SAN JUAN CONFERENCE GATHERS INDUSTRY EXECS Sunny San Juan, Puerto Rico recently provided a unique setting for a private gathering of some of the seniors housing industry's top executives. Co-sponsored by National Real Estate Investor magazine, Nomura Asset Capital, the American Seniors Housing Association (ASHA) and the Assisted Living Federation of America (ALFA), more than 50 leaders discussed the issues of the day, including the overall state of the industry, financing trends, mergers and acquisitions, potential overbuilding, managed care and future regulations.

That last item, regulation, seemed to dominate many a discussion. In fact, a "State of the Industry" report provided by three different sides of the industry - ASHA Executive Director David Schless, Alternative Living Services' CEO William Lasky and Nomura Asset Capital Managing Director Ray Anthony - dealt primarily with the changing face of regulatory issues and their pending impact on the seniors housing industry.

"We have some huge shifts here in what's happened in our country as a result of the assisted living movement that now has grown into a multi-billion-dollar industry," said Lasky. "There also has been a shift in our legal system and whether the government really has the right to determine where you get your care and whether that right is really managed on a state-by-state basis or whether the federal government's empowering privates' rights to live where you want and die where you want to, how that's in direct opposition to how all of us grew up in conventional long-term care."

ASHA's Schless observed it is inevitable that the hot assisted living sector will see its fair share of look-sees. "The next year or so will see a much more formal scrutiny of the assisted living industry." (See Schless's column in our Legislative Update on pp. 10-11 in this issue.) "We do need to put an end to the notion that assisted living is not regulated. It is regulated across the country (at the state level) and that will be one of the challenges for the industry, to deflect the desire of some to create a new federal standard for assisted living."

"We're just about to begin to see a number of apartment companies teaming up with third-party healthcare pro-viders, home health agencies and others, and that will be interesting to watch particularly as it affects potentially some of the pure congregate plays out there," said Schless.

When it comes to the money equation, Nomura has been one of the industry's most active players. Nomura's Anthony had much to say about the state of the industry. "It's an absolutely spectacular time to be a borrower. There are oceans and oceans of capital available to the industry right now, and it's a very different environment from when I first started financing in this industry about five years ago. It's also a pretty good time to be a lender, because there are a lot of good operators out there and it is an industry that needs a lot of capital. But this ocean of capital is somewhat of a double-edged sword. We're beginning to see some lenders providing 100% construction financing to borrowers. By definition that is an irrational lending decision because you're taking 100% of the risk. The other thing I see is companies are going public without ever producing a dollar of earnings. Sometimes that's justified and sometimes it's not," said Anthony.

"Not all of the capital out there is being channeled to the good or best operators. Will this availability of capital cause a debacle in the industry in the future? Will it cause some overbuilding? Will there be facility failures and company failures in the future, part of which are tied to this availability of capital? And will the top operators be beneficiaries of this or victims of this?" askedAnthony.

As to the question of oversupplied capital, Lasky, who heads the industry's largest assisted living company, said, "This is the favorite question on Wall Street as portfolio managers write $10 million and $20 million and $30 million checks each, but everyone's asked, 'Is there too much capital being thrown at the industry?' and my answer is, 'No, you're just giving it to too many people.'"

ALS REPORTS RECORD EARNINGS THROUGH 1ST Q 1998 Alternative Living Services (AMEX:ALI), the nation's largest provider of assisted living residences, reported record earnings for the three-month period ending March 31, 1998. At quarter's end, the company operated or managed 253 residences with a total capacity of 10,717 and had 7,520 resident capacity under construction or development for a total identified capacity of 18,237.

The company reported revenues of $46.5 million and net income of $3.6 million, or $0.16 per diluted share on 22.3 million weighted average common shares outstanding. This compares to revenues of $23.7 million and a net loss of $1 million per diluted share for the comparable period in 1997.

ARV SEES STRONG GROWTH IN SAME STORE SALES ARV Assisted Living (AMEX:SRS), based in Costa Mesa, Calif., reported total revenue for its first quarter ended March 31, 1998 of $27.3 million, an increase of $4.2 million or 18% over the same period a year ago. The net loss for continuing operations for the quarter was $3 million, or $0.19 per common share, which included $1.5 million of expenses related to its recent successful proxy battle against Emeritus (AMEX:ESC). This compares to a net loss of $2.6 million, or $0.27 per common share, for the same period last year.

"On a same-community operating basis, the occupancy of the 40 communities owned or leased by the company for four quarters or more was 91% at March 31, 1998, compared to 88% at March 31, 1997," said Howard G. Phansteil, ARV chairman and CEO.

During the quarter, ARV announced plans to acquire interests in 13 seniors housing communities in California with 1,900 units. ARV is one of the largest operators of assisted living communities in the nation, with 58 communities containing approximately 7,468 units in 10 states.

GRAND COURT ACHIEVES RECORD QUARTERLY GROWTH Grand Court Lifestyles Inc. (NASDAQ/NMS:GCLI), based in Boca Raton, Fla., recorded a banner fiscal year ending Jan. 31, 1998. The fully integrated provider of both independent and assisted living services reported revenues of $74.2 million, an increase of 14% over 1997. Its net loss for the year narrowed to $2.46 million or $0.16 per share, compared to a loss of $23 million recorded in 1997. Grand Court managed 37 adult living communities with 5,261 units on Jan. 31, with an average occupancy rate of 93%.

The company plans to acquire six to 12 existing communities and construct 30 to 40 new communities over the next 24 months. "We continue to see attractive acquisition opportunities, and our development teams are pursuing additional projects in our targeted markets," says Grand Court Chairman and CEO John W. Luciani.

MEDITRUST DOES $309 MILLION IN HEALTHCARE FINANCING Meditrust Corp. (NYSE:MT), based in Needham Heights, Mass., provided $309 million of healthcare financing in the quarter ended March 31, 1998. Sale/leaseback financing of $202 million was funded for 21 medical office buildings in Arizona, California, Florida, New Jersey and Texas and for five assisted living facilities in California and Ohio. Permanent mortgage financing of $38 million was provided for three nursing homes in Arizona, Indiana and Utah, and for 135 acres of development-stage property in Florida, and $2 million was provided for additions to facilities in Arizona, Connecticut, Pennsylvania and West Virginia, and one long-term care facility in Florida. Meditrust also funded $55 million for ongoing construction of facilities already in the portfolio.

SUNRISE HAS 111% GROWTH, BEGINS PORTFOLIO MANAGEMENT Sunrise Assisted Living (NASDAQ/NNM:SNRZ), based in Fairfax, Va., saw its revenues jump 111% in the first quarter of 1998, to $34.9 million from $16.5 million a year ago. It also achieved a 485% increase in earnings before interest, taxes, depreciation and amortization (EDITDA) to $11.1 million from $1.9 million for the same quarter in 1997. Net income for the first quarter of 1998 was $3.6 million or $0.18 per diluted common share.

The company's stock price recently made headlines as it tumbled in early-May after announcing a new strategy to begin managing its portfolio through selectively selling off some properties. The drop was precipitated by the sale of its minority interest in Sunrise at Queen Anne, an independent living community in Seattle. It was the company's first sale of an ownership interest since its IPO in 1996.

"Although this was a small sale of a minority interest in a property we didn't control, it did add approximately $0.02 per share to our revenue and underscores our intent to manage our sizable real estate portfolio to provide value for our shareholders," said David Faeder, Sunrise president and CFO. "With the size of our current real estate portfolio, we're entering a phase of our business plan in which we can anticipate, subject to market conditions, selling selected real estate assets as a normal part of our business while retaining long-term management of the properties through operating agreements and/or leases."

Sunrise currently owns 100% of 65 communities either open or under construction. It has completed 29 of the 55 communities it previously announced it would develop in 15 of the top 20 metropolitan markets in the United States by the end of 1999. It currently has 55 additional properties in various stages of development, including 25 either under construction or zoned.

The company also announced its entry into the United Kingdom market with the acquisition of a 7-acre site in southeast London, where it plans to develop a community for assisted living and Alzheimer's care on the site.