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   [PAGES 10 THROUGH 16 OF THE COMPANY'S 1996 ANNUAL REPORT TO SHAREHOLDERS]
                                                                    EXHIBIT 13.1
 
                            MANAGEMENT'S DISCUSSION
 
OVERVIEW
 
     The Company is an indefinite life REIT which was incorporated in Maryland
on March 31, 1994. The Company commenced operations on June 30, 1994, with the
receipt of proceeds from the sale of 5,980,000 shares of common stock. The
Company invests in a diversified portfolio of income-producing, healthcare-
related real estate, which it leases, and provides mortgage financing to
healthcare operators. The Company believes that it is an important source of
capital for the healthcare industry and intends to continue investing in a high
quality portfolio of properties managed by established operators of
rehabilitation, alternate-site care, long-term care, and acute-care facilities.
The Company diversifies its portfolio by operator, geography, facility type and
healthcare industry segment. The Company's primary objective is to provide
current income for distribution to stockholders.
 
     The Company incurs operating and administrative expenses, principally
compensation expense for its officers and other employees, office rent and
occupancy costs, and various expenses incurred in connection with acquiring
additional facilities or providing additional mortgage financing. The Company is
self-administered and managed by its executives and staff, and does not engage a
separate advisor for administrative or investment services, although the Company
does engage legal, accounting, tax, and financial advisors from time to time.
All taxes, maintenance, and other operating costs associated with leased
properties are generally paid by the lessees. The Company intends to continue to
declare and pay quarterly dividends to its stockholders in amounts not less than
the amounts required to maintain REIT status under the Internal Revenue Code.
The Company's ability to pay dividends will depend upon its cash available for
distribution.
 
RESULTS OF OPERATIONS
 
  Year Ended 1996 compared to the Year Ended 1995
 
     In 1996, the Company reported net income of $18.9 million, or $1.71 primary
net income per common share, compared to $9.7 million, or $1.55 primary net
income per common share in 1995. The increase in net income is attributable to
increases in rental and mortgage income from property acquisitions and
additional mortgage fundings, while total interest expense experienced only a
minor increase due to conversions of the Company's Convertible Subordinated
Debentures (Debentures) to common stock and a decrease in the weighted average
interest rate of the unsecured line of credit (Bank Credit Facility) during
1996.
 
     Total income increased $11.3 million, or 45.5%, to $36.0 million in 1996
over the previous year's total income of $24.7 million. The increase is due
primarily to rental income increasing $9.2 million in 1996 to $32.0 million from
1995's total of $22.8 million. The Company acquired eight additional properties
during the year and also recognized a full year's rental income on the twelve
properties acquired in 1995. Additionally, mortgage interest income increased
$1.4 million, or 73.6%, to $3.2 million in 1996 from $1.8 million in 1995, due
to additional mortgage fundings of $14.5 million during 1996.
 
     Total expenses in 1996 were $17.0 million compared to $15.0 million in
1995, an increase of $2.0 million or 13.6%. This is primarily attributable to an
increase in depreciation expense of $1.8 million in 1996 resulting from the
Company's acquisition of eight properties during the year and the recognition of
a full year's depreciation expense on the twelve properties that were acquired
in 1995. Interest expense experienced only a slight increase for 1996 due to
$26.3 million in conversions of the Company's Debentures to common stock and to
a decrease in the weighted average interest rate of the Bank Credit Facility.
 
  Year ended December 31, 1995, compared to the period from June 30, 1994,
(inception) through December 31, 1994.
 
     Revenues for the year ended December 31, 1995 totaled $24.7 million,
increasing $16.5 million, over 1994 revenues of $8.2 million. The increase in
revenues is primarily attributable to the recognition of a full year of revenues
from investments made during the partial year of 1994 and the revenues from
additional
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investments made during 1995. Specifically, a full year of revenues from 1994
investments added $11.1 million to revenues, and revenues from investments made
in 1995 added an additional $5.4 million.
 
     Interest expense for the year ended December 31, 1995, totaled $8.8
million, increasing $7.4 million, over 1994 interest expense of $1.4 million.
The increase in interest expense is attributable to an increase of $3.5 million
in interest expense related to a full year of interest expense on amounts
borrowed under the Bank Credit Facility during 1994 and the interest expense on
amounts borrowed under the Bank Credit Facility during 1995. Additionally, $3.9
million of the increase in interest expense is due to interest expense related
to the issuance of $52 million of convertible debentures issued in March 1995.
 
     Depreciation and amortization for the year ended December 31, 1995, totaled
$4.7 million, increasing $3.2 million over 1994 depreciation and amortization of
$1.5 million. $3.1 million of the increase in depreciation and amortization is
due primarily to a full year of depreciation on and amortization of investments
made in 1994 and the depreciation on and amortization of additional investments
made during 1995. Additionally, $0.2 million of the increase is due to
amortization of deferred financing costs related to the issuance of $52 million
of convertible debentures issued in March 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company requires capital in order to fund investments in healthcare
properties through sale/leaseback transactions or mortgage financing. To fund
these investments, the Company utilizes its cash flow from operations and a
combination of long-term and short-term capital including both equity and debt.
The Company's long-term capital includes equity securities and convertible
debentures. The Company's short-term capital is obtained through the use of its
Bank Credit Facility. The Company initially funds investments and working
capital needs through borrowings under the Bank Credit Facility, existing cash
and cash equivalents, and cash flow from operations. Thereafter, the Company
raises capital through issuance of additional long-term and short-term
indebtedness or the issuance of its securities in private or public
transactions. There can be no assurance that acceptable financing for future
investments can be obtained.
 
     During the year ended December 31, 1996, the Company invested approximately
$102.4 million to acquire or construct real estate assets and invested
approximately $14.3 million in mortgage loans to healthcare providers. As of
December 31, 1996, the Company s investments totaled $354.6 million, consisting
of real estate properties of $302.6 million, real estate development projects of
$12.7 million, and mortgage notes receivable of $39.3 million. The 57 real
estate properties consist of sixteen ancillary hospital facilities, ten
physician clinics, nine skilled nursing facilities, six ambulatory surgery
facilities, four inpatient rehabilitation facilities, three outpatient
rehabilitation facilities, two comprehensive mental health hospitals, two sub-
acute care facilities, two assisted living facilities, two acute care hospitals,
and one integrated delivery facility. The real estate properties are located in
thirteen states and are leased or financed with seventeen healthcare-related
entities or their subsidiaries pursuant to long-term leases. There are eleven
real estate development projects with six healthcare operators consisting of
seven assisted living facilities, three integrated delivery facilities, and one
physician clinic. The mortgage notes receivable consist of thirteen mortgages
made to eight healthcare operators and secured by the real estate of five
long-term care facilities, three skilled nursing facilities, two acute-care
hospital facilities, two assisted living facilities, and one integrated delivery
facility.
 
   
     During March 1995, the Company sold $52 million aggregate principal amount
of 10.50% Debentures due 2002. The net offering proceeds were used to reduce the
outstanding balance of the Company's Bank Credit Facility. As of December 31,
1996, a total of $34.3 million in the principal amount of the debentures had
been converted into 2.1 million common shares resulting in a decrease of $34.3
million in the debentures and an increase of $34.3 million in stockholders
equity.  The Company intends to repay any 10.50% Debentures that remain
outstanding when such securities mature in 2002 from borrowings under the Bank
Credit Facility or from the sale of debt or equity securities.
    
 
     During October 1995, the Company filed a registration statement
("Shelf-Registration") with the Securities and Exchange commission to enable the
Company to offer up to an aggregate of $250,000,000 in debt securities,
preferred stock, and common stock at prices and terms to be determined at the
time of sale. In December 1995, the Company sold 3.45 million shares of common
stock at a per share price of $18.125. The net offering proceeds of $58.6
million were used to reduce the outstanding balance of the Company's Bank Credit
Facility. Additionally, in November 1996, the Company sold 2.68 million shares
of common stock at a
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per share price of $20.875. The net offering proceeds of $52.8 million were also
used to reduce the outstanding balance of the Company's Bank Credit Facility.
 
     In June 1996, the Company completed an amendment and restatement of its
Bank Credit Facility, increasing the principal amount to $150 million from its
previous principal amount of $100 million, extending the term to June 24, 1999,
from its previous term of June 22, 1997, and adjusting the determination of the
interest rate. At December 31, 1996, the outstanding balance of the Bank Credit
Facility was $68.5 million with a weighted average interest rate of 6.82%. The
maximum availability at year end was $81.5 million.
 
     The Bank Credit Facility bears interest at a rate chosen by the Company
from either the Bank's base rate or the Euro-dollar rate plus a percentage rate
ranging from 1.00 Percent to 1.625 percent depending upon the Company s senior
debt to consolidated total capital ratio for the preceding fiscal quarter. In
addition, the Company pays from 0.20 percent to 0.25 percent per annum on the
unused portion of funds available for borrowing under the Bank Credit Facility.
The commitment fee percentage is based on the Company s senior debt to total
capital ratio.
 
     The Bank Credit Facility contains certain representations, warranties and
financial, and other covenants customary in such loan agreements.
 
     The Bank Credit Facility is unsecured; however, upon the occurrence of an
event of default under the Bank Credit Facility, at the option of the lenders,
the Bank Credit Facility may become secured by a significant portion of the
assets of the Company, including certain of the leased properties and mortgage
notes receivable.
 
     The Bank Credit Facility, which is participated in by a consortium of eight
banks, will be available until June 24, 1999, and the principal balance
outstanding thereunder will mature on that date. The Company intends to renew
the Bank Credit Facility or to repay the outstanding balance thereunder at
maturity from the proceeds of a refinancing or from the sale of debt or equity
securities. There can be no assurances that the lenders will renew the Bank
Credit Facility on terms favorable to the Company or that the Company will be
able to refinance at that time.
 
   
     On June 26, 1996, the Company entered into a mortgage note with a life
insurance company for a principal amount of $23.3 million ("Mortgage Note"). The
Mortgage Note bears interest at 8.5% and is payable in 360 monthly payments of
principal and interest. The Mortgage Note is collateralized by an ancillary
hospital facility purchased in January 1996 for $30 million.
 
     The Company has committed a total of $102.8 million towards the acquisition
and construction of real estate properties and providing mortgage financing. As
of December 31, 1996, the Company had funded approximately $21.2 million towards
these commitments, with the balance of $81.6 million expected to be funded
throughout 1997. Financing for these commitments may be provided by funds from
operations, borrowings under the Bank Credit Facility, which the Company expects
to increase in 1997, or private placements or public offerings of debt or
equity.
    
 
  Special Note Regarding Forward-Looking Statements
 
     Any statement contained in this report which is not a historical fact, or
which might otherwise be considered an opinion or projection concerning the
Company or its business, whether expressed or implied, is meant as, and should
be considered, a forward-looking statement as that term is defined in the
Private Securities Litigation Reform Act of 1996. Forward-looking statements are
based on assumptions and opinions concerning a variety of known and unknown
risks, including but not necessarily limited to changes in market conditions,
natural disasters, and other catastrophic events, increased competition, changes
in availability and cost of reinsurance, changes in governmental regulations,
and general economic conditions, as well as other risks more completely
described in the Company's filings with the Securities and Exchange Commission.
If any of these assumptions or opinions may also prove materially incorrect, any
forward-looking statements made on the basis of such assumptions or opinions may
also prove materially incorrect in one or more respects.