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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: 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. In healthcare portfolios we do find some institutional investors making that crossover to healthcare REITs — some just because they found them a good alternative way to play the rebound in the nursing home space; others, I think, are increasingly looking at healthcare REITs as an interesting way to balance volatility in a healthcare portfolio. For example, some of our clients who may be biotech-oriented are adding some healthcare REITs because they can reduce the overall volatility in their portfolios and still stay within their investment parameters of being in the healthcare sector. They can anchor volatility with some healthcare REITs and, perhaps, go after some biotech stocks that are on the more volatile side of their portfolio.

TWST: As a general rule, is the underlying business of healthcare REITs generally nursing home or assisted living, or are other sectors of health care included?

Mr. Doctrow: I think we’re the only ones who do this, but we break the healthcare REIT sector into two subsectors: one we call health facility REITs, where there are three companies right now; the other we call senior housing REITs, where there are nine. Health facility REITs primarily own hospitals, outpatient facilities and medical office buildings. Probably the dominant investment types are medical offices and outpatient facilities — sometimes on-campus, sometimes off-campus, varying company by company. Senior housing REITs primarily own nursing homes and assisted living facilities. Company by company the mix varies and may also include retirement communities. So you can choose within the healthcare REIT sector, to a degree, what part of the health care industry you’d like to be in, and the two stock groups — health facility and senior housing REITs — do behave somewhat differently.

TWST: As you look through 2002, do you have an investment bias toward either one?

Mr. Doctrow: I’m not sure that I do. I think, generally, the health facility REIT stocks — and there are two that we follow there, Health Care Property Investors (HCP, 40.9, Buy/Above-Average risk), and Healthcare Realty Trust (HR, 30.44, Buy/Average risk) — have, on the whole, lower-risk profiles because of diversification, debt levels and that sort of issue than many of the stocks on the senior housing side. So if you’re looking for just nice, safe yields, I think these names are attractive, and both of these companies typically increase their dividend every quarter, which is another attractive feature. I think Healthcare Realty (NYSE:HR) is, of the two, more attractively valued and has a somewhat lower risk profile because of its lower dividend payout ratio. On the senior housing side, those stocks have probably actually done a little bit better recently because they’ve been riding the rebound in the nursing-home/assisted-living industry. But there’s probably still some remaining risk from the workouts and that sort of thing, some higher risk in that space.

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.