Acute Care Hospital
leases provide for the quarterly payment of additional rent in an amount equal
to (i) a specified percentage of the amount by which the Gross Revenues (as
defined) attributable to the Leased Property for the year exceed the Gross
Revenues derived from such Leased Property during a specified base year ("Excess
Gross Revenues") up to a designated dollar amount (the "Transition Amount").
Should the Transition Amount be reached in any year, additional rent shall be
equal to a reduced percentage of the Excess Gross Revenues for the remainder of
such year.

Pursuant to the terms of the Acute Care Hospital leases, the Company has
the right to approve capital expenditures (only in excess of $2 million for
certain leases), the option to fund certain capital expenditures under some of
the leases and, in certain situations, is obligated to fund approved capital
expenditures on terms comparable to the original investment. The base and
additional rental provisions of leases are amended when such capital
expenditures are funded to reflect the Company's increased investment.

Six of the Acute Care Hospitals are operated by subsidiaries of AMI under
long-term leases with the Company, which comprised 50% of the Company's 1994
total revenues. AMI has guaranteed certain obligations of its subsidiaries under
such leases and each such lease is cross-defaulted with the other AMI leases.
Five of the AMI leases grant to AMI the option, exercisable on not less than six
months' nor more than 24 months' notice, to purchase the Leased Property upon
the expiration of any term of the lease at the Fair Market Value of the Leased
Property at the expiration of said term. The expiration of the initial terms of
such leases are shown in the table above. For purposes of the second preceding
sentence, "Fair Market Value" means the price that a willing buyer not compelled
to buy would pay to a willing seller not compelled to sell for such property at
the applicable expiration less the portion of such price attributable to capital
additions paid for by AMI. The determination of such price will take into
account (i) that the applicable lease is assumed not to be in effect on the
Leased Property and (ii) that the seller of such Leased Property must pay for
title insurance and closing costs.

The leases of five other Acute Care Hospitals generally provide the lessee
with an option to purchase the property at the end of the term of the lease at
the greater of fair market value or Total Investment Cost (as defined). Two of
the leases provide the lessee with a purchase option during the term of the
lease at a predetermined purchase price designed to provide the Company a
favorable total return on its investment. Two of the leases provide the lessee
with a purchase option during the term of the lease at the greater of fair
market value or Total Investment Cost (as defined).

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Two of the Acute Care Hospitals are operated by subsidiaries of Paracelsus
under long-term leases with the Company, which comprised 8% of the Company's
1994 total revenues. The leases for the two Acute Care Hospitals operated by
Paracelsus contain reciprocal cross-default provisions.

Rehabilitation Hospitals. The Rehabilitation Hospital leases provide for
an initial term of ten years and three renewal periods of five years each,
except in the case of the Mountain View Regional Rehabilitation Hospital lease,
which provides for two renewal periods of ten years each and a third renewal
period of up to fifteen years. In addition to monthly base rent, the
Rehabilitation Hospital leases provide for the quarterly payment of additional
rent in an amount equal to a specified percentage of Excess Gross Revenues. The
Rehabilitation Hospital leases each grant to the operator the option to purchase
the Rehabilitation Hospital upon expiration of any term of the lease at the
greater of the Fair Market Value of or the Company's cost basis in the
Rehabilitation Hospital at the expiration of said term. One of the
Rehabilitation Hospital leases grants an interim purchase option exercisable at
the end of the fifth year of the lease at a purchase price equal to the greater
of the fair market value of the facility based on the income approach or the
Company's costs basis in the facility.

Psychiatric Hospitals. The leases for two of the owned Psychiatric
Hospitals provide for an initial term expiring in 2000 with three renewal
periods for ten years each. The lease for the third owned Psychiatric Hospital
has an initial term expiring in 1997 with one renewal period for five years and
two renewal periods for ten years each. In addition to monthly base rent, the
leases provide for the quarterly payment of additional rent in an amount equal
to a specified percentage of Excess Gross Revenues.

Medical Office Building. The medical office building is master-leased for
a nine-year remaining term to a partnership consisting of 22 physicians who are
the primary tenants of the building.

Mortgage Loans.

As of December 31, 1994, the Company had funded $21.4 million of its $30
million participation in an $86 million participating mortgage loan for the
development of the 158-bed Austin Diagnostic Hospital. The mortgage loan is
secured by the hospital and related land and improvements. In addition, an $8.6
million bank letter of credit will be provided to secure the obligations under
the mortgage upon issuance of a certificate of occupancy and will be limited to
10% of the final amount of the mortgage loan. HealthTrust and ADC have each
guaranteed 50% of the obligations under the mortgage.

The Company has made mortgage loans to two of the Psychiatric Hospitals.
The two mortgage loans are secured by first mortgages and security interests in
the two separate Psychiatric Hospitals. The two mortgage loans have an initial
term of ten years with two optional ten-year extension terms. Pursuant to the
terms of the mortgage loans, the Company may receive additional interest each
year in an amount equal to a specified percentage of Excess Gross Revenues. See
also "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Operating Results -- Future Operating Results" and Notes to the
Consolidated Financial Statements.

COMPETITION

The Company competes with health care providers, real estate partnerships,
other real estate investment trusts and other investors, including insurance
companies and banks, generally in the acquisition, leasing and financing of
health care facilities.

Management of the Company believes that the Facilities in which it has
invested are providers of high quality health care services in their respective
markets. The operators of the Facilities compete on a local and regional basis
with other operators of comparable facilities. They compete with independent
operators as well as managers of multiple facilities, some of which are
substantially larger and have greater resources than the operators of the
Facilities. Some of these competing facilities are operated for profit while
others are owned by governmental agencies or tax-exempt, not-for-profit
organizations. The Company believes that the Facilities compete favorably with
other hospitals based upon many factors, including the services and specialties
offered, quality of management, ease of access, reputation and the ability to
attract competent physicians and maintain strong physician relationships.

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ENVIRONMENTAL MATTERS

Under various federal, state and local laws and regulations, an owner of
real estate is liable for the costs of removal or remediation of certain
hazardous or toxic substances on such property. Such laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. In connection with its ownership and operation of the
Facilities, the Company may be potentially liable for such costs.

All of the Facilities have been subject to Phase I environmental
assessments, which are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed properties and surrounding
properties. The Phase I assessments included a historical review, a public
records review, a preliminary investigation of the site and surrounding
properties, screening for the presence of asbestos, polychlorinated biphenyls
and underground storage tanks and the preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations. In each
case where Phase I assessments resulted in specific recommendations for remedial
actions, the Company's management has taken the recommended action.

The Phase I assessments have not revealed any environmental liability that
the Company believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, no assurances can be given that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Facilities will not be affected by tenants and occupants of the Facilities, by
the condition of properties in the vicinity of the Facilities (such as the
presence of underground storage tanks) or by third parties unrelated to the
Company.

The Company believes that the Facilities are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances. The Company has not been notified by any
governmental authority, or is otherwise aware, of any material noncompliance,
liability or claim relating to hazardous or toxic substances in connection with
any of its present or former properties.

GOVERNMENT REGULATION AND PAYOR ARRANGEMENTS

Each of the Facilities is a health care related facility and the amount of
additional rent or additional interest, if any, which is based on the lessee's
or mortgagee's gross revenue, is in most cases subject to changes in the
reimbursement and licensing policies of federal, state and local governments. In
addition, the acquisition of health care facilities is generally subject to
state and local regulatory approval.

Acute Care Hospitals. Acute care hospitals are subject to extensive
federal, state and local legislation and regulation. Acute care hospitals
undergo periodic inspections regarding standards of medical care, equipment and
hygiene as a condition of licensure. Various licenses and permits also are
required for narcotics, laboratories, pharmacies, radioactive materials and
certain equipment. Each facility eligible for accreditation is accredited by the
Joint Commission on Accreditation of Health Care Organizations. Accreditation is
required for participation in government-sponsored provider programs, such as
Medicare and Medicaid.

Acute care hospitals are subject to and comply with various forms of
utilization review. In addition, under the Medicare program, each state must
have a Professional Review Organization to carry out a federally-mandated system
of review of Medicare patient admission, treatment and discharge. Medical and
surgical services and practices are extensively supervised by committees of
staff doctors at each acute care hospital, and are reviewed by each acute care
hospital's local governing board and quality-assurance personnel. New
regulations governing the control of disposal of hazardous wastes may increase
the costs of operating acute care facilities.

The lessees and mortgagees of the Facilities, which provide acute care
hospital services, receive payments for patient care from federal Medicare
programs for elderly and disabled patients, Medicaid and other state

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programs for medically indigent patients, private insurance carriers, employers,
Blue Cross plans, health maintenance organizations, preferred provider
organizations and directly from patients.

Medicare payments for most inpatient hospital services provided by acute
care general hospitals are made under a "prospective payment system" ("PPS")
under which a hospital is paid a prospectively determined rate per discharge.
The PPS payment rate includes reimbursement for capital related costs. These
rates vary according to a patient classification system that is based on
clinical, diagnostic and other factors. Acute care hospitals are reimbursed for
cost reimbursable items at a tentative rate with final settlement determined
after submission of annual cost reports and audits thereof by the Medicare
fiscal intermediary. In general, payments made by Medicare are less than
established charges for such services. Additionally, Medicare payments may be
delayed due to Federal government regulations.

Medicaid payments for acute care hospitals will vary between states. These
payments may be based on a percentage of reasonable cost, a fixed rate per
discharge, a capitated payment, or other payment arrangements. If a state
selects a cost based reimbursement methodology, acute care hospitals are
reimbursed at a tentative rate with final settlement determined after submission
of annual cost reports and audits thereof by Medicaid. In general, payments made
by Medicaid are less than established charges for such services. Additionally,
Medicaid payments may be delayed due to State budget deficits.

Blue Cross payments in different states and areas are based on cost, a per
diem, or other negotiated rates and may also be subject to payment delay.
Payments from health maintenance organizations and preferred provider
organizations generally are negotiated, either at a discount from charges or on
a per capita, shared-risk basis with stop-loss provisions for high severity
cases. In more developed markets such as California and Florida, the Company's
hospitals are now entering into risk sharing, or capitated, arrangements. These
arrangements reimburse the hospital based on a fixed fee per participant in a
managed care plan with the hospital assuming the costs of services provided,
regardless of the level of utilization. If utilization is higher than
anticipated and/or costs are not effectively controlled, such arrangements could
produce low or negative operating margins.

Rehabilitation Hospitals. Rehabilitation hospitals are also subject to
extensive federal, state and local legislation and regulation. Rehabilitation
hospitals are subject to periodic inspections and licensure requirements.
Outpatient rehabilitation services and free-standing inpatient rehabilitation
facilities are generally reimbursed under the same payment arrangement as acute
care hospitals, except as noted below. Medicare payments for inpatient
rehabilitative services are made based on reasonable operating cost, subject to
a per discharge limitation. If a facility operates below the cost per discharge
limitation, it will qualify for a bonus payment. If a facility operates above
the cost per discharge limitation, it will be reimbursed solely to the extent of
the limitation. Defined capital costs and outpatient services related to
Medicare beneficiaries are reimbursed based on reasonable cost. All Medicare
inpatient and outpatient services are reimbursed at a tentative rate with final
settlement determined after submission of annual cost reports and audits thereof
by the Medicare fiscal intermediary. In general, payments made by Medicare are
less than established charges for such services. Additionally, Medicare payments
may be delayed due to Federal government regulations.

Psychiatric Hospitals. In addition to the licensing, certificate of need
and Medicare/Medicaid rules and regulations, there are a number of specific
federal and state laws affecting psychiatric hospitals, such as the regulation
of civil commitments of patients, admitting procedures, and disclosure of
information regarding patients being treated for chemical dependency. Many
states have adopted a "patient's bill of rights" which sets forth standards
governing the treatment of patients of psychiatric hospitals, such as using the
least restrictive treatment method, allowing patient access to telephone and
mail, allowing a patient to see a lawyer, and requiring the patient to be
treated with dignity. The lessees and mortgagees of the Psychiatric Hospitals
receive payments for patient care from federal Medicare programs for elderly and
disabled patients, Medicaid and other state programs for medically indigent
patients, private insurance carriers, employers, Blue Cross plans, health
maintenance organizations, preferred provider organizations and directly from
patients.

8
<PAGE> 11

RECENT EVENTS

On January 31, 1995, the Company's Board of Directors authorized management
to pursue a transaction which is designed to separate the economic attributes of
its investments in psychiatric hospitals (the "Psychiatric Group") and its core
investments in acute care hospitals, rehabilitation hospitals and a medical
office building (the "Core Group") into two distinct portfolios, with two
distinct classes of publicly traded shares intended to represent those
portfolios. The transaction would entail the distribution to holders of Common
Stock of depositary shares representing a new series of preferred stock, par
value $0.01 per share, to be designated Psychiatric Group Preferred Stock (the
"Psychiatric Group Stock"). The Psychiatric Group Stock would be intended to
reflect the separate performance of the Psychiatric Group. The Company's
existing Common Stock would be intended to reflect the separate performance of
the Core Group. In connection with the proposed transaction, the Company would
specifically identify or allocate its assets, liabilities and stockholders'
equity, and its revenues, expenses and cash flow items, between the Core Group
and Psychiatric Group. However, each holder of Common Stock or Psychiatric Group
Stock would be a holder of an issue of capital stock of the entire Company and
would be subject to the risks associated with an investment in the Company and
all of its businesses, assets and liabilities. A registration statement relating
to the proposed distribution was filed with the Securities and Exchange
Commission on February 28, 1995.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Walter J. McNerney............ 69 Chairman of the Board of Directors
Joseph P. Sullivan............ 52 President and Chief Executive Officer
Executive Vice President and Chief Financial
Victor C. Streufert........... 37 Officer
Senior Vice President, General Counsel and
Geoffrey D. Lewis............. 37 Secretary
C. Gregory Schonert........... 39 Senior Vice President, Business Development
Michael J. McGee.............. 39 Vice President, Controller, Assistant Secretary
</TABLE>

WALTER J. MCNERNEY -- Chairman of the Board since February 1988 and Chief
Executive Officer of the Company from February 1988 to May 15, 1992 and from
January 15, 1993 to February 11, 1993. He is also Herman Smith Professor of
Health Policy, J.L. Kellogg Graduate School of Management, Northwestern
University since 1982 and was managing partner of Walter J. McNerney and
Associates, a management consulting firm in the health field during 1982-1992.
He is a director of The Stanley Works, Nellcor Incorporated, Value Health, Inc.,
Medicus Systems, Inc., Hanger Orthopedic, Inc., Osteotech, Inc. and Ventritex,
Inc. Mr. McNerney was elected a director of the Company in January 1987.

JOSEPH P. SULLIVAN -- Mr. Sullivan was elected President and Chief
Executive Officer of the Company and a member of the Board of Directors
effective February 11, 1993. Prior to that, Mr. Sullivan spent 20 years with
Goldman, Sachs & Co. where he had overall investment banking responsibility for
numerous companies in the health care field.

VICTOR C. STREUFERT -- Executive Vice President and Chief Financial Officer
of the Company since April 1989. Mr. Streufert was Vice President Finance and
Administration for Kendall Canada, a subsidiary of the Kendall Company, a
manufacturer and distributor of medical products, from 1987 to March 1989.

GEOFFREY D. LEWIS -- Senior Vice President, General Counsel and Secretary
of the Company since August 1991. Mr. Lewis was an attorney with Jones, Day,
Reavis & Pogue from 1986 to August 1991.

C. GREGORY SCHONERT -- Senior Vice President-Business Development of the
Company since April 1988. Prior to that Mr. Schonert was Assistant Administrator
of Marketing and Planning at St. Joseph's Hospital, Houston, Texas from February
1987. From September 1985 until February 1987, Mr. Schonert was a Manager in the
Corporate Development Department of American Medical International, Inc.

9
<PAGE> 12

MICHAEL J. MCGEE -- Vice President, Controller and Assistant Secretary of
the Company since November 1989. Mr. McGee was a certified public accountant
with Arthur Andersen & Co. from 1977 to November 1989.

Each executive officer is elected by the Board of Directors at its first
meeting after each annual meeting of the shareholders and serves until such time
as his successor is elected.

ITEM 2. PROPERTIES.

See "Item 1. Business" for a description of properties owned by the Company
and subject to mortgages held by the Company.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not currently involved in any material litigation nor, to
the Company's knowledge, is any litigation currently threatened against the
Company or its properties, other than routine litigation arising in the ordinary
course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

The Common Stock of American Health Properties, Inc. is listed on the New
York Stock Exchange under the trading symbol AHE. The table below lists the
reported high and low sales price of the Company's Common Stock on the New York
Stock Exchange for the last two fiscal years and the cash dividends declared per
share with respect to such periods.

<TABLE>
<CAPTION>
DIVIDENDS
QUARTER HIGH LOW DECLARED
- ------- ---- ---- ---------
<S> <C> <C> <C>
1994
4th $ 23 3/8 $ 18 1/2 $ .5750
3rd $ 24 5/8 $ 22 $ .5750
2nd $ 27 $ 24 $ .5750
1st $ 27 1/4 $ 24 5/8 $ .5750
1993
4th $ 29 $ 24 1/2 $ .5700
3rd $ 28 3/4 $ 24 3/8 $ .5650
2nd $ 26 3/4 $ 23 $ .5600
1st $ 25 5/8 $ 18 7/8 $ .5550
</TABLE>

As of March 1, 1995, the reported high and low sales prices of the
Company's Common Stock for 1995 were $22 1/8 and $19 3/8. As of March 1, 1995,
there were approximately 4,566 holders of record of the Company's Common Stock
and 20,865,539 shares outstanding.

10
<PAGE> 13

ITEM 6. SELECTED FINANCIAL DATA.

Set forth below is selected consolidated financial data with respect to the
Company for the years ended December 31, 1994, 1993, 1992, 1991 and 1990.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 87,027 $ 81,523 $ 82,079 $ 80,129 $ 59,409
Net income (loss)(1)........................ $ 9,693 $ 50,987 $ (6,317) $ 33,753 $ 28,032
Net income (loss) per share(1).............. $ 0.46 $ 2.71 $ (0.37) $ 2.09 $ 1.90
Weighted average shares outstanding......... 20,856 18,843 17,247 16,168 14,754
Cash flows from operating activities........ $ 54,984 $ 45,884 $ 43,486 $ 46,805 $ 40,946
Dividends declared.......................... $ 47,982 $ 44,766 $ 45,747 $ 43,243 $ 35,929
Dividends declared per share................ $ 2.30 $ 2.25 $ 2.64 $ 2.62 $ 2.42
Total assets................................ $579,503 $614,453 $566,394 $630,511 $541,584
Total debt.................................. $245,663 $245,423 $286,859 $301,176 $263,852
Stockholders' equity........................ $307,501 $343,303 $255,349 $303,069 $256,982
</TABLE>

- ---------------

(1) Includes gains of $19,742,000 and $11,064,000 in 1993 and 1992,
respectively, on the sale of properties or partnership interests therein.
Also reflects write-downs of $30,000,000 in 1994 and $45,000,000 in 1992
relating to investments in psychiatric hospitals.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OPERATING RESULTS

1994 Compared to 1993

In 1994, the Company reported net income of $9,693,000, or $.46 per share
compared with net income of $50,987,000, or $2.71 per share in 1993.

Several significant items impacted net income in both 1994 and 1993. Net
income in 1994 reflected a write-down of psychiatric hospital investments of
$30,000,000, or $1.44 per share, as a result of accelerating negative trends in
the psychiatric industry. In 1994, $1,450,000, or $.07 per share, was accrued
for the cost of the planned issuance of Psychiatric Group Stock (see Item 1.
Business -- Recent Events). Net income in 1993 included a gain of $19,742,000,
or $1.05 per share, on the sale of an acute care property in March 1993.
Litigation costs were $2,234,000, or $.12 per share, in 1993 as a result of the
defense and settlement of a shareholder class action lawsuit against the
Company.

Rental income was $67,732,000 in 1994, an increase of $3,177,000 or 5% from
$64,555,000 in 1993. This net increase is primarily attributable to rental
income from new properties acquired and various capital additions subsequent to
the first quarter of 1993 partially offset by a reduction in rental income due
to the previously mentioned property sale in March 1993.

Additional rental and interest income was $9,506,000 in 1994, an increase
of $172,000 or 2% from $9,334,000 in 1993. This increase is attributable to
increased additional rent from six of the Company's original acute care
properties and more recently purchased properties generating additional rent for
the first time in 1994. This increase is net of the loss of additional rent due
to the previously mentioned property sale.

Other interest income increased $2,055,000 to $4,002,000 in 1994 from
$1,947,000 in 1993. This increase resulted from higher average balances of
construction loans, other notes receivable and direct financing leases in 1994
compared with 1993. In addition, 1994 included the recognition of $710,000 of
fee income related to the prepayment of a construction loan in February 1994.

Interest expense was $26,101,000 in 1994, a decrease of $1,168,000 or 4%
from $27,269,000 in 1993. An equity offering in July 1993 resulted in lower
average short-term borrowings during 1994 compared with 1993.

11
<PAGE> 14

A higher level of construction in progress during 1994 compared with 1993
resulted in an increase in capitalized interest. In addition, the Company
prepaid mortgage notes payable of $14.4 million in February 1994.

General and administrative expenses decreased to $5,376,000 in 1994 from
$6,437,000 in 1993. The decrease for 1994 was attributable to the reversal of
$750,000 of a corporate relocation accrual recorded in the fourth quarter of
1993, after the Company decided to maintain its headquarters in Denver,
Colorado. This was partially offset by higher expense from the Company's stock
incentive plans and increased shareholder reporting and distribution costs in
1994.

1993 Compared to 1992

In 1993, the Company reported net income of $50,987,000, or $2.71 per
share, compared with a net loss of ($6,317,000), or ($.37) per share, in 1992.

Net income in 1993 and net loss in 1992 were impacted by several
significant items. Net income in 1993 included a gain of $19,742,000, or $1.05
per share, on the sale of an acute care property in March 1993, while the net
loss in 1992 included total gains of $11,064,000, or $.64 per share, on the sale
of the Company's partnership interests in four rehabilitation properties.
Litigation costs were $2,234,000, or $.12 per share, in 1993 as a result of the
defense and settlement of a shareholder class action lawsuit against the
Company. Litigation costs related to this lawsuit in 1992 were $786,000, or $.05
per share. Net loss in 1992 reflected a write-down of $45,000,000, or $2.61 per
share, related to the restructuring of two psychiatric mortgage notes receivable
and a cost of $2,225,000, or $.13 per share, as a result of the Company
exercising its right to terminate a purchase commitment to enhance its liquidity
position.

Rental income was $64,555,000 in 1993, a decrease of $1,206,000 or 2% from
$65,761,000 in 1992. This decrease is attributable to a reduction in rental
income due to the sale of the Company's 97% partnership interests in three
rehabilitation properties in October 1992 and the sale of an acute care property
in March 1993, partially offset by rental income from a newly acquired property
and various capital additions coming under lease subsequent to the first quarter
of 1992. Additionally, 1993 includes rental income from a psychiatric property
conveyed to the Company in late 1992 in satisfaction of a mortgage note
receivable. The conveyance of this property together with the modification and
restructuring of another mortgage note receivable in 1992 resulted in a decrease
in mortgage interest income of $1,457,000 in 1993 compared with 1992.

Additional rental and interest income was $9,334,000 in 1993, an increase
of $805,000 or 9% from $8,529,000 in 1992. This increase is attributable to
increased additional rent from six of the Company's original acute care
properties and more recently purchased properties generating additional rent for
the first time in 1993. This increase is net of the loss of additional rent from
properties sold in 1992 and 1993.

Depreciation and amortization increased $1,265,000 to $14,087,000 in 1993
compared with 1992 primarily as a result of the Company's revision of the
estimated remaining lives of its psychiatric real estate properties from an
average of 38 years to 21 years effective as of January 1, 1993.

Interest expense was $27,269,000 in 1993, a decrease of $2,508,000 or 8%
from $29,777,000 in 1992. Property sales in the last quarter of 1992 and first
quarter of 1993, and an equity offering in July 1993, resulted in lower average
short-term borrowings in 1993. Lower short-term interest rates in 1993
contributed to the decrease in interest expense in 1993.

General and administrative expenses decreased to $6,437,000 in 1993 from
$8,221,000 in 1992. In the fourth quarter of 1993, the Company recorded an
accrual of $850,000 related to the planned relocation of its corporate offices
to Southern California in the middle of 1994. General and administrative
expenses in 1992 include severance costs of $1.5 million related to personnel
changes announced during 1992. Additionally, in 1992 the negotiation and
restructuring of two psychiatric mortgage notes receivable, the review of a
potential business combination and other matters resulting from a legal action
against the Company, resulted in increases in consulting, professional and
travel costs totaling $1.3 million.

12
<PAGE> 15

Minority interest decreased $378,000 to $251,000 in 1993 compared with 1992
as a result of the Company's sale of three real estate partnerships in October
1992.

Future Operating Results

Notwithstanding the potential for increasing government regulation, the
Company believes that health care will continue to be delivered on a local basis
and that well-managed, high-quality, cost-controlled facilities will continue to
be an integral part of local health care delivery systems. The Company also
believes that certain acute care hospitals will need to reconfigure or expand
existing facilities or to affiliate themselves with other providers so as to
become part of comprehensive and cost-effective health care systems. Such
systems will likely include lower cost treatment settings, such as ambulatory
care clinics, outpatient surgery centers, skilled nursing facilities and medical
office buildings. In general, the Facilities are part of local health care
delivery systems or are in the process of becoming integrated into such systems.

The Company's future operating results could be affected by the operating
performance of the Company's lessees and borrowers. The rental and interest
obligations of its facility operators are primarily supported by the
facility-specific operating cash flow. Real estate investments in the Company's
portfolio are further supported by one or more credit enhancements that take the
form of cross-default provisions, letters of credit, corporate and personal
guarantees, security interests in cash reserve funds, accounts receivable or
other personal property and requirements to maintain specified financial ratios.

Fundamental changes in the psychiatric industry continue to negatively
impact the facility-specific operating cash flow at the Company's psychiatric
hospitals. Institutions responsible for providing insurance coverage to patients
who use inpatient psychiatric treatment services have directed efforts toward
decreasing their payments for such services, thereby reducing hospital operating
revenues. Some cost-cutting measures used by such institutions include
decreasing the inpatient length of stay, intensively reviewing utilization,
directing patients from inpatient care to outpatient care and negotiating
reduced reimbursement rates for services. In addition, such institutions have
extended the length of time for making payments, resulting in increases in
accounts receivable. The wider use of psychotropic drugs has also resulted in
significant declines in the average length of stay. Although the operators of
the psychiatric hospitals are responding by developing lower cost outpatient and
daypatient programs, increasing case management and reducing operating costs,
their efforts are generally not consistently mitigating the negative impact of
these fundamental psychiatric industry changes. For example, as the inpatient
length of stay has decreased, offset by an increased number of admissions in
some cases, the costs of performing initial testing and other administrative
procedures associated

13
<PAGE> 16

with each admission have increased. As a result, certain of the psychiatric
hospital operators have had difficulty meeting their payment obligations to the
Company on a timely basis and there can be no assurance that they will be able
to meet their payment obligations in the future.

The Company is currently providing working capital loans to the operators
of four of its psychiatric hospitals. As of March 6, 1995, outstanding working
capital loans totalled $5,100,000, and the Company has committed to make an
additional $1,200,000 of such working capital loans upon request, subject to
certain conditions. These working capital loans, which are secured by accounts
receivable and certain personal property and which contain events of default
that would be triggered by defaults under the lease or mortgage loan relating to
the relevant psychiatric hospital, are the primary source of financing for these
operators' operating and capital needs. These psychiatric hospitals have, from
time to time, been unable to generate sufficient cash flow for working capital
and the development of new programs. In certain cases, these psychiatric
hospitals have not been able to pay down the working capital loans provided by
the Company or to secure replacement loans from third-party lenders. To the
extent the psychiatric hospitals have increased working capital needs in the
future, the Company may be the only source of such financing.

In 1992, the Company recorded a $45,000,000 write-down of its investments
in two psychiatric hospitals and restructured the payment obligations of these
two facilities. In addition, at June 30, 1994, in view of negative trends that
caused declining cash flow at a number of the psychiatric hospitals, the Company
recorded a $30,000,000 write-down of its investments in the psychiatric
hospitals. Although management believes that the recorded investments in the
psychiatric hospitals are realizable, if the cash flow at the psychiatric
hospitals continues to decline, the Company may be required to further
restructure payment obligations or make additional write-downs of the value of
its investments in the psychiatric hospitals. The Company is pursuing
alternatives for the psychiatric portfolio including selected sales of hospitals
to operators or other parties, restructuring of financial obligations or other
approaches that might allow the effective separation of these assets from the
Company's core portfolio of acute care and rehabilitation hospitals and a
medical office building. As part of this initiative, the Company sold its
psychiatric property in Torrance, California in October 1994 for $5,772,000 in
cash (at net book value), sold two of its psychiatric properties in
Massachusetts in February 1995 for $13,825,000 in cash (at net book value),
restructured the leases and working capital loans of two Florida psychiatric
investments in March 1995 and is issuing the Psychiatric Group Stock.

Additional rental income and interest income from the Company's existing
investments will be affected by changes in the revenues of the underlying
business operations upon which such income is based. The Company's acute care
investments accounted for 85% of net additional rental and interest income for
the year ended December 31, 1994, while rehabilitation and psychiatric
investments accounted for 9% and 6%, respectively. Over the years, a substantial
portion of the Company's additional rental and interest income has been
attributable to six of the Company's original acute care properties (the
"Original Properties"). Also, with the significant revenue growth at a majority
of the Original Properties in recent years, two properties had reached the
additional rent transition point at the end of 1994 and it is anticipated that
other properties may do so over the next few years. The Company's revenue
participation rate for the six Original Properties declines from 5% to 1% when
the additional rent transition point is reached. At December 31, 1994, the
amount of potential additional rent at the 5% revenue participation rate for the
six Original Properties was approximately $2.8 million per annum. As a result,
the Company anticipates slower growth in additional rental and interest income
in the near term from its current portfolio of properties.

Future operating results of the Company will be affected by additional
factors including the amount, timing and yield of additional real estate
investments and the competition for such investments. Operating results will
also be affected by the availability and terms of the Company's future equity
and debt financing. The Company's financing strategy includes the objective to
reduce its cost of capital over time and enhance its financial flexibility to
facilitate future growth. Toward achievement of this objective, the Company
raised $80.8 million of new equity in 1993. The proposed distribution of
depositary shares representing Psychiatric Group Stock is also intended to
facilitate this objective.

14
<PAGE> 17

The Company's unsecured revolving credit facility was increased to $100
million in April 1994. In August 1994, the Company's BBB- implied senior debt
rating was affirmed by Standard & Poor's but the outlook was revised to negative
from stable. Duff & Phelps Credit Rating Co. assigned an initial implied senior
debt rating of BBB- in November 1994.

LIQUIDITY AND CAPITAL RESOURCES

As of March 6, 1995, the Company had commitments of $10,300,000 to fund
construction obligations and capital expenditures over approximately the next
twelve months. Aggregate unfunded commitments under revolving credit agreements
provided to facility operators totalled $1,200,000 as of March 6, 1995.

The Company has continued to increase its liquidity and enhance its
financial flexibility. In July 1993, the Company completed an offering of
3,450,000 additional shares of Common Stock resulting in net proceeds of $80.8
million. Proceeds from the offering were used to pay off the outstanding balance
under the Company's revolving credit facility and fund additional real estate
investments. In April 1994, the Company increased its unsecured revolving credit
facility to $100 million. The facility bears interest at either LIBOR plus a
margin of 125 to 200 basis points or the prime rate plus, in certain
circumstances, a margin of 50 basis points, and matures on December 31, 1996.
Currently, the Company is able to borrow at either LIBOR plus 125 basis points
or the prime rate. As of March 6, 1995, the Company had no outstanding
borrowings under its credit facility. The Company currently believes it has
sufficient capital to meet its commitments and that its cash flow and liquidity
will continue to be sufficient to fund current operations and to provide for the
payment of dividends to stockholders in compliance with the applicable sections
of the Internal Revenue Code governing real estate investment trusts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's consolidated balance sheets as of December 31, 1994 and 1993
and its consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1994, 1993 and 1992, together with a
report of Arthur Andersen LLP, independent public accountants, are included
elsewhere herein. Reference is made to the "Index to Consolidated Financial
Statements."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

15
<PAGE> 18

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

There is hereby incorporated by reference the information to appear under
the caption "Election of Directors" in the Company's proxy statement for its May
19, 1995 Annual Meeting of Shareholders, which will be filed with the Securities
and Exchange Commission within 120 days after December 31, 1994. See "Item 1.
Business -- Executive Officers of the Company" for a description of the
Executive Officers of the Company.

ITEM 11. EXECUTIVE COMPENSATION.

There is hereby incorporated by reference the information to appear under
the caption "Compensation of Directors and Executive Officers" in the Company's
proxy statement for its May 19, 1995 Annual Meeting of Shareholders, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1994.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

There is hereby incorporated by reference the information to appear under
the captions "Security Ownership of Management" and "Principal Shareholders of
the Company" in the Company's proxy statement for its May 19, 1995 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1994.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

The financial statements and schedule listed in the accompanying index to
the consolidated financial statements on page 18 are filed as part of this
annual report on Form 10-K.

(A)(3) EXHIBITS.

<TABLE>
<S> <C>
3.1 -- Certificate of Incorporation, as amended to date, filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference.
3.2 -- Amended and Restated Bylaws of the Company, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference.
4.1 -- Rights Agreement dated as of April 10, 1990, filed as Exhibit 2 to the Company's
Registration Statement on Form 8-A dated April 20, 1990, and incorporated
herein by reference.
4.2 -- Form of Note Agreement between the Company and various institutional investors,
dated as of May 1, 1989, for the Company's $5,000,000 11.33% Series A Notes due
May 30, 1996 and $120,000,000 11.44% Series B Notes due May 30, 1999, filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-11 (No.
33-29387), effective August 4, 1989, and incorporated herein by reference.
</TABLE>

16
<PAGE> 19

<TABLE>
<S> <C>
4.3 -- Form of Note Agreement between the Company and various institutional investors,
dated as of September 1, 1990, for the Company's $100,000,000 10.41% senior
notes due September 15, 2000, filed as Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990, and incorporated
herein by reference.
10.1 -- Credit Agreement among the Company, various banks and Wells Fargo Bank, National
Association, as Administrative Agent, and Barclays Bank PLC, as Documentation
Agent, dated as of December 23, 1993, filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference.
*10.2 -- Second Amendment to Credit Agreement, dated as of January 19, 1995, among the
Company, various banks and Wells Fargo Bank, National Association, as
Administrative Agent.
10.3 -- American Health Properties, Inc. 1988 Stock Option Plan, filed as Exhibit 28 to
the Company's Registration Statement on Form S-8 (No. 33-25781), filed with the
Securities and Exchange Commission on November 28, 1988, and incorporated
herein by reference.
10.4 -- American Health Properties, Inc. 1990 Stock Incentive Plan, filed as Exhibit B
to the Company's Proxy Statement for its 1990 Annual Meeting of Shareholders
filed with the Securities and Exchange Commission on May 7, 1990, and
incorporated herein by reference.
10.5 -- Lease and Security Agreement between the Company and American Medical
International, Inc. (for Irvine Medical Center), dated April 23, 1991, filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K (No. 1-9381), dated
April 23, 1991, and incorporated herein by reference.
10.6 -- Guaranty of Lease (relating to Irvine Medical Center) made by American Medical
International, Inc. and American Medical Holdings, Inc., dated as of April 19,
1991, filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.
10.7 -- Employment Agreements between the Company and Joseph P. Sullivan, Victor C.
Streufert, Geoffrey D. Lewis, C. Gregory Schonert and Michael J. McGee, filed
as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by reference.
10.8 -- American Health Properties, Inc. 1994 Stock Incentive Plan, filed as Appendix A
to the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders
filed with the Securities and Exchange Commission on April 8, 1994, and
incorporated herein by reference.
10.9 -- American Health Properties, Inc. Nonqualified Stock Option Plan for Nonemployee
Directors, filed as Appendix B to the Company's Proxy Statement for its 1994
Annual Meeting of Shareholders filed with the Securities and Exchange
Commission on April 8, 1994, and incorporated herein by reference.
*21 -- List of subsidiaries of the Company.
*23.1 -- Consent of Independent Public Accountants
*27 -- Financial Data Schedule
</TABLE>

- ---------------

* Filed herewith

(B) REPORTS ON FORM 8-K.

None.

17
<PAGE> 20

AMERICAN HEALTH PROPERTIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent public accountants............................................ 19
Consolidated balance sheets at December 31, 1994 and 1993........................... 20
For the years ended December 31, 1994, 1993 and 1992:
Consolidated statements of operations............................................ 21
Consolidated statements of stockholders' equity.................................. 22
Consolidated statements of cash flows............................................ 23
Notes to consolidated financial statements.......................................... 24
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES:
Report of independent public accountants............................................ 35
III -- Real Estate and Accumulated Depreciation..................................... 36
</TABLE>

18
<PAGE> 21

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To American Health Properties, Inc.:

We have audited the accompanying consolidated balance sheets of American
Health Properties, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1994 and 1993 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Health Properties,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado,
March 6, 1995.

19
<PAGE> 22

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Real estate properties
Buildings and improvements....................................... $ 503,047 $ 480,776
Accumulated depreciation......................................... (70,617) (58,157)
--------- ---------
432,430 422,619
Land............................................................. 62,948 62,317
Construction in progress......................................... -- 11,719
--------- ---------
495,378 496,655
Mortgage notes receivable, net..................................... 37,875 45,825
Construction loans................................................. 21,383 15,039
Other notes receivable............................................. 9,428 8,598
Direct financing leases............................................ 3,816 2,803
Cash and short-term investments.................................... 1,838 35,670
Receivables........................................................ 6,974 6,675
Deferred financing costs and other assets.......................... 2,811 3,188
--------- ---------
$ 579,503 $ 614,453
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term loan payable............................................ $ 14,500 $ --
Mortgage notes payable............................................. -- 14,468
Subordinated convertible bonds payable............................. 6,163 5,955
Senior notes payable............................................... 225,000 225,000
Accounts payable and accrued liabilities........................... 9,668 9,631
Dividends payable.................................................. 11,989 11,830
Deferred income.................................................... 4,682 4,266
--------- ---------
272,002 271,150
--------- ---------
Commitments and contingencies

Stockholders' Equity
Preferred stock $.01 par value; 1,000 shares authorized; none
outstanding................................................... -- --
Common stock $.01 par value; 25,000 shares authorized; 20,851 and
20,755 shares issued and outstanding.......................... 209 208
Additional paid-in capital....................................... 426,783 424,297
Cumulative net income............................................ 169,931 160,238
Cumulative dividends............................................. (289,422) (241,440)
--------- ---------
307,501 343,303
--------- ---------
$ 579,503 $ 614,453
========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

20
<PAGE> 23

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Rental income................................................... $67,732 $64,555 $65,761
Mortgage interest income........................................ 5,787 5,687 7,144
Additional rental and interest income........................... 9,506 9,334 8,529
Other interest income........................................... 4,002 1,947 645
------- ------- -------
87,027 81,523 82,079
------- ------- -------
EXPENSES
Depreciation and amortization................................... 14,103 14,087 12,822
Interest expense................................................ 26,101 27,269 29,777
General and administrative...................................... 5,376 6,437 8,221
Targeted stock issuance costs................................... 1,450 -- --
Litigation costs................................................ -- 2,234 786
Write-down of real estate investments........................... 30,000 -- 45,000
Termination of purchase commitment.............................. -- -- 2,225
------- ------- -------
77,030 50,027 98,831
------- ------- -------
Minority interest............................................... 304 251 629
------- ------- -------
Income (loss) before gain on sale of properties................. 9,693 31,245 (17,381)
Gain on sale of properties...................................... -- 19,742 11,064
------- ------- -------
NET INCOME (LOSS)............................................... $ 9,693 $50,987 $(6,317)
======= ======= =======
NET INCOME (LOSS) PER SHARE..................................... $ 0.46 $ 2.71 $ (0.37)
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING............................. 20,856 18,843 17,247
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

21
<PAGE> 24

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
--------------- PAID-IN NET CUMULATIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL INCOME DIVIDENDS EQUITY
------ ------ -------- -------- --------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1991....... 17,074 $171 $338,257 $115,568 $(150,927) $ 303,069
Conversion of subordinated
convertible bonds................. 91 1 2,471 -- -- 2,472
Restricted stock grants, net........ 21 -- 344 -- -- 344
Exercise of stock options........... 74 1 1,527 -- -- 1,528
Net loss............................ -- -- -- (6,317) -- (6,317)
Dividends ($2.64 per share)......... -- -- -- -- (45,747) (45,747)
------ ------ -------- -------- --------- -------------
BALANCES AT DECEMBER 31, 1992....... 17,260 173 342,599 109,251 (196,674) 255,349
Public offering of additional
shares............................ 3,450 35 80,806 -- -- 80,841
Restricted stock grants, net........ 25 -- 399 -- -- 399
Exercise of stock options........... 20 -- 493 -- -- 493
Net income.......................... -- -- -- 50,987 -- 50,987
Dividends ($2.25 per share)......... -- -- -- -- (44,766) (44,766)
------ ------ -------- -------- --------- -------------
BALANCES AT DECEMBER 31, 1993....... 20,755 208 424,297 160,238 (241,440) 343,303
Restricted stock grants, net........ 6 -- 524 -- -- 524
Exercise of stock options........... 90 1 1,962 -- -- 1,963
Net income.......................... -- -- -- 9,693 -- 9,693
Dividends ($2.30 per share)......... -- -- -- -- (47,982) (47,982)
------ ------ -------- -------- --------- -------------
BALANCES AT DECEMBER 31, 1994....... 20,851 $209 $426,783 $169,931 $(289,422) $ 307,501
====== ====== ======== ======== ========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

22
<PAGE> 25

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................ $ 9,693 $ 50,987 $ (6,317)
Depreciation, amortization and other non-cash items.......... 16,041 15,414 14,015
Deferred income.............................................. 269 (412) 70
Write-down of real estate investments........................ 30,000 -- 45,000
Gain on sale of properties................................... -- (19,742) (11,064)
Change in receivables and other assets....................... (383) 109 (255)
Change in accounts payable and accrued liabilities........... (636) (472) 2,037
-------- -------- --------
54,984 45,884 43,486
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition and construction of real estate properties....... (40,142) (28,502) (27,191)
Proceeds from sale of properties............................. 5,772 41,940 41,511
Mortgage notes receivable.................................... -- -- 1,105
Construction loan fundings................................... (23,180) (15,039) --
Construction loan paid....................................... 16,836 -- --
Other notes receivable....................................... (830) (2,548) (2,612)
Direct financing leases...................................... (1,013) (2,803) --
Administrative capital expenditures.......................... (183) (44) (39)
-------- -------- --------
(42,740) (6,996) 12,774
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (payments) on short-term loan payable............. 14,500 (40,500) (11,000)
Principal payments on mortgages.............................. (14,468) (1,137) (1,029)
Financing costs paid......................................... (248) (1,371) (371)
Proceeds from sale of stock.................................. -- 80,841 --
Proceeds from exercise of stock options...................... 1,963 493 1,528
Dividends paid............................................... (47,823) (42,436) (47,732)
Contributions from minority interest......................... -- -- 439
-------- -------- --------
(46,076) (4,110) (58,165)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS....... (33,832) 34,778 (1,905)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR........... 35,670 892 2,797
-------- -------- --------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR................. $ 1,838 $ 35,670 $ 892
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

23
<PAGE> 26

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE COMPANY

American Health Properties, Inc., a Delaware corporation (the Company,
which term refers to the Company and its subsidiaries unless the context
otherwise requires) is a self-administered real estate investment trust (REIT)
that commenced operations in 1987. The Company has investments in health care
facilities, including 13 acute care hospitals, three rehabilitation hospitals
and five psychiatric hospitals, all of which are operated by qualified third
party health care providers, and a medical office building.

Psychiatric Group Preferred Stock Distribution. On January 31, 1995, the
Company's Board of Directors authorized management to pursue a transaction which
is designed to separate the economic attributes of its investments in
psychiatric hospitals (the Psychiatric Group) and its investments in acute care
hospitals, rehabilitation hospitals and a medical office building (the Core
Group) into two distinct portfolios, with two distinct classes of publicly
traded shares intended to represent those portfolios. The transaction would
entail the distribution to holders of Common Stock of depositary shares
representing a new series of preferred stock, par value $0.01 per share, to be
designated Psychiatric Group Preferred Stock (the Psychiatric Group Stock). The
Psychiatric Group Stock would be intended to reflect the separate performance of
the Psychiatric Group. The Company's existing Common Stock would be intended to
reflect the separate performance of the Core Group. In connection with the
proposed transaction, the Company would specifically identify or allocate its
assets, liabilities and stockholders' equity, and its revenues, expenses and
cash flow items, between the Core Group and Psychiatric Group. However, each
holder of Common Stock or Psychiatric Group Stock would be a holder of an issue
of capital stock of the entire Company and would be subject to the risks
associated with an investment in the Company and all of its businesses, assets
and liabilities.

The conversion rights of the Company's convertible subordinated bonds, and
the Common Stock reserved for issuance upon conversion, will be appropriately
adjusted in accordance with the terms of the indenture to reflect the planned
distribution. In addition, appropriate adjustments will be made to the Company's
stock incentive plans.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and all subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

New Accounting Standards. The Financial Accounting Standards Board has
issued Statements of Financial Accounting Standards No.'s 114 and 118,
"Accounting by Creditors for Impairment of a Loan" and "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures", respectively
(SFAS 114 and 118). SFAS 114 and 118 are applicable to all creditors and to all
loans that are restructured in a troubled debt restructuring involving a
modification of terms. SFAS 114 and 118 require estimating the value of impaired
loans based on the present value of expected future cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent.

SFAS 114 and 118 are effective in fiscal 1995. Management believes that
adoption of SFAS 114 and 118 will not have a material impact on the accompanying
consolidated financial statements.

Real Estate Properties. The Company accounts for its property leases as
operating leases. The Company records properties at cost and allocates the cost
between land and buildings and improvements based on independent appraisals.
Depreciation of acute care and rehabilitation properties is recorded on a
straight-line basis over the estimated useful lives of the buildings and
improvements (27 to 42 years). The Company prospectively revised the estimated
remaining lives of its psychiatric real estate properties from an average of 38
years to 21 years effective as of January 1, 1993. This estimate revision
increased depreciation and reduced net income by $1,165,000, or $.06 per share,
for the year ended December 31, 1993.

24
<PAGE> 27

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Income. Fees received, net of related direct costs, associated
with the origination or amendment of leases and mortgages are deferred and
amortized at a constant effective rate over the remaining initial term of the
related leases and mortgage notes receivable.

Deferred Costs. Deferred financing costs are amortized over the term of
the related debt at a constant effective rate.

Federal Income Taxes. The Company intends at all times to operate so as to
qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code. As
such, the Company will not be subject to federal income tax.

Earnings and profits, which determine the taxability of dividends to
stockholders, differ from net income for financial reporting purposes due
primarily to timing differences in the recognition of fee income, real estate
property write-downs, mortgage note impairment reserves and various accruals and
differences between the estimated useful lives used to compute depreciation for
financial statement purposes and a 40-year life used in determining earnings and
profits. The cost basis of the Company's real estate properties is generally the
same for financial reporting and earnings and profits purposes, except for
properties written down for financial reporting purposes.

Cash and Short-Term Investments. Cash and short-term investments consist
of cash and all highly liquid investments with an original maturity date of less
than three months.

25
<PAGE> 28

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REAL ESTATE PROPERTIES

The following table summarizes the Company's investment in health care real
estate properties as of December 31, 1994:

<TABLE>
<CAPTION>
BUILDINGS AND ACCUMULATED NET
LAND IMPROVEMENTS DEPRECIATION BOOK VALUE
------- ------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ACUTE CARE GENERAL PROPERTIES:
Irvine Medical Center
Irvine, California........................................ $17,987 $ 57,013 $ 5,286 $ 69,714
Tarzana Regional Medical Center
Tarzana, California....................................... 12,421 61,279 11,291 62,409
Desert Valley Hospital
Victorville, California................................... 1,755 22,245 162 23,838
Kendall Regional Medical Center
Miami, Florida............................................ 4,163 64,849 11,997 57,015
Palm Beach Gardens Medical Center
Palm Beach Gardens, Florida............................... 4,024 41,624 8,102 37,546
North Fulton Medical Center
Roswell, Georgia.......................................... 4,149 42,042 6,061 40,130
Halstead Hospital
Halstead, Kansas.......................................... 80 14,170 709 13,541
Elmwood Medical Center
Jefferson, Louisiana...................................... 4,412 38,411 4,370 38,453
Lucy Lee Hospital
Poplar Bluff, Missouri.................................... 404 22,861 4,156 19,109
Frye Regional Medical Center
Hickory, North Carolina................................... 1,247 44,202 8,555 36,894
Cleveland Regional Medical Center
Cleveland, Texas.......................................... 300 8,000 296 8,004
Concho Valley Regional Hospital
San Angelo, Texas......................................... 256 16,196 1,315 15,137
------- --------- -------- --------
51,198 432,892 62,300 421,790
------- --------- -------- --------
PSYCHIATRIC PROPERTIES:
The Retreat
Sunrise, Florida.......................................... 3,325 8,609 1,886 10,048
The Manors
Tarpon Springs, Florida................................... 1,457 5,066 596 5,927
Rock Creek Center
Lemont, Illinois.......................................... 440 5,372 718 5,094
Pembroke Hospital
Pembroke, Massachusetts................................... 1,712 5,840 1,356 6,196
Westwood Lodge Hospital
Westwood, Massachusetts................................... 1,631 4,252 1,019 4,864
------- --------- -------- --------
8,565 29,139 5,575 32,129
------- --------- -------- --------
REHABILITATION PROPERTIES:
Northwest Arkansas Rehabilitation Hospital
Fayetteville, Arkansas.................................... 962 8,124 711 8,375
HCA Wesley Rehabilitation Hospital
Wichita, Kansas........................................... 1,938 12,659 883 13,714
MountainView Regional Rehabilitation Hospital
Morgantown, West Virginia................................. -- 11,718 988 10,730
------- --------- -------- --------
2,900 32,501 2,582 32,819
------- --------- -------- --------
MEDICAL OFFICE BUILDING PROPERTIES:
Walsh Medical Arts Center
Murrieta, California...................................... 285 8,515 160 8,640
------- --------- -------- --------
$62,948 $ 503,047 $ 70,617 $495,378
======= ========= ======== ========
</TABLE>

26
<PAGE> 29

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At June 30, 1992, the Company recorded an $11,400,000 write-down on a
$21,400,000 mortgage note receivable (the "RCC Note") secured by a first
mortgage and security interest in the real property of The Rock Creek Center
("RCC") in Lemont, Illinois. Subsequent recovery of cash in an interest reserve
fund maintained by RCC reduced the Company's recorded investment in the RCC Note
to $8,812,000. At the end of 1992, a formal restructuring of the RCC Note was
completed, pursuant to which the RCC real property was conveyed to the Company
in return for the Company's forgiveness of the RCC Note. The RCC real property
was then leased to the existing operator for an initial term of five years at an
annual rate of $1 million with monthly payments commencing January 1, 1993.
Income received and recognized by the Company on its RCC investment in 1994 and
1993 was $1,000,000 and in 1992 was $1,332,000. Income of $2,664,000 would have
been recorded in 1994, 1993 and 1992, had the RCC Note performed in accordance
with its original terms.

In addition, at June 30, 1994, in view of negative trends that caused
declining cash flow at a number of the psychiatric hospitals, the Company
recorded a $30,000,000 write-down of its investments in psychiatric hospitals at
such date. Of the $30,000,000 write-down, $22,050,000 related to the Company's
investments in psychiatric hospital properties and $7,950,000 was established as
a mortgage note impairment reserve. Over time, the Company intends to reduce its
investments in the psychiatric sector. This is expected to be accomplished
through the Company's announced program to sell, restructure or seek other means
to reduce its investments in the psychiatric sector. In connection with this
program, the Company sold one of its psychiatric properties to a third party in
October, 1994. Additionally, subsequent to year end, the Company sold its
psychiatric hospitals in Westwood and Pembroke, Massachusetts. These sales were
accomplished at net book value. The Company also restructured the terms of its
two Florida psychiatric hospital investments subsequent to year end. Pursuant to
the restructuring, the annual minimum rental obligation of The Retreat
psychiatric hospital in Sunrise, Florida was reduced from $2,359,000 to
$1,100,000, and the annual minimum rental obligation of The Manors psychiatric
hospital in Tarpon Springs, Florida was reduced from $855,000 to $600,000. The
Company will have an enhanced participation in future revenue growth of both
facilities. As part of the restructuring, The Retreat used an existing
$1,000,000 lease reserve fund to pay down outstanding borrowings under a
revolving credit agreement provided by the Company, and the maximum amount
available for borrowing under the credit agreement was reduced from $2,250,000
to $1,000,000. The Manors used an existing $325,000 lease reserve fund to pay
down outstanding borrowings under a $2,000,000 revolving credit agreement
provided by the Company.

The Company's properties are leased under "net" leases pursuant to which
the lessees are responsible for all maintenance, repairs, taxes, and insurance
of the leased properties. The leases provide for the payment of minimum base
rent and additional rent during the fixed term and any renewal terms. Additional
rent is based on the increase in annual gross revenues of the related hospital
as specified in the lease agreements.

The Company has the right to approve capital expenditures at all
properties, the option to fund certain capital expenditures and, in certain
situations, is obligated to fund approved capital expenditures on terms
comparable to the original investment. The Company has committed to fund
approximately $5,000,000 of capital expenditures pursuant to these rights and
obligations. The base and additional rent provisions of the leases are amended
when such capital expenditures are funded to reflect the Company's increased
investment.

Six of the Company's acute care properties are leased to subsidiaries of
American Medical International, Inc. (AMI). The six leases are covered by
cross-default provisions and the lease obligations are unconditionally
guaranteed by AMI. In 1994, income from these leases accounted for 50% of the
Company's total revenues.

Future minimum rentals under the Company's noncancellable operating leases,
after consideration of the sale of the two Massachusetts psychiatric properties
and the restructuring of the lease obligations of the two Florida psychiatric
properties, are approximately $65,100,000 annually in 1995 through 1997,
$64,100,000 in 1998, $41,200,000 in 1999 and $136,800,000 thereafter.

27
<PAGE> 30

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MORTGAGE NOTES RECEIVABLE

Four Winds Hospital -- Saratoga $18,225,000. The Company has a mortgage
note receivable secured by a first mortgage and security interest in the real
property of Four Winds Hospital in Saratoga Springs, New York. The note has an
initial term of ten years with two optional ten-year extension terms. The
initial term maturity date is June 30, 1999. The interest rate on the note is
12.42%. Interest is payable monthly for the first six years, and thereafter,
principal and interest payments will be payable in level monthly installments
based on a thirty-year amortization schedule.

Four Winds Hospital -- Katonah $27,600,000. The Company has a mortgage
note receivable secured by a first mortgage and security interest in the real
property of Four Winds Hospital in Katonah (Westchester County), New York (the
"Four Winds Note"). At June 30, 1992, the Company recorded a $33,600,000
write-down on the original $61,200,000 Four Winds Note which reduced the
Company's recorded investment in the Four Winds Note to $27,600,000.

At the end of 1992, a formal restructuring of the Four Winds Note was
completed, pursuant to which monthly interest payments amount to $3,400,000 in
the first year, increase $100,000 annually in each of the succeeding six years
and remain at $4,000,000 per year through maturity. The restructured note has an
initial term of ten years with two optional ten-year extension terms. The
initial term maturity date is November 30, 2002. Interest income received and
recognized by the Company on the Four Winds Note in 1994, 1993 and 1992 was
$3,508,000, $3,408,000 and $3,524,000, respectively. Interest income of
$7,635,000 would have been recorded in 1994, 1993 and 1992 had the Four Winds
Note performed in accordance with its original terms.

Pursuant to the terms of the mortgage notes receivable, the Company may
receive additional interest each year based on the increase in annual operating
revenues of the related psychiatric facility. The Company may provide permanent
financing for capital additions at the facilities.

Mortgage Note Impairment Reserve. As discussed above, at June 30, 1994, in
view of negative trends that caused declining cash flows at a number of the
psychiatric hospitals, the Company recorded a $30,000,000 write-down of its
investments in psychiatric hospitals. In connection with a review of Four Winds
Hospital -- Saratoga and Four Winds Hospital -- Katonah, as well as
uncertainties surrounding possible changes in Medicaid reimbursement in the
State of New York, $7,950,000 of the $30,000,000 write-down was recorded as a
mortgage note impairment reserve. The Company will record interest on such
mortgage notes as interest payments are received.

CONSTRUCTION LOANS

At December 31, 1994, the Company had funded $21,383,000 of a $30,000,000
commitment to participate in an $86 million construction and mortgage financing
of a 670,000 square foot integrated hospital and medical office building
presently under construction in Austin, Texas.

At December 31, 1993, the Company had funded $15,039,000 under a
construction loan commitment on an ambulatory care and medical office complex in
Overland Park, Kansas. This construction loan was prepaid by the borrower in
February 1994 at which time the balance outstanding was $16,836,000.

OTHER NOTES RECEIVABLE

The Company provides financing at variable rates to certain operators under
revolving credit agreements. The aggregate commitment under these credit
agreements was $9,950,000 as of December 31, 1994. Borrowings under the credit
agreements are subject to compliance with various covenants and may not exceed a
specified percentage of the operators' net accounts receivable. Borrowings under
the credit agreements are secured by accounts receivable and other personal
property of the operator. As of December 31, 1994, $8,800,000 was outstanding
under these revolving credit agreements at a weighted average interest rate of
11.8%. The weighted average amount of borrowings under these credit agreements
outstanding during 1994

28
<PAGE> 31

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was $8,458,000 at a weighted average interest rate of 10.6% with a maximum of
$8,800,000 outstanding during the year. As a result of the Company's sale of its
two Massachusetts psychiatric investments and the restructuring of its two
Florida psychiatric investments, all subsequent to year end, the Company's
aggregate commitment to provide financing under revolving credit agreements was
reduced to $5,700,000, of which $1,200,000 was unfunded as of March 6, 1995.

In connection with the Four Winds Note restructuring, the $950,000 balance
outstanding under a revolving credit agreement was converted to a five-year
amortizing term note. The note bears interest at an annual rate of 10.5%, and
requires monthly principal and interest payments of $21,000 through maturity on
December 1, 1997. As of December 31, 1994, the outstanding balance of this note
was $628,000.

DIRECT FINANCING LEASES

In connection with its investment in the real property of an acute care
general hospital on June 30, 1993, the Company also provided a five-year
equipment lease to the hospital operator which is classified as a direct
financing lease. As of December 31, 1994, the Company's net investment in this
direct financing lease is $2,296,000, represented by total minimum lease
payments receivable of $2,722,000 less unearned income of $426,000. Future
minimum lease payments under this lease are approximately $765,000 annually in
1995 through 1997 and $427,000 in 1998.

In connection with its investment in the real property of an acute care
general hospital on January 3, 1994, the Company also provided a seven-year
equipment lease to the hospital operator which is classified as a direct
financing lease. As of December 31, 1994, the Company's net investment in this
direct financing lease is $1,520,000, represented by total minimum lease
payments receivable of $2,015,000 less unearned income of $495,000. Future
minimum lease payments under this lease are approximately $333,000 annually in
1995 through 2000 and $17,000 in 2001.

DEBT

Short-Term Loan Payable. The Company has a $100 million unsecured
revolving credit agreement with a syndicate of banks maturing on December 31,
1996. This agreement provides for interest on outstanding borrowings at either
LIBOR plus a margin of 125 to 200 basis points or the prime rate plus, in
certain circumstances, a margin of 50 basis points. The margin on LIBOR or prime
rate borrowings is dependent upon various conditions, including the Company's
leverage and debt ratings, and the level and duration of borrowings outstanding.
Currently, the Company is able to borrow at either LIBOR plus 125 basis points
or the prime rate.

The weighted average amount of borrowings under bank credit agreements
outstanding during 1994, 1993 and 1992 was $5,404,000, $11,227,000 and
$54,007,000 at weighted average interest rates of 6.9%, 4.7% and 5.1%,
respectively. The maximum amount outstanding under bank credit agreements in
1994, 1993 and 1992 was $20,500,000, $44,500,000 and $72,000,000, respectively.
As of December 31, 1994, the Company had $14,500,000 outstanding under its bank
credit agreement with a weighted average interest rate of 7.6%.

Mortgage Notes Payable. Two of the properties owned by the Company had
existing mortgages with remaining balances at December 31, 1993 of approximately
$8.8 million and $5.7 million with interest rates of 10.0% and 8.75%,
respectively. The Company prepaid both mortgages in February 1994.

Senior Notes Payable. The Company's two issues of unsecured senior notes
(the Senior Notes) were sold pursuant to private placements with institutional
investors.

In May 1989, the Company sold $5 million of 11.33% Series A Senior Notes
and $120 million of 11.40% Series B Senior Notes. As provided under the terms of
the note agreement, the interest rates on these notes were automatically
adjusted to 11.38% on Series A and 11.45% on Series B effective as of October
25, 1989,

29
<PAGE> 32

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

concurrent with the downgrading of AMI's publicly rated unsecured senior debt
obligations. In the event that such AMI debt obligations are subsequently
upgraded to an investment grade rating, the interest rates on the Series A and
Series B Senior Notes will automatically readjust to 11.33% and 11.40%,
respectively. Interest is payable quarterly in arrears. The Series A Senior
Notes mature May 31, 1996, and the Series B Senior Notes require annual
principal payments of $24 million beginning May 31, 1995 through maturity on May
31, 1999.

In September 1990, the Company sold $100 million of 10.41% Senior Notes.
Interest is payable semi-annually in arrears. The Senior Notes require annual
principal payments of $20 million beginning September 15, 1996 through maturity
on September 15, 2000.

Subordinated Convertible Bonds Payable. The Company's Convertible Dual
Currency Subordinated Bonds (the Swiss Bonds) were sold in Switzerland pursuant
to public subscription.

The 1990 Swiss Bonds have a coupon rate of 8 1/2% and are convertible at
the option of the holder at any time until July 9, 2000 into shares of the
Company's Common Stock at a conversion price of $25.875 per share and a fixed
exchange rate of SFr. 1.41 per U.S. $1.00. In 1994 and 1993, no conversions of
1990 Swiss Bonds were made. In 1992, $2,590,000 of the 1990 Swiss Bonds, with
accrued interest, were converted into 91,259 shares of common stock resulting in
additional equity of $2,472,000, net of conversion and unamortized issuance
costs of $118,000. Final redemption of the 1,491 remaining 1990 Swiss Bonds will
be made in U.S. dollars of $7,455,000 on July 19, 2000 provided additional
conversions or redemption have not occurred earlier.

Interest on outstanding Swiss Bonds is payable annually in arrears in Swiss
Francs in July. Accrued and accreted interest is not paid on Swiss Bonds
converted into common stock.

The Company has reserved approximately 204,000 unissued shares of Common
Stock for potential future Swiss Bond conversions.

Debt Covenants. Covenants and restrictions in the Company's various debt
agreements include limitations on secured borrowings, restrictions covering the
use of proceeds from asset sales and payments of dividends and requirements
relating to the maintenance of specified financial covenants, including those
relating to minimum tangible net worth, fixed charge coverage and ratios of
liabilities to minimum tangible net worth and asset values.

Annual Maturities. The aggregate amount of annual maturities of the
Company's debt for calendar years 1995 through 1999 and thereafter is
$24,000,000, $49,000,000, $44,000,000, $44,000,000, $44,000,000 and $27,455,000,
respectively. In addition, the outstanding balance of $14,500,000 at December
31, 1994 under the Company's unsecured revolving credit agreement matures on
December 31, 1996, although certain events, including sales of assets, may
require the earlier paydown of the outstanding balance.

Interest. Interest capitalized on construction in progress was $883,000,
$577,000 and $872,000 in 1994, 1993 and 1992, respectively. Interest paid, net
of interest capitalized, in 1994, 1993, and 1992 was $24,924,000, $26,686,000
and $29,127,000, respectively.

PENSION PLANS

The Company has a defined contribution pension plan covering all of its
employees. Pension expense in 1994, 1993 and 1992 was $207,000, $202,000 and
$229,000, respectively.

The Company has an unfunded defined benefit pension plan covering
non-employee members of its Board of Directors upon completion of sixty months
of membership on the Board. The benefits, limited to ten years, are based on
years of service and the annual base director fee in effect as of the date a
director ceases to be a member of the Board.

30
<PAGE> 33

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the amounts recognized in the Company's
financial statements:

Actuarial present value of benefit obligations:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Vested benefit obligation................................ $ 580,000 $ 552,000
---------- ----------
Accumulated benefit obligation........................... $ 580,000 $ 552,000
---------- ----------
Projected benefit obligation............................. $ 596,000 $ 566,000
Unrecognized prior service cost.......................... (106,000) (155,000)
Unrecognized net gain.................................... 144,000 99,000
Minimum liability recognized............................. -- 42,000
---------- ----------
Pension liability........................................ $ 634,000 $ 552,000
========== ==========
</TABLE>

Net pension cost included the following components:

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current service cost.............................. $ 70,000 $ 99,000 $ 91,000
Interest cost..................................... 39,000 43,000 33,000
Amortization of prior service cost................ 49,000 49,000 49,000
Amortization of net gain.......................... (9,000) -- --
-------- -------- --------
Net periodic pension cost......................... $149,000 $191,000 $173,000
======== ======== ========
</TABLE>

A discount rate of 8.5% for 1994 and 7.0% for 1993, and a 10.0% increase in
annual base director fees once every five years were used in determining the
actuarial present value of the projected benefit obligation.

STOCK INCENTIVE PLANS

The Company's stock incentive plans provide for the issuance of up to
2,600,000 shares of common stock for restricted stock awards and options to
directors and key employees of the Company. There were 1,369,754 and 149,183
shares available to grant further restricted stock awards and options at
December 31, 1994 and 1993, respectively.

Restricted stock awards are granted with transfer restrictions as described
in the stock incentive plans. At December 31, 1994, 32,941 shares of the
Company's common stock awarded to key employees remained restricted.
Restrictions relating to these shares will lapse each year following the date of
grant with respect to one-sixth, one-fifth or one-half of the total number of
shares granted, as the case may be. Expense is determined based on the market
value at the date of grant and is recognized over the period the restrictions
lapse. Expense recorded in 1994, 1993 and 1992 related to stock awards granted
was $367,000, $399,000 and $344,000, respectively.

Outstanding stock options granted to directors and key employees of the
Company were 753,130 and 688,166 at December 31, 1994 and 1993, respectively.
The exercise price of stock options outstanding ($18 to $35 1/4) is equal to the
fair market value of the shares on the dates the options were granted. In 1994,
174,964 stock options were granted with exercise prices of $26 to $27 1/8, and
in 1993, 204,596 stock options were granted with exercise prices of $23 1/2 and
$27 3/4. In 1992, 98,145 stock options were granted with exercise prices of
$29 1/4 and $35 1/4. Stock options granted to directors are exercisable
immediately and stock options granted to key employees become exercisable over
two to four years. In 1994, 90,000 stock options with exercise prices of $18 1/8
to $25 3/4 were exercised, and in 1993, 20,000 stock options with exercise
prices of $23 1/2 to $25 3/4 were exercised. In 1992, 73,650 stock options with
exercise prices of $18 to $23 1/8 were exercised. In

31
<PAGE> 34

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994, 20,000 stock options with exercise prices of $27 1/8 and $35 1/4 expired.
Stock options of 611,987 and 538,751 at December 31, 1994 and 1993,
respectively, were exercisable at prices of $18 to $35 1/4. Stock options
terminate ten years from the date of grant.

Dividend Equivalent Rights (DER) were granted in tandem with 74,964 and
104,596 of the stock options granted in 1994 and 1993, respectively. At each
dividend declaration date, a calculation is made to determine the number of
shares that could be acquired if dividends were paid on shares under option and
accumulated DERs, and such number of shares are accumulated for the benefit of
option holders for a period of five years from the date of the option grant.
Upon exercise or expiration of the related option, each option holder is
entitled to receive additional shares equivalent to the accumulated number of
related DER shares. At December 31, 1994 and 1993, the accumulated number of DER
shares were 27,856 and 9,198, respectively. Expense related to the DER shares is
equal to the equivalent amount of dividends used to determine the number of DER
shares. Expense recorded in 1994, 1993 and 1992 related to DER shares was
$577,000, $255,000 and $60,000, respectively. Under the terms of the Company's
stock incentive plans, in connection with the planned issuance of Psychiatric
Group Stock, outstanding restricted stock awards, stock options, and DERs will
be adjusted to reflect the issuance of Psychiatric Group Stock.

PREFERRED STOCK PURCHASE RIGHTS PLAN

On April 20, 1990, the Company distributed to shareholders one preferred
stock purchase right (each a Right) for each outstanding share of Common Stock.
Under certain conditions, each Right may be exercised to purchase one
one-hundredth of a share of preferred stock, Series A, par value $.01 per share
(the Series A Preferred Shares), of the Company at a price of $45. The total
number of Rights currently issued or issuable, including Rights issuable in
connection with Common Stock which may be issued under the Company's stock
incentive plans and upon the conversion of the Company's outstanding Swiss
Bonds, is approximately 23,206,000. Approximately 232,000 Series A Preferred
Shares could be purchased upon the exercise of all Rights currently issued or
issuable. The number of Rights outstanding and Series A Preferred Shares
issuable upon exercise, as well as the Series A Preferred Share purchase price,
are subject to customary antidilution adjustments.

The Rights are evidenced by the certificates for shares of Common Stock,
and in general are not transferable apart from the Common Stock or exercisable
until after a party has acquired beneficial ownership of or made a tender offer
for 10% or more of the outstanding Common Stock of the Company (an Acquiring
Person), or the occurrence of other events as specified in the Rights Plan.
Under certain conditions as specified in the Rights Plan, including but not
limited to the acquisition by a party of 15% or more of the outstanding Common
Stock of the Company or the acquisition of the Company in a merger or other
business combination, each holder of a Right (other than an Acquiring Person
whose Rights will be void) will receive upon exercise thereof and payment of the
exercise price that number of shares of Common Stock of the Company or of the
other party, as applicable, having a market value of two times the exercise
price of the Right.

The Rights expire on April 20, 2000, and until exercised, the holder
thereof, as such, will have no rights as a shareholder of the Company. At the
Company's option, the Rights may be redeemed in whole at a price of $.01 per
Right at any time prior to becoming exercisable. In general, the Company may
also exchange the Rights at a ratio of one share of Common Stock per Right after
becoming exercisable but prior to the acquisition of 50% or more of the
outstanding shares of Common Stock by any party.

Series A Preferred Shares issuable upon exercise of the Rights will not be
redeemable. Each Series A Preferred Share will have 100 votes and will be
entitled to (a) dividends in an amount equal to the greater of $1.00 or 100
times the amount of the dividends per share paid on the Common Stock, (b) a
liquidation preference in an amount equal to the greater of $100 or 100 times
the amount per share paid on the Common

32
<PAGE> 35

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock and (c) a payment in connection with a business combination (in which
shares of Common Stock are exchanged) equal to 100 times the amount per share
paid on the Common Stock.

DIVIDENDS

A quarterly dividend of $.575 per share, or approximately $11,989,000 in
the aggregate, was declared by the Board of Directors on January 31, 1995,
payable on February 24, 1995 to shareholders of record on February 10, 1995.
This dividend has been reflected as dividends payable in the accompanying
financial statements as of December 31, 1994. Dividends of $2.295 per share paid
during the year ended December 31, 1994 are characterized as $1.8275 of ordinary
income and $0.4675 return of capital.

In general, dividends on the Company's capital stock are limited by the
Company's unsecured revolving credit agreement to 95% of cash flow available for
debt service, less interest expense, plus gains on asset dispositions.

LEGAL PROCEEDINGS

In August 1992, a shareholder class action lawsuit was filed against the
Company and certain directors and officers of the Company in the Federal
District Court in Denver, Colorado, alleging that among other things, the
defendants knowingly or recklessly disseminated false and misleading information
regarding the performance and creditworthiness of two of the Company's mortgage
loan investments. On May 28, 1993, the Company reached an agreement with the
plaintiffs, the other defendants to the lawsuits and its insurance carrier
regarding settlement and dismissal of the cases with prejudice. The Company
contributed $2,615,000 to the settlement in 1993. The Company's total costs
related to this matter were $3,020,000 including the Company's settlement
contribution, legal fees and other expenses. Of this amount, $786,000 was
accrued in the fourth quarter of 1992, and the remaining $2,234,000 was charged
against income in 1993. The settlement became effective upon approval by the
court in December 1993.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.

Mortgage Notes Receivable. The carrying amount of mortgage notes
receivable is a reasonable estimate of fair value, as the pricing and terms of
the notes are indicative of current rates and credit risk.

Construction Loans. The carrying amounts of these construction loans are a
reasonable estimate of fair value, as the variable rate pricing and terms of the
loans are indicative of current rates and credit risk.

Other Notes Receivable. The Company's pricing and terms of variable-rate
financing and commitments provided to certain operators and a term note are
indicative of current rates and credit risk, and therefore, the carrying amount
of these financial instruments is a reasonable estimate of fair value.

Cash and Short-Term Investments. The carrying amount approximates fair
value because of the short maturity of these financial instruments.

Short-Term Loan Payable. The terms of borrowings under the Company's
unsecured revolving credit agreement are generally less than 90 days at variable
pricing indicative of current short-term borrowing rates. Accordingly, the
carrying amount is a reasonable estimate of fair value.

Mortgage Notes Payable. The carrying amount of mortgage notes payable
generally reflects current rates for similar type borrowings and is a reasonable
estimate of fair value.

Subordinated Convertible Bonds Payable. The fair value of the Company's
subordinated convertible bonds payable is based on the quoted market price of
the bonds as traded in Switzerland.

33
<PAGE> 36

AMERICAN HEALTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Senior Notes Payable. An estimate of rates currently available to the
Company for debt with similar terms was used to determine the fair value of the
Company's senior notes payable.

Loan Commitments. The terms and pricing of the Company's $30,000,000
commitment at December 31, 1994 to participate in the funding of a construction
loan that will convert to a mortgage note receivable are indicative of current
rates and terms for similar arrangements. The amount shown as carrying amount
and fair value at December 31, 1993 represents the construction financing fee
that was received and deferred by the Company on another construction loan that
was prepaid by the borrower in February 1994.

The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Mortgage notes receivable................. $37,875 $37,875 $45,825 $45,825
Construction loan......................... 21,383 21,383 15,039 15,039
Other notes receivable.................... 9,428 9,428 8,598 8,598
Cash and short-term investments........... 1,838 1,838 35,670 35,670

FINANCIAL LIABILITIES
Short-term loan payable................... 14,500 14,500 -- --
Mortgage notes payable.................... -- -- 14,468 14,468
Subordinated convertible bonds payable.... 6,163 5,894 5,955 6,442
Senior notes payable...................... 225,000 231,358 225,000 245,668

UNRECOGNIZED FINANCIAL INSTRUMENTS
Loan commitments.......................... 225 225 520 520
</TABLE>

QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1994
Revenues....................... $21,553 $21,653 $21,774 $22,047 $87,027
Net Income (Loss).............. 9,784 (19,256)(1) 10,395 8,770 9,693
Net Income (Loss) per share.... .47 (.92) .50 .42 .46
1993
Revenues....................... $20,098 $19,723 $20,889 $20,813 $81,523
Net Income..................... 27,864(2) 5,765 9,026 8,332 50,987
Net Income per share........... 1.61 .33 .45 .40 2.71
</TABLE>

- ---------------

(1) Reflects a write-down of $30,000,000 relating to investments in psychiatric
hospitals.

(2) Includes a gain of $19,742,000 on the sale of a property.

34
<PAGE> 37

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in this Annual Report on Form
10-K, and have issued our report thereon dated March 6, 1995. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedule listed in the index of financial statements is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Denver, Colorado,
March 6, 1995.

35
<PAGE> 38

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION

AMERICAN HEALTH PROPERTIES, INC.

DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS CARRYING AMOUNT
INITIAL COST TO COMPANY AT DECEMBER 31, 1994(A)
----------------------- SUBSEQUENT ----------------------------------
LICENSED BUILDINGS AND CAPITAL BUILDINGS AND
DESCRIPTION AND LOCATION BEDS LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------------------------ -------- ------- ------------- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Acute care general properties:
Irvine, California 177 $17,987 $ 57,013 $ -- $17,987 $ 57,013 $ 75,000
Tarzana, California 233 11,921 43,079 18,700 12,421 61,279 73,700
Victorville, California 77 1,755 22,245 -- 1,755 22,245 24,000
Miami, Florida 412 4,163 55,837 9,012 4,163 64,849 69,012
Palm Beach Gardens, Florida 204 4,024 40,976 648 4,024 41,624 45,648
Roswell, Georgia 167 4,149 20,851 21,191 4,149 42,042 46,191
Halstead, Kansas 190 80 14,170 -- 80 14,170 14,250
Jefferson, Louisiana 135 3,012 32,138 7,673 4,412 38,411 42,823
Poplar Bluff, Missouri 201 404 19,596 3,265 404 22,861 23,265
Hickory, North Carolina 275 1,247 38,753 5,449 1,247 44,202 45,449
Cleveland, Texas 104 300 8,000 -- 300 8,000 8,300
San Angelo, Texas 171 165 15,867 420 256 16,196 16,452
------- --------- ------- ------- --------- --------
49,207 368,525 66,358 51,198 432,892 484,090
------- --------- ------- ------- --------- --------
Psychiatric properties:
Sunrise, Florida 100 3,325 15,209 -- 3,325 8,609 11,934(d)
Tarpon Springs, Florida 130 1,457 2,904 2,162 1,457 5,066 6,523
Lemont, Illinois 60 440 8,372 -- 440 5,372 5,812(c)(d)
Pembroke, Massachusetts 115 1,712 9,340 -- 1,712 5,840 7,552(d)
Westwood, Massachusetts 100 1,631 7,052 -- 1,631 4,252 5,883(d)
------- --------- ------- ------- --------- --------
8,565 42,877 2,162 8,565 29,139 37,704
------- --------- ------- ------- --------- --------
Rehabilitation properties:
Fayetteville, Arkansas 60 962 8,124 -- 962 8,124 9,086
Wichita, Kansas 60 1,938 12,659 -- 1,938 12,659 14,597
Morgantown, West Virginia 80 -- 10,084 1,634 -- 11,718 11,718
------- --------- ------- ------- --------- --------
2,900 30,867 1,634 2,900 32,501 35,401
------- --------- ------- ------- --------- --------
Medical Office Buildings:
Murrieta, California n/a 285 8,515 -- 285 8,515 8,800
------- --------- ------- ------- --------- --------
$60,957 $ 450,784 $70,154 $62,948 $ 503,047 $565,995
------- --------- ------- ------- --------- --------

ACCUMULATED DATE OF DATE DEPRECIABLE
DESCRIPTION AND LOCATION DEPRECIATION CONSTRUCTION(B) ACQUIRED LIFE
- ------------------------------------- ------------ --------------- -------- -----------
<S> <C> <C> <C> <C>
Acute care general properties:
Irvine, California $ 5,286 1990 04/23/91 40 years
Tarzana, California 11,291 1973-1994 02/27/87 34 years
Victorville, California 162 1994 09/20/94 40 years
Miami, Florida 11,997 1973-1994 02/27/87 38 years
Palm Beach Gardens, Florida 8,102 1964-1992 02/27/87 40 years
Roswell, Georgia 6,061 1983-1993 02/27/87 42 years
Halstead, Kansas 709 1976 06/30/93 30 years
Jefferson, Louisiana 4,370 1987-1992 05/11/90 40 years
Poplar Bluff, Missouri 4,156 1980-1993 02/27/87 40 years
Hickory, North Carolina 8,555 1974-1993 02/27/87 38 years
Cleveland, Texas 296 1968-1986 01/03/94 27 years
San Angelo, Texas 1,315 1960-1991 09/30/91 40 years
--------
62,300
--------
Psychiatric properties:
Sunrise, Florida 1,886 1988 08/15/90 25 years
Tarpon Springs, Florida 596 1928-1993 08/15/90 25 years
Lemont, Illinois 718 1989 12/31/92 25 years
Pembroke, Massachusetts 1,356 1984 10/05/90 20 years
Westwood, Massachusetts 1,019 1890-1984 10/05/90 20 years
--------
5,575
--------
Rehabilitation properties:
Fayetteville, Arkansas 711 1991 07/01/91 40 years
Wichita, Kansas 883 1992 03/16/92 40 years
Morgantown, West Virginia 988 1991 02/25/91 40 years
--------
2,582
--------
Medical Office Buildings:
Murrieta, California 160 1991 04/01/94 40 years
--------
$ 70,617
--------
</TABLE>

- ---------------

(a) The cost basis of the properties for Federal income tax purposes is the same
as the gross carrying amount, except for those properties for which a
write-down was recorded in 1994. For Federal income tax purposes, the gross
carrying amount for the Halstead, Kansas facility is classified as an
investment in an Industrial Revenue Bond and is not depreciated.

(b) Most properties have had improvements since their initial construction. The
range of dates reflects the construction date of the original structures
through the latest date of improvements.

(c) This property was conveyed to the Company in December 1992 in connection
with the restructuring and forgiveness of a mortgage note receivable. The
$21.4 million mortgage note receivable had been written down in June 1992 to
$10 million. Subsequent recovery of a $1.1 million interest reserve fund
from the mortgagee reduced the Company's recorded investment in the note to
$8.8 million (net of unamortized fees) which became the Company's basis in
the property upon its conveyance. The property was written down by $3
million in 1994 to its current gross carrying amount of $5.8 million.

(d) In view of negative trends that caused declining cash flow at these
psychiatric hospitals, the Company recorded a write-down of its investment
in each of these properties in 1994. The write-downs by property were:
Sunrise, Florida $6.6 million; Lemont, Illinois $3 million; Pembroke,
Massachusetts $3.5 million; and Westwood, Massachusetts $2.8 million.

36
<PAGE> 39

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION

AMERICAN HEALTH PROPERTIES, INC.

DECEMBER 31, 1994
(IN THOUSANDS)

Summary of Real Estate and Accumulated Depreciation Activity:

<TABLE>
<CAPTION>
1994 1993 1992
----------------------- ----------------------- -----------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION COST DEPRECIATION
-------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Year........................ $543,093 $ 58,157 $536,845 $ 47,829 $537,796 $ 36,744
Acquisitions.................. 30,020 n/a 14,250 n/a 8,812 n/a
Cost of Real Estate Sold...... (7,309) (1,537) (26,000) (3,642) (33,958) (1,571)
Construction Projects
Completed................... 15,000 n/a n/a n/a 14,597 n/a
Capital Improvements.......... 7,241 n/a 17,998 n/a 9,598 n/a
Write-Down of Real Estate
Investments................. (22,050) n/a -- n/a -- n/a
Depreciation.................. n/a 13,997 n/a 13,970 n/a 12,656
-------- -------- -------- -------- -------- --------
Balance at End of Year........ $565,995 $ 70,617 $543,093 $ 58,157 $536,845 $ 47,829
-------- -------- -------- -------- -------- --------
</TABLE>

37
<PAGE> 40

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Englewood, State of Colorado, on the 22nd day of March, 1995.

AMERICAN HEALTH PROPERTIES, INC.

By: VICTOR C. STREUFERT
Victor C. Streufert
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph P. Sullivan, Victor C. Streufert and
Geoffrey D. Lewis, and each or either of them as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------

<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER

JOSEPH P. SULLIVAN President, Chief Executive March 22, 1995
Joseph P. Sullivan Officer and Director

PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER

VICTOR C. STREUFERT Executive Vice President and March 22, 1995
Victor C. Streufert Chief Financial Officer
WALTER J. McNERNEY Chairman of the Board March 22, 1995
Walter J. McNerney

NORMAN BARKER, JR. Director March 22, 1995
Norman Barker, Jr.

ROYCE DIENER Director March 22, 1995
Royce Diener

JAMES L. FISHEL Director March 22, 1995
James L. Fishel
</TABLE>

38
<PAGE> 41

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------

<S> <C> <C>
CHARLES M. HAAR Director March 22, 1995
Charles M. Haar

SHELDON S. KING Director March 22, 1995
Sheldon S. King

Director
Louis T. Rosso
</TABLE>

39
<PAGE> 42
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.1 -- Certificate of Incorporation, as amended to date, filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference.

3.2 -- Amended and Restated Bylaws of the Company, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference.

4.1 -- Rights Agreement dated as of April 10, 1990, filed as Exhibit 2 to the Company's
Registration Statement on Form 8-A dated April 20, 1990, and incorporated
herein by reference.

4.2 -- Form of Note Agreement between the Company and various institutional investors,
dated as of May 1, 1989, for the Company's $5,000,000 11.33% Series A Notes due
May 30, 1996 and $120,000,000 11.44% Series B Notes due May 30, 1999, filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-11 (No.
33-29387), effective August 4, 1989, and incorporated herein by reference.

4.3 -- Form of Note Agreement between the Company and various institutional investors,
dated as of September 1, 1990, for the Company's $100,000,000 10.41% senior
notes due September 15, 2000, filed as Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990, and incorporated
herein by reference.

10.1 -- Credit Agreement among the Company, various banks and Wells Fargo Bank, National
Association, as Administrative Agent, and Barclays Bank PLC, as Documentation
Agent, dated as of December 23, 1993, filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference.

*10.2 -- Second Amendment to Credit Agreement, dated as of January 19, 1995, among the
Company, various banks and Wells Fargo Bank, National Association, as
Administrative Agent.

10.3 -- American Health Properties, Inc. 1988 Stock Option Plan, filed as Exhibit 28 to
the Company's Registration Statement on Form S-8 (No. 33-25781), filed with the
Securities and Exchange Commission on November 28, 1988, and incorporated
herein by reference.

10.4 -- American Health Properties, Inc. 1990 Stock Incentive Plan, filed as Exhibit B
to the Company's Proxy Statement for its 1990 Annual Meeting of Shareholders
filed with the Securities and Exchange Commission on May 7, 1990, and
incorporated herein by reference.

10.5 -- Lease and Security Agreement between the Company and American Medical
International, Inc. (for Irvine Medical Center), dated April 23, 1991, filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K (No. 1-9381), dated
April 23, 1991, and incorporated herein by reference.

10.6 -- Guaranty of Lease (relating to Irvine Medical Center) made by American Medical
International, Inc. and American Medical Holdings, Inc., dated as of April 19,
1991, filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.

10.7 -- Employment Agreements between the Company and Joseph P. Sullivan, Victor C.
Streufert, Geoffrey D. Lewis, C. Gregory Schonert and Michael J. McGee, filed
as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by reference.

10.8 -- American Health Properties, Inc. 1994 Stock Incentive Plan, filed as Appendix A
to the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders
filed with the Securities and Exchange Commission on April 8, 1994, and
incorporated herein by reference.

10.9 -- American Health Properties, Inc. Nonqualified Stock Option Plan for Nonemployee
Directors, filed as Appendix B to the Company's Proxy Statement for its 1994
Annual Meeting of Shareholders filed with the Securities and Exchange
Commission on April 8, 1994, and incorporated herein by reference.

*21 -- List of subsidiaries of the Company.

*23.1 -- Consent of Independent Public Accountants

*27 -- Financial Data Schedule

</TABLE>

- ------------

* Filed herewith

(B) REPORTS ON FORM 8-K.

None.

<PAGE> 1

EXHIBIT 10.2

SECOND AMENDMENT TO CREDIT AGREEMENT

This SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of January 19,
1995 (this "Agreement"), is among AMERICAN HEALTH PROPERTIES, INC., a
Delaware corporation, as Borrower, the lenders listed on the signature pages
hereof, as Lenders, and WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Administrative Agent.

Preliminary Statement
(Certain capitalized terms used herein are below defined)

A. Borrowers, Lenders, Administrative Agent, and Documentation
Agent (as mentioned below) previously entered into that certain Credit
Agreement, dated as of December 23, 1993, as amended by the First Amendment
to Credit Agreement, dated as of April 27, 1994 (as so amended, the "Credit
Agreement"). Barclays Bank PLC was removed by Lenders as Documentation Agent,
leaving Administrative Agent as the sole Agent under the Credit Agreement.

B. Borrower wishes to create and issue (by way of a dividend on its
outstanding common stock consisting of Depositary Shares, as below defined)
(the "Distribution") a series of its preferred stock, par value $0.01 per
share, to be designated as its Psychiatric Group Preferred Stock (the "PG
Stock" as hereafter more particularly defined), which (a) will have no
entitlement to dividends, except as and when dividends are declared thereon by
Borrower's board of directors or a duly authorized committee thereof, and will
have no preference as to dividends over Borrower's common stock, par value
$0.01 per share (the "Common Stock"), provided that Section 6.5 of the Credit
Agreement (as amended hereby) will operate as a limitation on dividends or
other distributions on Borrower's capital stock including the PG Stock, (b)
will have no entitlement to participate in the net assets of Borrower in any
liquidation of Borrower until after the payment of all of Borrower's
liabilities (including the Loans then outstanding), but will have a preference
of $1.00 per share over the Common Stock in any such liquidation, (c) will
have voting rights approximately pari passu with the Common Stock (based on
relative market values), and (d) will be subject to redemption or exchange at
the option of Borrower (not at the option of the holders thereof).

C. Section 6.5 of the Credit Agreement (as amended hereby) will
continue to operate as a limitation on dividends or other distributions on
Borrower's capital stock including the PG Stock.

D. The PG Stock will be represented by depositary shares each
representing a fraction of a share of the PG Stock (the "Depositary Shares").

-1-
<PAGE> 2

E. Pursuant to Section 9.2 of the Credit Agreement, this Agreement
requires the consent of Required Lenders and upon such consent and subject to
the terms hereof shall be binding upon all Lenders.

NOW, THEREFORE, in consideration of the foregoing, and the covenants
contained herein, the parties hereto agree as follows:

1. Definitions; Certain Rules of Construction, Schedules.

1.1 Definitions. Unless otherwise defined herein, capitalized terms
used shall have the meaning set forth in the Credit Agreement, as amended
hereby.

1.2 Certain Rules of Construction. The rules of construction set
forth in Section 1.3 of the Credit Agreement are applicable to this Agreement.

1.3 Schedules. Schedule I ("Psychiatric Group Sites") and
Schedule II ("Description of PG Stock") attached hereto are hereby
incorporated herein in full.

2. Amendments to Credit Agreement.

2.1 Section 1.1 of the Credit Agreement is hereby amended by amending
and restating the following defined term in full:

"Applicable Value" means, with respect to any Real Property
Asset at any time any determination thereof is to be made, the lesser
of (a) (i) with respect to any Real Property Asset which consists of
Borrower's or any of its consolidated Subsidiaries' interest as
mortgagee under a mortgage, the aggregate outstanding principal amount
of the obligations owed to Borrower or any of its consolidated
Subsidiaries which are secured by such mortgage or (ii) with respect to
any other Real Property Asset, Borrower's or any of its consolidated
Subsidiaries' cost in acquiring such Real Property Asset, less in the
case of either (i) or (ii) above any writedown of such Real Property
Asset and any reserves associated with such Real Property Asset, and
(b) the value attributed to Borrower's or any of its consolidated
Subsidiaries' interest in such Real Property Asset in the most recent
appraisal obtained by or on behalf of Borrower or such Subsidiary with
respect to such Real Property Asset, such value to be determined with
reference to, and to be based upon, the cost, income, and market
valuations of such Real Property Asset as contained in such appraisal.

2.2 Section 1.1 of the Credit Agreement is hereby amended to add the
following defined terms:

-2-
<PAGE> 3

"Distribution" has the meaning set forth in paragraph B of the
Preliminary Statement to the Second Amendment.

"PG Assets" means (a) the PG Sites to the extent such
property, plant, and equipment constitute Assets of Borrower or its
consolidated Subsidiaries, (b) any Debt for money borrowed owed to
Borrower or its consolidated Subsidiaries and secured by any PG Site,
and (c) any Debt owed to Borrower or its consolidated Subsidiaries by
the owner or operator, other than an owner or operator who is an
Affiliate of Borrower, of any PG Site as a result of operating
advances made by Borrower or any of its consolidated Subsidiaries to
such owner or operator in connection with the operation or maintenance
of such PG Site.

"PG Debt" means the following Debt of Borrower allocated by
Borrower to the acquisition, maintenance, and operation of the PG
Assets: (a) $20,000,000 in fixed rate Debt and (b) up to $10,000,000
in variable rate Debt.

"PG Excess Proceeds" means at any time the amount, if any, by
which (a) the cumulative Net Cash Proceeds of the sale or other
dispositions of PG Assets made on or before such time exceeds (b) the
outstanding balance of the PG Debt at such time plus the cumulative
repayments of PG Debt made on or before such time.

"PG Sites" means the seven psychiatric hospital sites listed on
Schedule I to the Second Amendment and all property, plant, and
equipment with respect to such sites.

"PG Stock" means the class of preferred stock of Borrower
having the rights, restrictions, and other attributes set forth in
Schedule II to the Second Amendment with such changes as Required
Lenders shall have approved.

"Second Amendment" means the Second Amendment to Credit
Agreement, dated as of January 19, 1995, among Borrower, Lenders, and
Administrative Agent.

2.3 Section 2.10 (c) of the Credit Agreement is hereby amended and
restated to read in full as follows:

(c) (i) Borrower shall, from time to time, make mandatory
prepayments of the Loans, without penalty or premium, in an amount
equal to (A) 100% of the Net Cash Proceeds arising from the sale or
other disposition of Assets of Borrower or any of its Subsidiaries
pursuant to clauses (a) and (b) of Section 6.9, (B) 100% of the Net
Cash Proceeds arising from (1) the issuance and sale by Borrower or
its Subsidiaries of debt securities or equity securities

-3-
<PAGE> 4
(including Preferred Stock), or (2) the incurrence by Borrower
or any of its Subsidiaries of any Debt permitted under Section 6.1(j),
and (C) the lesser of (1) 100% of the Net Cash Proceeds arising from
the sale or other disposition of any PG Assets pursuant to clause (c)
of Section 6.9 and (2) the outstanding amount of the PG Debt as of the
date of such sale or other disposition, provided that in the case of
(A), (B), or (C) above of this clause (i), the amount of any such
mandatory prepayment shall not exceed the then current Revolving Credit
Facility Usage.

(ii) From and after notice to Borrower by Administrative
Agent, given at the request of any Lender, that an Event of Default or
Unmatured Event of Default has occurred and is continuing, the
outstanding Commitments shall be permanently reduced (such permanent
reduction in the Commitments to occur irrespective of the amount or the
Revolving Facility Usage at the time of such reduction in Commitments)
in an amount equal to: (A) 100% of the Net Cash Proceeds arising on
or after the date such notice is given from the sale or other
disposition of Assets of Borrower or any of its Subsidiaries pursuant
to clauses (a) and (b) of Section 6.9, (B) 100% of the Net Cash
Proceeds arising on or after the date such notice is given from (1)
the issuance and sale by Borrower or its Subsidiaries of debt
securities or equity securities (including Preferred Stock), or (2)
the incurrence by Borrower or any of its Subsidiaries of any Debt
permitted under Section 6.1(j), and (C) 100% of the Net Cash Proceeds
arising on or after the date such notice is given from the sale or
other disposition of any PG Assets pursuant to clause (c) of Section
6.9.

(iii) Any reduction of the Commitments pursuant to this
Section 2.10 shall reduce each Lender's Commitment ratably according to
such Lender's Commitment Percentage extant immediately prior to such
reduction. Any mandatory prepayment of the Loans outstanding pursuant
to this Section 2.10 shall be applied to each Lender's pro rata share
of such outstanding Loans, based upon such Lender's pro rata share of
the Loans outstanding immediately prior to such prepayment, and shall
first be applied to Base Rate Loans. Borrower shall make payment of the
amounts required by this Section 2.10(c) within two Business Days of
Borrower's or its Subsidiaries' receipt of same; provided that, prior
to the occurrence and continuation of any Event of Default or Unmatured
Event of Default, if any amounts required to be prepaid pursuant to
this Section 2.10(c) would result in Borrower becoming liable for costs
pursuant to Section 2.14(d), then Borrower shall make payment of such
amounts on the next maturing Interest Period(s).

2.4 Section 6.5 of the Credit Agreement is hereby amended and
restated to read in full as follows:

-4-
<PAGE> 5

6.5 Dividends. Borrower shall not and shall not permit any
of its Subsidiaries to make or declare, directly or indirectly, any
dividend (in cash, return of capital, or any other form of Assets) on,
or make any other payment or distribution on account of, or set aside
Assets for a sinking or other similar fund for the purchase,
redemption, or retirement of, or redeem, purchase, retire, or otherwise
acquire any shares or interest of, any class of Borrower's or its
Subsidiaries' capital stock, whether now or hereafter outstanding, or
grant or issue any warrant, right, or option pertaining thereto, or
make any other distribution in respect thereof, either directly or
indirectly, whether in cash or other Assets or in obligations (the
foregoing being called, collectively, "dividends or other
distributions"); provided that the foregoing shall not restrict the
ability of:

(a) Borrower's Subsidiaries to make any dividend or other
distribution, so long as such dividend or other distribution is paid to
Borrower or used by another Subsidiary of Borrower (to the extent of
its receipt thereof) to make a similar dividend or distribution
ultimately resulting in Borrower's receipt thereof;

(b) Borrower to make any dividend or other distribution to
the holders of its capital stock consisting of shares of its common
stock or rights to acquire its common stock;

(d) Borrower to make, so long as no Event of Default or
Unmatured Event of Default has occurred and is continuing or would
result from the making thereof, cash dividends or other distributions
in an aggregate amount not to exceed, during the period from January 1,
1993 to the date any determination is to be made thereof, (i) the
greater of: (A) 95% of the sum of (1) Consolidated Cash Flow
Available for Debt Service minus (2) Interest Expense plus (3) gains
during such period respecting sales or other dispositions of Assets
other than PG Assets, and (B) the minimum amount required for Borrower
to maintain its status as a real estate investment trust under the
Code, and (ii) in the case of the PG Stock only, the lesser of (A)
the PG Excess Proceeds and (B) $30,000,000 in the aggregate for all
such dividends and distributions in respect of the PG Stock made at any
time and $15,000,000 in the aggregate for all such dividends and
distributions made in respect of the PG Stock in any calendar year.

2.5 Section 6.6(c) of the Credit Agreement is hereby amended and
restated to read in full as follows:

-5-
<PAGE> 6

(c) Amount of Debt to Applicable Value of Certain Real
Property Assets and Certain Other Assets. Borrower shall not permit,
at any time, the amount of the Debt of Borrower and its Subsidiaries to
be equal to or greater than the sum of:

(i) at any time Threshold Rating Status exists, 65% and, at any
other time, 60% of the sum of (A) the Applicable Value of all Real
Property Assets (other than Excluded Real Property Assets and PG
Assets) which are not medical office buildings, (B) all of Borrower's
and its Subsidiaries' cash and marketable securities, (C) all accrued
and unpaid interest expense on obligations owed to Borrower or any of
its Subsidiaries which are secured by Real Property Assets (other than
Excluded Real Property Assets and PG Assets), and (D) all accrued and
unpaid rentals owing to Borrower or any of its Subsidiaries in respect
of Real Property Assets (other than Excluded Real Property Assets and
PG Assets);

(ii) 60% of the Applicable Value of all Real Property Assets
(other than Excluded Real Property Assets and PG Assets) which are
medical office buildings; and

(iii) the lesser of (A) $45,000,000 and (B) the sum of (1) at
any time Threshold Rating Status exists, 65% and, at any other time,
60% of the sum of (aa) the Applicable Value of all Real Property
Assets (other than Excluded Real Property Assets) which are PG Assets
and which are not medical office buildings, (bb) all accrued and
unpaid interest expense on obligations owed to Borrower or any of its
Subsidiaries which are secured by Real Property Assets (other than
Excluded Real Property Assets) which are PG Assets, and (cc) all
accrued and unpaid rentals owing to Borrower or any of its Subsidiaries
in respect of Real Property Assets (other than Excluded real Property
Assets) which are PG Assets, and (2) 60% of the Applicable Value of
all Real Property Assets (other than Excluded Real Property Assets)
which are PG Assets and which are medical office buildings.

2.6 Section 6.6(e) of the Credit Agreement is hereby amended and
restated to read in full as follows-

(e) Consolidated Tangible Net Worth. Borrower shall not
permit its Consolidated Tangible Net Worth at any time to be less than
$260,000,000 plus 75% of the aggregate Equity Proceeds received by
Borrower after the Closing Date and on or before the time as of which
Consolidated Tangible Net Worth is being determined.

2.7 Section 6.9 of the Credit Agreement is hereby amended and
restated to read in full as follows-

-6-
<PAGE> 7

6.9 Sale of Assets. Borrower shall not and shall not permit
or suffer any of its Subsidiaries to sell, assign, transfer, convey, or
otherwise dispose of its or their Assets, whether now owned or
hereafter acquired, except for:

(a) the sale or other disposition (including by lease) by
Borrower or its Subsidiaries of Assets, other than PG Assets, in the
ordinary and usual course of business, in accordance with past
practices, in an aggregate Dollar amount not to exceed, during the
term of this Agreement, 25% of the average aggregate Dollar value of
Borrower's Assets (determined on a consolidated basis in accordance
with GAAP), other than PG Assets, during any twelve consecutive
calendar month period following the Closing Date, provided that
Borrower shall prepay or cause any such Subsidiary to prepay to
Administrative Agent, in accordance with the provisions of Section
2.10(c), 100% of the Net Cash Proceeds resulting from any such sale or
other disposition in excess of $1,000,000;

(b) with the prior written consent of Required Lenders: (i)
the sale or other disposition of any of the businesses or Assets, other
than PG Assets, of Borrower or any of its Subsidiaries (other than
capital stock), outside of the ordinary and usual course of business
for not less than the fair value thereof; or (ii) the sale or other
disposition of any Health Care Facility (other than PG Assets or any
Health Care Facility permitted to be sold under clause (a) of this
Section 6.9) by Borrower or any of its Subsidiaries for not less than
the fair value thereof, provided that Borrower shall prepay or cause
any such Subsidiary to prepay to Administrative Agent, in accordance
with the provisions of Section 2.10(c), 100% of the Net Cash Proceeds
resulting from any such sale or other disposition;

(c) the sale or other disposition of any of the PG Assets by
Borrower or any of its Subsidiaries for not less than the fair value
thereof, provided that Borrower shall prepay or cause any such
Subsidiary to prepay to Administrative Agent, in accordance with the
provisions of Section 2.10(c), the lesser of (i) 100% of the Net
Cash Proceeds arising from such sale or other disposition and (ii) the
outstanding amount of the PG Debt as of the date of such sale or other
disposition;

(d) involuntary sales or other dispositions of any of the
businesses or Assets of Borrower or any of its Subsidiaries; and

-7-
<PAGE> 8

(e) any sale or other disposition otherwise permitted by
Section 6.7(b).

At the time of any sale or other disposition under clause (a),
(b), or (c) of this Section 6.9, Borrower shall deliver to
Administrative Agent a certificate, duly executed by a Responsible
Officer of Borrower, setting forth in detail the determination of the
Net Cash Proceeds of such sale or other disposition, and such other
information as is necessary to demonstrate compliance with clause (a),
(b), or (c) of this Section 6.9, as applicable.

2.8 Section 6.13 of the Credit Agreement is hereby amended and
restated to read in full as follows:

6.13 Issuance of Preferred Stock. Except as set forth in the
Disclosure Statement, without the prior written consent of Required
Lenders, Borrower shall not and shall not permit any of its
Subsidiaries to create or issue any class or series of Preferred Stock;
provided that Borrower may make the Distribution.

3. Representations and Warranties. Borrower represents and
warrants on and as of the Effective Date (as hereinafter defined) as follows:

3.1 Requisite Power and Authorization. Borrower has all requisite
corporate power to execute and deliver this Agreement and to borrow the sums
provided for in the Credit Agreement as amended hereby. Each of the
Subsidiary Guarantors has all requisite corporate power to execute and deliver
the Reaffirmation of Subsidiary Guarantors appended to this Agreement. The
execution, delivery, and performance of this Agreement have been duly
authorized by Borrower's board of directors and all necessary corporate action
in respect thereof has been taken, and the execution, delivery, and performance
thereof do not require any consent or approval of the stockholders of Borrower
which has not been obtained. The execution, delivery, and performance of the
Reaffirmation of Subsidiary Guarantors appended to this Agreement by each of
the Subsidiary Guarantors have been duly authorized by the board of directors
of each of the Subsidiary Guarantors, and all necessary corporate action in
respect thereof has been taken by each of the Subsidiary Guarantors, and the
execution, delivery, and performance thereof does not require any consent or
approval of the stockholders of any of the Subsidiary Guarantors which consent
or approval has not been obtained.

3.2 Binding Agreements. This Agreement has been duly executed and
delivered by Borrower and constitutes the legal, valid, and binding obligation
of Borrower, enforceable against Borrower in accordance with its terms, except
as the enforceability hereof may be affected by: (a) bankruptcy,

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<PAGE> 9

insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally, (b) the limitation of certain
remedies by certain equitable principles of general applicability; and (c) the
fact that the rights to indemnification hereunder may be limited by federal or
state securities laws.

3.3 Other Agreements. The execution, delivery, and performance by
Borrower of this Agreement, and the execution and delivery by each of the
Subsidiary Guarantors of the Reaffirmation of Subsidiary Guarantors appended to
this Agreement, do not and will not: (a) violate, (i) any provision of any
material federal (including the Exchange Act), state, or local law, rule,
or regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) binding on Borrower or any of the Subsidiary Guarantors, (ii) any
material order of any domestic governmental authority, court, arbitration
board, or tribunal binding on Borrower or any of the Subsidiary Guarantors, or
(iii) the articles or certificate of incorporation or bylaws of Borrower or
any of the Subsidiary Guarantors, or (b) contravene any provisions of, result
in a breach of, constitute (with the giving of notice or the lapse of time) a
default under, or result in the creation of any Lien (other than Permitted
Lien) upon any of the Assets of Borrower or any of the Subsidiary Guarantors
pursuant to any material Contractual Obligation of Borrower or any of the
Subsidiary Guarantors.

3.4 No Defaults. No Event of Default or Unmatured Event of Default
has occurred and is continuing or will result by virtue of the transactions
contemplated hereby.

4. Conditions to Effectiveness of this Agreement. This Agreement, other
than Sections 2.1, 2.2, 2.3, 2.5, 2.7 and 2.8 hereof, shall become effective on
the date (the "Initial Effective Date") that the conditions set forth in
Sections 4.1 through 4.6 below shall have been satisfied (or waived in
accordance with the provisions of the Credit Agreement), and Sections 2.1,
2.2, 2.3, 2.5, 2.7 and 2.8 hereof shall become effective on the date (the "PG
Effective Date") that all of the conditions set forth below shall have been
satisfied (or waived in accordance with the provisions of this Credit
Agreement), and, in either case, the Administrative Agent gives notice thereof
as below provided:

4.1 Counterparts of this Agreement. Receipt by Administrative Agent
of counterparts hereof signed by Borrower and Required Lenders and of
counterparts of the Reaffirmation of Subsidiary Guarantors appended hereto
signed by each of Subsidiary Guarantors;

4.2 Amendment Fee. Receipt by Administrative Agent for the account of
each Lender of an amendment fee equal to 0.0625% of such Lender's Commitment.

-9-
<PAGE> 10

4.3 Opinions of Counsel. Receipt by Administrative Agent of the
written opinion of counsel to Borrower, in form and substance acceptable to
Administrative Agent and its counsel, covering such matters relating to the
transactions contemplated hereby as Administrative Agent may reasonably
request;

4.4 Payment of Certain Amounts. Payment of all fees, costs, and
expenses (including the fees, costs, and expenses of counsel to Administrative
Agent) incurred and billed by the Administrative Agent prior to the Effective
date in connection with the preparation, negotiation, and execution of this
Agreement and the other documents contemplated hereby;

4.5 Corporation Documents. Receipt by Administrative Agent of all
documents it may reasonably request relating to the existence of Borrower and
each Subsidiary Guarantor, the corporate authority for and the validity of this
Agreement the Credit Documents, and any other agreements, documents,
instruments, or matters relevant hereto, all in form and substance satisfactory
to Administrative Agent;

4.6 No Defaults. No Event of Default or Unmatured Event of Default has
occurred and is continuing.

4.7 Certificate of Designation. Receipt by Administrative Agent of a
copy of the duly filed the Certificate of Designation designating the PG Stock
solely with the terms and attributes set forth in Schedule II hereto with such
changes as Required Lenders shall have approved, certified by the office of the
Secretary of State for the State of Delaware;

4.8 The Distribution and Other Matters. Receipt by Administrative
Agent of evidence satisfactory to it that the Distribution has occurred (or
will occur promptly upon the giving of the Notice of Effective Date by
Administrative Agent), that no Event of Default or Unmatured Event of Default
has occurred and is continuing on the date of the Distribution, and that the
warranties and representations of Section 3 hereof shall be true and correct on
the date of Distribution as though made on and as of such date, and covering
such other matters relating to the transactions contemplated hereby as
Administrative Agent may reasonably request;

provided that this Agreement shall not become effective or be binding
on any party hereto unless (a) the conditions of Sections 4.1 through 4.6 hereof
are satisfied not later than February 15, 1995, and (b) in the case of the
amendments to the Credit Agreement set forth in Sections 2.1, 2.2, 2.3, 2.5,
and 2.6, the conditions of Sections 4.7 and 4.8 are satisfied not later than
the first anniversary of the date of this Agreement. Promptly upon the
occurrence thereof, Administrative Agent shall notify Borrower and Lenders of
the Initial Effective Date and the PG Effective Date, and such notice shall be
conclusive and binding

-10-
<PAGE> 11

as to the occurrence thereof on all parties hereto. The amendment fees
payable pursuant to Section 4.2 hereof are fully earned and non-refundable when
paid, without regard to whether this Agreement becomes otherwise effective.

5. Miscellaneous.

5.1 No Further Amendments; Conflicts. Except as expressly modified
hereby, the Credit Agreement and the other Credit Documents shall remain
unchanged and in full force and effect. If any conflict exists between the
terms and provisions of this Agreement and those of the Credit Agreement or any
other Credit Document, the terms and provisions of this Agreement shall
control.

5.2 Severability. The illegality or unenforceability of any
provision of this Agreement shall not in any way affect or impair the legality
or enforceability of the remaining provisions of this Agreement, the Credit
Agreement, or any other Credit Document.

5.3 Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute one and the
same agreement. Any party may effect execution and delivery of this Agreement
by executing a counterpart hereof and sending the signature page bearing its
signature to Administrative Agent by telefacsimile and, thereafter, promptly
sending by mail such original signature page to Administrative Agent; provided
that the failure to deliver such original signature page shall not affect the
validity, binding nature, or enforceability of this Agreement.

5.4 GOVERNING LAW, JURISDICTION AND VENUE; WAIVER OF TRIAL BY
(JURY. THIS AGREEMENT IS SUBJECT TO THE PROVISIONS OF SECTIONS 9.11,
9.12, AND 9.13 OF THE CREDIT AGREEMENT RELATING TO GOVERNING LAW,
JURISDICTION AND VENUE, AND WAIVER OF TRIAL BY JURY.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first written above.

BORROWER: AMERICAN HEALTH PROPERTIES, INC., a
Delaware corporation

By Victor C. Streufert
-------------------------------------
Title: EVP
---------------------------------
-11-
<PAGE> 12

ADMINISTRATIVE AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION

By Brian McDonald
-------------------------------------
Title: Assistant Vice President
---------------------------------

LENDERS: COLORADO NATIONAL BANK

By Cathy P. Goss
-------------------------------------
Title: Vice President
---------------------------------

FIRST UNION NATIONAL BANK OF
NORTH CAROLINA

By Gregory Park
-------------------------------------
Title: Vice President
---------------------------------

WELLS FARGO BANK, NATIONAL ASSOCIATION

By Brian McDonald
-------------------------------------
Title: Assistant Vice President
---------------------------------

BERLINER HANDELS- UND FRANKFURTER BANK

By John Sykes Paul Travers
-------------------------------------
Title: AVP VP
---------------------------------

SANWA BANK CALIFORNIA

By
-------------------------------------
Title:
---------------------------------

NATIONSBANK OF TEXAS, N.A.

By Brad W. DeSpain
-------------------------------------
Title: Vice President
---------------------------------
-12-
<PAGE> 13

Schedule I

Psychiatric Group Sites

The Psychiatric Group currently consists of the business, Assets,
liabilities and operations of the Borrower relating to the following
facilities:

Description & Location

Four Winds Psychiatric Hospital
Saratoga Springs, New York

Four Winds Psychiatric Hospital
Katonah, New York

Pembroke Hospital
Pembroke, Massachusetts

Westwood Lodge Hospital
Westwood, Massachusetts

Rock Creek Center
Lemont, Illinois

The Manors
Tarpon Springs, Florida

The Retreat
Sunrise, Florida

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES

The following list includes all of the subsidiaries of the Company, all of
which are wholly-owned.

<TABLE>
<CAPTION>
Organized Under
Name Laws of
---- ---------------
<S> <C>
AMIREIT (Frye), Inc. . . . . . . . . . . . . . . North Carolina
AMIREIT (Kendell), Inc. . . . . . . . . . . . . Florida
AMIREIT Lucy Lee, Inc. . . . . . . . . . . . . . Missouri
AMIREIT (North Fulton), Inc. . . . . . . . . . . Georgia
AMIREIT (Palm Beach Gardens), Inc. . . . . . . . Florida
AHE of California, Inc. . . . . . . . . . . . . California
AHP of Texas, Inc. . . . . . . . . . . . . . . . Texas
AHE of Westbroke, Inc. . . . . . . . . . . . . . Massachusetts
AHP of West Virginia, Inc. . . . . . . . . . . . West Virginia
AHP of Fayetteville, Inc. . . . . . . . . . . . Arkansas
AHP of New Orleans, Inc. . . . . . . . . . . . Louisiana
AHE of Torrance, Inc. . . . . . . . . . . . . . California
AHP of Sunrise, Inc. . . . . . . . . . . . . . . Florida
AHP of Tarpon Springs, Inc. . . . . . . . . . . Florida
AHP of Kansas, Inc. . . . . . . . . . . . . . . . Kansas
AHE of Irvine, Inc. . . . . . . . . . . . . . . . California
AHP of Illinois, Inc. . . . . . . . . . . . . . . Illinois

</TABLE>

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the following of the Company's
previously filed Registration Statements: Form S-8 (File No. 33-25781); Form
S-8 (File No. 33-36090); Form S-3 (File No. 33-36091); Form S-8 (File No.
33-54813); and Form S-8 (File No. 33-54815).

ARTHUR ANDERSEN LLP

Denver, Colorado
March 6, 1995

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,838
<SECURITIES> 0
<RECEIVABLES> 6,974
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 565,995
<DEPRECIATION> 70,617
<TOTAL-ASSETS> 579,503
<CURRENT-LIABILITIES> 0
<BONDS> 231,163
<COMMON> 209
0
0
<OTHER-SE> 307,292
<TOTAL-LIABILITY-AND-EQUITY> 579,503
<SALES> 0
<TOTAL-REVENUES> 87,027
<CGS> 0
<TOTAL-COSTS> 14,103
<OTHER-EXPENSES> 30,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,101
<INCOME-PRETAX> 9,693
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,693
<EPS-PRIMARY> .46
<EPS-DILUTED> .46

</TABLE>