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Eight analysts and top management from eight sector firms examine the healthcare facilities sector in this special 73-page Healthcare Facilities issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info547.htm

TWST: Will you begin by providing us with a profile of your coverage at Legg Mason Wood Walker?

Mr. Doctrow: Certainly. I cover two areas: senior housing and care, which includes nursing home stocks, assisted living stocks and home-care stocks; and healthcare REITs.

TWST: Is the prime payor for nursing homes and home health care, Medicare?

Mr. Doctrow: The largest single payor for nursing homes is actually Medicaid, the joint state-federal program for indigent elderly. However, Medicare is the biggest contributor to nursing home companies’ bottom line. On the home-care side, Medicare is the largest payor but you find some companies such as Apria, (AHG, 26.5, stock rated Strong Buy/Speculative risk), that actually get 70% of their revenue from private sources, mostly insurance companies. But in general, Medicare is the largest payor in the sector.

TWST: What is the rationale behind your strong buy recommendation on Apria Healthcare (NYSE:AHG)?

Mr. Doctrow: We initiated our coverage of Apria with a Strong Buy rating in January. We believe Apria is attractive for a couple of reasons: one, it’s 70% private pay, so it’s less impacted by government-reimbursement than its peers; second, it is a company that went through its own sort of restructuring after having had its share of problems. It had digested a couple of big acquisitions and had a number of internal issues. It’s made, I think, dramatic improvements in terms of collections, in terms of margins, and we think there’s continued opportunity to improve. In terms of the capital side, the balance-sheet side, it’s showing strong cash flow, so its debt levels — which are higher than Lincare, which is a key peer — are going down pretty significantly over time. So we see a lot of things that are improving about that company. While AWP (government reimbursement) uncertainty affects everybody in the industry, Apria also has a whistleblower lawsuit, a qui tam lawsuit, which has been filed and publicly disclosed that it could cost the company between 4 billion and 9 billion; that’s the claim. Our research on qui tam leads us to believe that if the lawsuit settles, it could ultimately be in the range of other settlements, which have been between 3 million and 7 million. So we think the stock is undervalued relative to its fundamentals because of the uncertainty of the lawsuit and reimbursements. And we like the fundamental business, particularly relative to its peers. Our approach to senior housing care, which we’ve been covering now for a while, was to focus on the nursing home sector first, then expand into home care, so you could expect us to do some more in this area, but Apria is the only home care company that we follow right now.

TWST: Where do the healthcare REITs belong? Do they belong in a healthcare portfolio or a REIT portfolio?

Mr. Doctrow: I think one of the problems that healthcare REITs have had is that everyone asks themselves that question on a regular basis. I started in the business as an analyst on the REIT side and focused on the healthcare REITs, and in my mind they are probably more a real estate investment than they are a healthcare investment. Now that they’ve been among the best performing sectors in the REIT space for two years, there is discussion about changing the Morgan Stanley REIT Index, which has historically excluded health care, to include these stocks, and I think that would be a positive move. I think it’s appropriate to do so. And that would really signal a more complete acceptance of these stocks by the real estate community. Because they are affected by reimbursement issues, many dedicated REIT investors have been reluctant to get into health care. REIT investors who have purchased healthcare REITs have profited from them — certainly in the last couple of years — quite substantially, but some REIT investors have been reluctant.

This special issue includes:

1) Healthcare Facilities - In an in-depth (13,700 words) Analyst Roundtable, B. Kemp Dolliver, Managing Director at SG Cowen Securities Corp., Adam Feinstein, Vice President in Equity Research at Lehman Brothers, John Hindelong, Managing Director of Credit Suisse First Boston, Frank G. Morgan, Managing Director at Jefferies & Company, Inc. and Michael Yellen, Senior Portfolio Manager at AIM Capital Management Group, examine the outlook for the sector including earnings guidance, stock performance and share specific stock recommendations.

2) Hospitals & Healthcare Facilities - In an in-depth (3,500 words) Analyst Interview, Gary Taylor, Vice President, Equity Research at Banc of America Securities LLC, examines the outlook for the sector and shares specific stock recommendations.

3) Assisted Living & Healthcare REITs - In an in-depth (5,200 words) Analyst Interview, Jerry L. Doctrow, Managing Director, Equity Research at Legg Mason Wood Walker, Inc., examines the outlook for the sector and shares specific stock recommendations.

4) Long-Term Care & Specialized Service Providers - In an in-depth (6,700 words) Analyst Interview, Matthew Ripperger, Vice President and Equity Research Analyst at JP Morgan, examines the outlook for the sector and shares specific stock recommendations.

5) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.