UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


______________________





FORM 10-Q





(Mark One)





[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934





For the quarterly period ended June 30, 2004.





[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission file number 1-14012





EMERITUS CORPORATION



















































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|EMERITUS CORPORATION         
|-----------------------------
|                             
|Table of Contents            
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|Part I. Financial Information
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|Item 1. Financial Statements:
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|Item 2.                      
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|Item 3.                      
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|Item 4.                      
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|Part II. Other Information   
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|Note:                        
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|Item 2.                      
|                             
|Item 4.                      
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|Item 6.                      
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PART I. Financial Information


Item 1. Financial Statements












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|EMERITUS CORPORATION                                                                  
|--------------------------------------------------------------------------------------
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                 
|(unaudited)                                                                           
|(In thousands, except share data)                                                     
|ASSETS                                                                                
|                                                                                      
|                                                                                      
|                                                                                      
|Current Assets:                                                                       
|Cash and cash equivalents                                                             
|Short-term investments                                                                
|Trade accounts receivable, net                                                        
|Other receivables                                                                     
|Prepaid expenses and other current assets                                             
|                                                                                      
|Total current assets                                                                  
|Long-term investments                                                                 
|Property and equipment, net                                                           
|Property held for development                                                         
|Notes receivable from and investments in affiliates                                   
|Restricted deposits                                                                   
|Lease acquisition costs, net                                                          
|Other assets, net                                                                     
|                                                                                      
|Total assets                                                                          
|                                                                                      
|                                                                                      
|LIABILITIES AND SHAREHOLDERS' DEFICIT                                                 
|                                                                                      
|Current Liabilities:                                                                  
|Short-term debt                                                                       
|Current portion of long-term debt                                                     
|Trade accounts payable                                                                
|Accrued employee compensation and benefits                                            
|Accrued interest                                                                      
|Accrued real estate taxes                                                             
|Accrued dividends on preferred stock                                                  
|Other accrued expenses                                                                
|Deferred revenue                                                                      
|Other current liabilities                                                             
|                                                                                      
|Total current liabilities                                                             
|Long-term debt, less current portion                                                  
|Convertible debentures                                                                
|Deferred gain on sale of communities                                                  
|Deferred rent                                                                         
|Other long-term liabilities                                                           
|                                                                                      
|Total liabilities                                                                     
|                                                                                      
|Commitments and contingencies                                                         
|Shareholders' Deficit:                                                                
|Preferred stock, $.0001 par value. Authorized 5,000,000 shares.                       
|Series B, Authorized 70,000 shares, issued and outstanding 35,529 and 34,830 shares at
|June 30, 2004, and December 31, 2003, respectively                                    
|Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and outstanding  
|10,762,375 and 10,297,449 shares at June 30, 2004, and December 31, 2003, respectively
|Additional paid-in capital                                                            
|Accumulated deficit                                                                   
|                                                                                      
|Total shareholders' deficit                                                           
|                                                                                      
|Total liabilities and shareholders' deficit                                           
|                                                                                      
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EMERITUS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(In thousands, except per share data)111Three Months ended June 30,
1
Six Months ended June 30,2004
2003
1
2004
2003Revenues:Community revenue

$
75,880

$
45,160




$
139,418

$
88,246Other service fees


1,641


1,041





3,006


2,035Management fees


1,196


3,197





2,829


6,294Total operating revenues


78,717


49,398





145,253


96,575Expenses:Community operations


48,770


29,785





91,225


58,430General and administrative


6,546


5,811





12,778


11,215Depreciation and amortization


2,328


1,840





4,391


3,687Facility lease expense


17,674


9,325





32,366


17,929Total operating expenses


75,318


46,761





140,760


91,261Income from operations


3,399


2,637





4,493


5,314Other income (expense):Interest income


134


173





287


328Interest expense


(4,211
)

(3,229
)




(8,004
)

(6,502
)Other, net


665


1,392





599


1,440Net other expense


(3,412
)

(1,664
)




(7,118
)

(4,734
)Net income (loss)


(13
)

973





(2,625
)

580Preferred stock dividends


(930
)

(1,905
)




(1,850
)

(3,776
)Net loss to common shareholders

$
(943
)
$
(932
)



$
(4,475
)
$
(3,196
)Loss per common share:Basic and diluted

$
(0.09
)
$
(0.09
)



$
(0.43
)
$
(0.31
)Weighted average common shares outstanding:Basic and diluted


10,610


10,249





10,460


10,248









































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EMERITUS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)(In thousands)Six Months Ended June 30,2004

2003Cash flows from operating activities:Net income (loss)

$
(2,625
)



$
580Adjustment to reconcile net income (loss) tonet cash provided by operating activities:Minority interests


-





101Depreciation and amortization


4,391





3,687Amortization of deferred gain


(1,349
)




(185
)Gain on sale of investment securities


-





(1,437
)Equity investment losses


794





-Changes in operating assets and liabilities


742





(867
)Net cash provided by operating activities


1,953





1,879Cash flows from investing activities:Acquisition of property and equipment


(1,775
)




(1,174
)Acquisition of assets and liabilities in lease transactions


(1,099
)




-Proceeds from sale of property and equipment


226





-Proceeds from sale of investment securities


-





2,949Management and lease acquisition costs


(5,340
)




(625
)Advances to affiliates and other managed communities


(1,215
)




(5
)Collection of notes receivable


2,657





-Investment in affiliates


(285
)




(127
)Distributions to minority partners


-





(250
)Net cash provided by (used in) investing activities


(6,831
)




768Cash flows from financing activities:Proceeds from sale of stock under employee stock purchase and incentive plans


1,179





43Increase in restricted deposits


(972
)




(22
)Debt issue and other financing costs


34





(169
)Proceeds from short-term borrowing on bank line of credit


3,000





-Proceeds from long-term borrowings


2,609





600Repayment of long-term borrowings


(2,449
)




(1,426
)Net cash provided by (used in) financing activities


3,401





(974
)Net increase (decrease) in cash and cash equivalents


(1,477
)




1,673Cash and cash equivalents at the beginning of the period


6,368





7,301Cash and cash equivalents at the end of the period

$
4,891




$
8,9741Supplemental disclosure of cash flow information - cash paid during the period





1for interest

$
7,693


1

$
6,3971Noncash investing and financing activities:





1Unrealized holding gains in investment securities

$
-


1

$
(1,247
)Accrued and in-kind preferred stock dividends

$
1,850


1

$
3,776Common stock warrants revaluation

$
1,191





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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Table of Contents





Summary of Significant Accounting Policies and Use of Estimates















· For commercial general liability and professional liability insurance for 2004, Emeritus formed a wholly owned captive insurance company domiciled in the U.S. The insurance policy issued by the captive is claims-made and insures liabilities associated with general and professional liability. The policy insures on a per occurrence and aggregate-limit basis in excess of a self-insured retention. Estimated losses covered by the policy and the self-insured retention are accrued based upon actuarial estimates of the aggregate liability for claims within the policy year. Captive expenses are also included in the accrual. Should losses exceed actuarial estimates, additional expense may be accrued at the time of determination. The captive was capitalized and the premium structure established pursuant to regulatory requirements. Emeritus pays premiums based in part on a fixed schedule and in part as losses are actually paid. The captive is subject to regulatory agency oversight and is reviewed for compliance with applicable law. Results from these reviews may change the timing or amount of subsequent funding.





· Workers' compensation insurance coverage applies for specific insurable states (excluding Texas, New York, and the compulsory State Funds States) through a high deductible, fully collateralized insurance policy. The policy premium is based upon standard rates applied to estimated annual payroll. The posted collateral is greater than expected annual losses. The Company contracts with an independent third-party administrator to administer the program; and paid claim expenses are drawn from the collateral account. The sum of the premium and related costs, estimated administration costs, and actuarial based estimated losses is accrued on a monthly basis. The difference between the posted collateral and estimated actual losses is carried as an asset on the balance sheet. At policy expiration, an insurer audit is conducted to adjust premiums based on actual, rather than estimated, annual payroll. Any premium adjustment for the differences between estimated and actual payroll will first be applied to the accrued asset and then, if needed, as an adjustment to workers' compensation expense at the time such adjustment is determined. The insurer also audits the total incurred claim amount at least annually and may adjust the applicable policy year collateral requirement. There is a reasonable expectation that the total incurred losses will be less than the posted collateral, resulting in a release of collateral back to the Company. The adjustment to the collateral will be applied first to the accrued asset and then, if needed, as an adjustment to the workers' compensation expense at the time such adjustment is determined. The Company insures occupational injuries and illness in New York through participation in a group pool insured through a guaranteed cost insurance policy, with the premium payable on a monthly basis. The insurer group contracts with an independent third-party administrator on behalf of its members to manage the claims; and claim expenses are paid by the insurer. For work-related injuries in Texas, the Company insures through a qualified Non-Subscriber Employee Retirement Income Security Act Occupational Injury and Illness Benefit




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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents





Plan and an insurance policy is in place to cover losses in excess of the deductible amount. The Company contracts with an independent third-party administrator to manage the claims. Claim expenses are paid as incurred and estimated losses within the deductible are accrued on a monthly basis.





· Emeritus accounts for impairment of long-lived assets, which include property and equipment, investments, and amortizable intangible assets, in accordance with the provisions of SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets or SFAS No. 142 Goodwill and Other Intangible Assets, as applicable. An impairment review is performed annually or whenever a change in condition occurs, which indicates that the carrying amounts of assets may not be recoverable. Such changes include changes in our business strategies and plans, changes in the quality or structure of the Company's relationships with its partners and deteriorating operating performance of individual communities. The Company uses a variety of factors to assess the realizable value of assets depending on their nature and use. Such assessments are primarily based upon the sum of expected future undiscounted net cash flows over the expected period the asset will be utilized, as well as market values and conditions. The computation of expected future undiscounted net cash flows can be complex and involves a number of subjective assumptions. Any changes in these factors or assumptions could impact the assessed value of an asset and result in an impairment charge equal to the amount by which its carrying value exceeds its actual or estimated fair value.








Recent Accounting Pronouncements and Proposed Statements





In January 2003, the FASB issued Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest Entities. This Interpretation was revised in December 2003 (FIN No. 46R) and addresses consolidation by business enterprises of variable interest entities (VIE's). A VIE is subject to the consolidation provisions of FIN No. 46R if it cannot support its financial activities without additional subordinated financial support from third parties or its equity investors lack any one of the following characteristics: the ability to make decisions about its activities through voting rights, the obligation to absorb losses of the entity if they occur, or the right to receive residual returns of the entity if they occur. FIN No. 46R requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that holds the variable interests that expose it to a majority of the entitys expected losses and/or residual returns. For purposes of determining a primary beneficiary, all related party interests must be combined with the actual interests of the Company in the VIE. The application of this Interpretation is immediate for VIE's created or altered after January 31, 2003, and is effective at the end of the first quarter of 2004 for variable interest entities that existed prior to February 1, 2003.





The Company has evaluated the impact of FIN No. 46R on all its current related-party management agreements, including those more fully discussed under the section denoted as Emeritrust Transactions as well as other management agreements and other arrangements with potential VIE's. The Company does not believe it has any VIE's that require consolidation.





On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, Share-Based Payment,  an amendment of FASB Statements No. 123 and 95 that would require companies to account for stock-based compensation to employees using a fair value method as of the grant date. The proposed statement addresses the accounting for transactions in which a company receives employee services in exchange for equity instruments such as stock options, or liabilities that are based on the fair value of the company's equity instruments or that may be settled through the issuance of such equity instruments, which includes the accounting for employee stock purchase plans. This proposed statement would eliminate a company's ability to account for share-based awards to employees using APB Opinion 25, Accounting for Stock Issued to Employees but would not change the accounting for transactions in which a company issues equity instruments for services to non-employees or the accounting for employee stock ownership plans. The proposed statement, if adopted, would be effective for awards that are granted, modified, or settled in fiscal years beginning after December 15, 2004.




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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents







Basis of Presentation





The unaudited interim financial information furnished herein, in the opinion of the Company's management, reflects all adjustments, consisting of only normally recurring adjustments, which are necessary to state fairly the condensed consolidated financial position, results of operations, and cash flows of Emeritus as of June 30, 2004, and for the three months and six months ended June 30, 2004 and 2003. The results of operations for the period ended June 30, 2004, are not necessarily indicative of the operating results for the full year. The Company presumes that those reading this interim financial information have read or have access to its 2003 audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations that are contained in the 2003 Form 10-K filed March 30, 2004. Therefore, the Company has omitted footnotes and other disclosures herein, which are disclosed in the Form 10-K.





Stock-Based Compensation





The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in measuring compensation costs for its stock option plans. The Company discloses pro forma net loss and net loss per share as if compensation cost had been determined consistent with Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation .





Had compensation costs for the Companys stock option plan been determined pursuant to SFAS 123, the Companys pro forma net loss and pro forma net loss per share would have been as follows:












Three Months ended
1
Six Months endedJune 30,
1
June 30,2004
2003
1
2004
20031

(In thousands, except per share data )Net loss to common shareholders








1As reported

$
(943
)
$
(932
)



$
(4,475
)
$
(3,196
)Add: Stock-based employee compensation expenseincluded in reported net income (loss)














Deduct: Stock-based employee compensationdetermined under fair value based method for all awards


(341
)

(179
)




(619
)

(465
)Pro forma

$
(1,284
)
$
(1,111
)



$
(5,094
)
$
(3,661
)Net loss per common share:As reported - basic and diluted

$
(0.09
)
$
(0.09
)



$
(0.43
)
$
(0.31
)Pro forma - Basic and diluted

$
(0.12
)
$
(0.11
)



$
(0.49
)
$
(0.36
)







The Company estimates the fair value of its options using the Black-Scholes option value model, which is one of several methods that can be used to estimate option values. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company's options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimates. No options were granted in the first two quarters of 2004. The fair value of options granted and employee purchase plan shares in the three months and six months ended June 30, 2003, were estimated at the date of grant using the following weighted average assumptions:




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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents




Three Months
1
Six MonthsEnded
1
EndedJune 30,
1
June 30,2003
1
2003Expected life from vest date (in years)


4





4Risk-free interest rate


1.96
%




1.96% - 2.57
%Volatility


90.0
%




90.0%-90.4
%Dividend yield


-





-Weighted average fair value (per share)

$
2.58




$
2.57







Reclassifications










Emeritrust Transactions










Emeritrust I Communities Management.







Emeritrust II Communities Management.




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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents









Emeritrust II Communities Lease.





Accrued Dividends on Preferred Stock















Alterra Transactions









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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents














CPM-JEA Transactions





On April 1, 2004, the Company completed the first stage of a lease acquisition of up to 24 assisted living facilities in 13 states, including up to 10 stand-alone dementia care facilities for an approximate $190.5 million investment, inclusive of transaction fees. The acquisition is being financed by an independent real estate investment trust through an operating lease agreement. The completed first stage involved 17 of the 24 senior housing and long-term care properties for a total investment of about $140.7 million, inclusive of transaction fees. The acquisition of one additional community was completed in June and one community has been removed from the acquisition portfolio. Nine of the communities, all of which the Company managed in 2003, were owned by entities that Daniel R. Baty, the Company's Chairman and Chief Executive Officer, controls and in which he has financial interests (CPM stands for Columbia Pacific Management and the entities are collectively referred to as the Baty Entities). The remainder of the communities were owned by entities in which Mr. Baty had an indirect ownership interest (the JEA Entities). With respect to the communities formerly owned by the JEA Entities, the Company entered into a management agreement with JEA Senior Living (JEA), a partner in the JEA Entities that is not affiliated with Mr. Baty, to provide certain management services to the communities for a period of three years. Under the terms of this management agreement, JEA is entitled to a monthly management fee of 5% of the gross revenues of the communities and to a termination payment of $100,000 per year for a period of ten years after the termination of the management agreement. The Company also agreed to an earn-out payment to the JEA Entities of up to $2.0 million based on the improvement in the net operating income of the communities during the three-year period after the closing. Of the $140.7 million purchase price paid at closing, approximately $137.0 million was furnished by the real estate investment trust through an operating lease agreement. The balance of the closing purchase price was paid $2.7 million in cash and $1.0 million by the execution and delivery by the Company of its promissory notes to two of the Baty Entities, which provide for interest at the rate of 8% and a maturity date of April 1, 2007. The communities are leased under two master leases with the independent real estate investment trust, each with a 15-year term, with three 5-year renewal options. The lease rate is 9% with Consumer Price Index based inflators. The lease payment is approximately $1.1 million per month. Of the up to $40.8 million balance of the transaction, at least $37.2 million is currently expected to close during the third quarter of 2004, subject to customary closing conditions.





HCP Transaction









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|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents









Line of Credit










Loss Per Share













Three Months ended

Six Months endedJune 30,
1
June 30,2004
2003
1
2004
2003Convertible Debentures


1,455


1,455





1,455


1,455Options


1,657


2,216





1,657


2,216Warrants - Senior Housing Partners I, L.P.


400








400


Warrants - Saratoga Partners


1,000


1,000





1,000


1,000Series A Preferred (1)





1,374








1,374Series B Preferred


4,921


4,729





4,921


4,7299,433


10,774





9,433


10,774




(1)





Comprehensive Loss












Liquidity














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|                                                                                                 
|EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)

Table of Contents














Subsequent Event


























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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Overview



































As of June 30,
1
As of December 31,
1
As of June 30,2004
1
2003
1
20031

Buildings
1
Units
1
Buildings
1
Units
1
Buildings
1
UnitsOwned (1)

19

1,813

19

1,813

17

1,687Leased (1)

127

9,579

109

8,303

75

5,768Managed/Admin Services

35

3,417

46

4,589

91

8,267Joint Venture/Partnership

1

140

1

140

2

219Operated Portfolio

182

14,949

175

14,845

185

15,941Percentage increase (decrease) (2)

4.0%

0.7%

(2.8%)

(5.8%)

2.8%

1.1%






















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|                                                                                                 
|                                                                                                 
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED































Significant Transactions










Emeritrust Transactions










Emeritrust I Communities Management.




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|                                                                                                 
|                                                                                                 
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED

Table of Contents














Emeritrust II Communities Management.





Emeritrust II Communities Lease.





Alterra Transactions









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|                                                                                                 
|                                                                                                 
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED

Table of Contents



















CPM-JEA Transactions










HCP Transaction









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|                                                                                                 
|                                                                                                 
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED

Table of Contents









Subsequent Event























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|                                                                                                 
|                                                                                                 
|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED

Table of Contents





Results of Operations





Summary of Significant Accounting Policies and Use of Estimates















Common-size Income Statements and Period-to-Period Percentage Change













|                              |  |                        |   |                  |   |          |   |          |   | Period to Period
|----------------------------- |  | ---------------------- | - | ---------------- | - | -------- | - | -------- | - | ----------------
|                              |  |                        |   |                  |   |          |   |          |   | Percentage      
|                              |  |                        |   |                  |   |          |   |          |   | Increase        
|                              |  | Percentage of Revenues | 1 | (Decrease)      
|                              |  |                        |   |                 
|                              |  |                        |   |                  | 1 |          |   |          | 1 | Three Months    
|                              |  | Three Months ended     | 1 | Six Months ended | 1 | ended    | 1 | ended   
|                              |  | June 30,               | 1 | June 30,         | 1 | June 30, | 1 | June 30,
|                              |  |                        |   |                  |   |          |   |         
|                              |  | 2004                   | 1 | 2003             | 1 | 2004     | 1 | 2003     | 1 | 2004-2003       
|                              |  |                        |   |                  |   |          |   |          |   |                 
|                              |  |                        | 1 |                  | 1 |          | 1 |          | 1 |                 
|Revenues:                     |  | 100.0%                 |   | 100.0%           | 1 | 100.0%   |   | 100.0%   | 1 | 59.4%           
|Expenses:                     |  |                        |   |                  | 1 |          |   |          | 1 |                 
|Community operations          |  | 62.0                   |   | 60.3             | 1 | 62.8     |   | 60.5     | 1 | 63.7            
|General and administrative    |  | 8.3                    |   | 11.8             | 1 | 8.8      |   | 11.6     | 1 | 12.6            
|Depreciation and amortization |  | 3.0                    |   | 3.7              | 1 | 3.0      |   | 3.8      | 1 | 26.5            
|Facility lease expense        |  | 22.4                   |   | 18.9             | 1 | 22.3     |   | 18.6     | 1 | 89.5            
|                              |  |                        |   |                  |   |          |   |          |   |                 
|Total operating expenses      |  | 95.7                   |   | 94.7             | 1 | 96.9     |   | 94.5     | 1 | 61.1            
|                              |  |                        |   |                  |   |          |   |          |   |                 
|Income from operations        |  | 4.3                    |   | 5.3              | 1 | 3.1      |   | 5.5      | 1 | 28.9            
|Other income (expense)        |  |                        |   |                  | 1 |          |   |          | 1 |                 
|Interest income               |  | 0.2                    |   | 0.4              | 1 | 0.2      |   | 0.3      | 1 | (22.5)          
|Interest expense              |  | (5.3)                  |   | (6.5)            | 1 | (5.5)    |   | (6.7)    | 1 | 30.4            
|Other, net                    |  | 0.8                    |   | 2.8              | 1 | 0.4      |   | 1.5      | 1 | (52.2)          
|                              |  |                        |   |                  |   |          |   |          |   |                 
|Net other expense             |  | (4.3)                  |   | (3.3)            | 1 | (4.9)    |   | (4.9)    | 1 | 105.0           
|                              |  |                        |   |                  |   |          |   |          |   |                 
|                              |  |                        |   |                  | 1 |          |   |          | 1 |                 
|Net income (loss)             |  |                       |   | 2.0%             | 1 | (1.8%)   |   | 0.6%     | 1 | N/M             
|                              |  |                        |   |                  |   |          |   |          |   |                 








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|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED

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Comparison of the three months ended June 30, 2004 and 2003
 
 Total Operating Revenues:
 
  
  
 Community Operations:
 
 General and Administrative:




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|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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Depreciation and Amortization:Depreciation and amortization for the three months ended June 30, 2004, was $2.3 million compared to $1.8 million for the comparable period in 2003, reflecting the purchase acquisition of five communities in the fourth quarter of 2003.  In 2004, depreciation and amortization represents 3.0% of total operating revenues, compared to 3.7% for the comparable period in 2003.  This decrease as a percentage of revenue reflects the increased revenue arising from the net acquisition of 53 additional communities (net of four facilities sold) since June 30, 2003, most of which were leased.  Facility Lease Expense:  Facility lease expense for the three months ended June 30, 2004, was $17.7 million compared to $9.3 million for the comparable period of 2003, representing an increase of $8.4 million, or 89.5%.  This increase was primarily due to the lease acquisition of 52 communities in 2003.  We leased 127 communities as of June 30, 2004, compared to 75 leased communities as of June 30, 2003.  The additional facility lease expense related to the acquired communities is approximately $6.9 million.  The remaining increase was due to a three-community sale-leaseback in the second quarter of 2003 and the re-lease of four communities in the third quarter of 2003.  Facility lease expense as a percentage of revenues was 22.4% for the three months ended June 30, 2004, and 18.9% for the three months ended June 30, 2003.   Interest Income:  Interest income for the three months ended June 30, 2004, was $134,000 versus $173,000 for the comparable period of 2003.  This decrease was primarily attributable to an interest-bearing note receivable  that we held in 2003, which had been paid off prior to the second quarter of 2004.  Interest Expense:  Interest expense for the three months ended June 30, 2004, was $4.2 million compared to $3.2 million for the comparable period of 2003.  This increase of $982,000, or 30.4%, was primarily attributable to the additional secured mortgage financing related to the five community mortgage assumption acquisition in December 2003, partially offset by a sale-leaseback transaction in the second quarter of 2003.  As a percentage of total operating revenues, interest expense decreased to 5.3% from 6.5% for the three months ended June 30, 2004 and 2003, respectively.  Other, net:Other, net income for the three months ended June 30, 2004, was approximately $665,000 compared to $1.4 million for the comparable period in 2003.  The $665,000 income for the current year quarter is primarily the result of the amortization of deferred gains of approximately $654,000, partially offset by other smaller miscellaneous items.  The $1.4 million income in the second quarter of 2003 is primarily comprised of recognizing a gain on the sale of our investment in ARV Assisted Living common stock of approximately $1.4 million.  Preferred dividends:  For the three months ended June 30, 2004 and 2003, preferred dividends totaled approximately $930,000 and $1.9 million, respectively.  The primary reason for the $975,000 decrease is the repurchase of the Series A preferred shares in July and August 2003.  Because we have not paid the Series B preferred dividends for more than six consecutive quarters, under the Designation of Rights and Preferences of the Series B preferred stock in our Articles of Incorporation, the Series B preferred shareholders may designate one director in addition to the other directors that they are entitled to designate under the shareholders' agreement.  As of January 1, 2002, the Series B preferred shareholders became entitled to designate an additional director under the Articles, but thus far have chosen not to do so.












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Comparison of the six months ended June 30, 2004 and 2003  Total Operating Revenues:  Total operating revenues for the six months ended June 30, 2004, increased by $48.7 million to $145.3 million from $96.6 million for the comparable period in 2003, or 50.4%.  Community revenue increased by approximately $51.2 million in the six months ended June 30, 2004, compared to the six months ended June 30, 2003.  This increase was primarily due to additional revenue related to acquisitions of 53 communities between June 30, 2003, and June 30, 2004, of which 36 occurred in the fourth quarter of 2003.  Of the 53 communities, we had formerly managed 39.  These acquired communities, which represent revenue of approximately $46.0 million, were included in our consolidated portfolio in the first two quarters of 2004, but were not included in the comparable quarters of 2003.  The acquisition of 8 communities in May 2003 represents approximately $3.7 million of the revenue increase.  The remaining increase in revenue is attributed to the effect of an increase in average monthly revenue per unit and an increase in the occupancy rate.  Average monthly revenue per unit was $2,840 for the first half of 2004 compared to $2,757 for the first half of 2003, an increase of approximately $83, or 3.0%. This relatively modest increase reflects effects of our rate enhancement program during 2003, partially offset by marketing incentives; e.g., rate discounting and reduction of move-in fees, implemented in the first half of 2004 to encourage increases in occupancy.  The occupancy rate for the first half of 2004, increased 2.7 percentage points to 79.7% from 77.0% primarily from our marketing emphasis in the first half of 2004.  Management fee income decreased by approximately $3.5 million to $2.8 million from $6.3 million for the six months ended June 30, 2004 and 2003, respectively.  This decrease was primarily due to a management agreement termination of 13 Regent managed communities in July and August of 2003, and the acquisition of 39 communities that were previously managed but are now leased.  Management fees related to the previously managed buildings, including the Regent buildings, for the six months ended June 30, 2004 and 2003, were approximately $520,000 and $2.9 million, respectively.  The remaining decrease in management fee income for the first two quarters of 2004, was related to the change in the Emeritrust I communities (change in the management agreement and a decrease of three buildings compared to June 30, 2003, as discussed above in Emeritrust I Communities Management).  Community Operations: Community operating expenses for the six months ended June 30, 2004, increased by $32.8 million to $91.2 million from $58.4 million for the first two quarters of 2003, or 56.1%.  The change was primarily due to the acquisition of 53 communities referred to above.  These acquired communities, which account for approximately $28.4 million of expense, were not included in our consolidated portfolio in the first two quarters of 2003, but are included in the comparable quarters of 2004.  The remaining increases were primarily attributable to increases in costs related to opening special care units in 2003, charges related to the 2003 liability insurance program, and higher bad debts, food costs, and repairs and maintenance, partially offset by lower employee benefit costs and workers' compensation, primarily in Texas.  Community operating expenses as a percentage of total operating revenue increased to 62.8% in the first two quarters of 2004 from 60.5% in the first two quarters of 2003, primarily attributable to higher expense levels of new acquisitions and startup costs associated with opening memory loss units.  General and Administrative: General and administrative (G&A) expenses for the six months ended  June 30, 2004, increased $1.6 million to $12.8 million from $11.2 million for the comparable period in 2003, or 13.9%.  As a percentage of total operating revenues, G&A expenses decreased to 8.8% for the six months ended June 30, 2004, compared to 11.6% for the six months ended June 30, 2003, primarily as a result of increased revenue arising from the acquisition of 53 communities referred to above.  G&A expenses increased primarily due to increases in the number of employees to accommodate new acquisitions, normal increases in employee salaries, and an expansion of program offerings.  Since approximately 20% of the communities we operate are managed rather than owned or leased, G&A expense as a percentage of operating revenues for all communities, including managed communities, may be more meaningful for industry-wide comparisons.  G&A as a percentage of operating revenues for all communities increased to 6.5% from 5.7% for the six months ended June 30, 2004 and 2003, respectively, primarily as a result of the increased personnel costs described above.




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*Depreciation and Amortization:*Depreciation and amortization for the six months ended June 30, 2004, was $4.4 million compared to $3.7 million for the comparable period in 2003, reflecting the purchase acquisition of five communities in the fourth quarter of 2003.  In 2004, depreciation and amortization represents 3.0% of total operating revenues, compared to 3.8% for the comparable period in 2003.  This decrease as a percentage of revenue reflects the increased revenue arising from the net acquisition of 53 additional communities (net of four facilities sold) since June 30, 2003, most of which were leased.  *Facility Lease Expense*:  Facility lease expense for the six months ended June 30, 2004, was $32.4 million compared to $17.9 million for the comparable period of 2003, representing an increase of $14.4 million, or 80.5%.  This increase was primarily due to the lease acquisition of 52 communities in 2003.  We leased 127 communities as of June 30, 2004, compared to 75 leased communities as of June 30, 2003.  The additional facility lease expense related to the acquired communities is approximately $13.9 million.  The remaining increase was due to a six-community sale-leaseback in the second quarter of 2003 and the re-lease of four communities in the third quarter of 2003.  Facility lease expense as a percentage of revenues was 22.3% for the six months ended June 30, 2004, and 18.6% for the six months ended June 30, 2003.   *Interest Income:*  Interest income for the six months ended June 30, 2004, was $287,000 versus $328,000 for the comparable period of 2003.  This decrease was primarily attributable to an interest-bearing note receivable that we held in 2003, which was paid off in the first quarter of 2004.  *Interest Expense:*  Interest expense for the six months ended June 30, 2004, was $8.0 million compared to $6.5 million for the comparable period of 2003.  This increase of $1.5 million, or 23.1%, was primarily attributable to the additional secured mortgage financing related to the five community mortgage assumption acquisition in December 2003, partially offset by a sale-leaseback transaction in the second quarter of 2003.  As a percentage of total operating revenues, interest expense decreased to 5.5% from 6.7% for the six months ended June 30, 2004 and 2003, respectively.  *Other, net:*Other net income for the six months ended June 30, 2004, was approximately $599,000 compared to $1.4 million for the comparable period in 2003.  The $599,000 income for the first two quarters of the current year is primarily the result of the amortization of deferred gains of approximately $1.3 million and late fees charged to residents of $157,000, partially offset by our portion of Alterras net loss for December 2003 and January 2004 (discussed above under Alterra Transactions) totaling $794,000, and other smaller miscellaneous items.  The $1.4 million income the first two quarters of 2003 is primarily comprised of recognizing a gain on the sale of our investment in ARV Assisted Living common stock of approximately $1.4 million.  *Preferred dividends:*  For the six months ended June 30, 2004 and 2003, preferred dividends totaled approximately $1.9 million and $3.8 million, respectively.  The primary reason for the $1.9 million decrease is the repurchase of the Series A preferred shares in July and August 2003.  Because we have not paid the Series B preferred dividends for more than six consecutive quarters, under the Designation of Rights and Preferences of the Series B preferred stock in our Articles of Incorporation, the Series B preferred shareholders may designate one director in addition to the other directors that they are entitled to designate under the shareholders' agreement.  As of January 1, 2002, the Series B preferred shareholders became entitled to designate an additional director under the Articles, but thus far have chosen not to do so.









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|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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Same Community Comparison















|                                        |      | **Three Months ended June 30,**
|--------------------------------------- | ---- | -------------------------------
|****                                    | **** | **(In thousands)**             
|****                                    | **** | ****                           
|****                                    | **** | ****                           
|****                                    | **** | **2004**                       
|                                        |      |                                
|Revenue                                 |      | $ 46,349                       
|Community operating expenses            |      | (28,993)                       
|                                        |      |                                
|Community operating income              |      | 17,356                         
|Depreciation & amortization             |      | (1,412)                        
|Facility lease expense                  |      | (9,647)                        
|                                        |      |                                
|Operating income                        |      | 6,297                          
|Interest expense, net                   |      | (2,313)                        
|                                        |      |                                
|Operating income after interest expense |      | $ 3,984                        
|                                        |      |                                



These 84 communities represented $46.3 million or 58.9% of our total revenue of $78.7 million for the second quarter of 2004.  Same community revenues increased by $2.3 million or 5.1% for the quarter ended June 30, 2004, from the comparable period in 2003, due in part to the effect of move-in fee revenue recognition  The amortization of previously deferred move-in fees was greater in the current quarter by  $1.4 million due to a higher level of move-in fees that were charged over the past year.  The remainder of the increase was due to the combination of an increase in average revenue per occupied unit and an increase in the occupancy rate.  Average revenue per occupied unit increased by $97 per month or 3.5% for the three months ended June 30, 2004, as compared to the three months ended June 30, 2003.  Average occupancy increased by 1.8  percentage points to approximately 79.2% in the second quarter of 2004 from 77.4% in the second quarter of 2003.  Community operating expenses increased approximately $488,000 primarily due to costs related to opening special care units in 2003, charges related to the 2003 liability insurance program, and higher bad debts, food costs, and repairs and maintenance, partially offset by lower employee benefit costs and workers' compensation, primarily in Texas.  Occupancy expenses, which consist of facility lease expense, depreciation and amortization, and interest expense, increased by approximately $553,000 as a result of the sale-leaseback of 3 communities and the re-lease of 4 communities in the third quarter of 2003.  The net effect of this change was an increase in facility lease expense of $962,000, partially offset by decreases in interest expense of $222,000, and depreciation and amortization expense of $187,000.  The balance of the increase in occupancy expenses was due to lease inflators based primarily on community performance under certain of our leases.  For the quarters ended June 30, 2004 and 2003, operating income after interest expense increased by approximately $1.2 million to $4.0 million in 2004 from $2.8 million in the year before.  **Liquidity and Capital Resources**  For the six months ended June 30, 2004 and 2003, net cash provided by operating activities was $2.0 million.  The primary components of operating cash provided by operating activities were depreciation and amortization of $4.4 million, an adjustment for the equity investment loss of $794,000, and the net decrease in other operating assets and liabilities of $742,000, partially offset by the net loss of $2.6 million and amortization of deferred gain of $1.3 million.  The primary components of operating cash provided by operating activities for the six months ended June 30, 2003, was net income of $580,000 and the depreciation and amortization of $3.7 million, partially offset by the adjustment for the gain on sale of ARV Assisted Living stock of $1.4 million and the net increase in other operating assets and liabilities of $867,000.




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Net cash used in investing activities amounted to $6.8 million for the six months ended June 30, 2004, and was comprised primarily of purchases of approximately $1.8 million of various property and equipment, advances to affiliates and other managed communities of $1.2 million, management and lease acquisition costs of $5.3 million, acquisition of assets and liabilities in lease transactions of $1.1 million, and investment in affiliates of $285,000, partially offset by proceeds from the repayment of a note receivable from a Baty entity of $2.7 million and proceeds from the sale of property and equipment of approximately $226,000.  Net cash provided by investing activities amounted to $768,000 for the six months ended June 30, 2003, and was comprised primarily of proceeds from the sale of stock in ARV Assisted Living of $2.9 million, partially offset by purchases of approximately $1.2 million of various property and equipment, distributions to minority partners of $250,000, an increase in management and lease acquisition costs of approximately $625,000, and investments in affiliates of $127,000.  For the six months ended June 30, 2004, net cash provided by financing activities was $3.4 million, primarily from proceeds from short-term borrowings of $3.0 million under a bank line of credit, proceeds from long-term borrowing of $2.6 million, and proceeds from the sale of common stock under the employee stock purchase and incentive plans of approximately $1.2 million, partially offset by an increase in restricted deposits of $972,000, and long-term debt repayments of $2.4 million.  For the six months ended June 30, 2003, net cash used in financing activities was $974,000, primarily from long-term debt repayments of $1.4 million and an increase of approximately $169,000 in debt issuance and other financing costs, partially offset by proceeds of long-term borrowing of $600,000.  We have incurred significant operating losses since our inception and have a working capital deficit of $39.2 million, although $11.8 million represents deferred revenue and unearned rental income, and $9.4 million of preferred cash dividends is only due if declared by our board of directors.  At times in the past, we have been dependent upon third-party financing or disposition of assets to fund operations.  If such transactions are necessary in the future, we cannot guarantee that they will be available on a timely basis, on terms attractive to us, or at all.  Throughout 2002 and continuing in the first quarter of 2003, we refinanced substantially all of our debt obligations, extending the maturities of such financings to dates in 2005 or thereafter, at which time we will need to refinance or otherwise repay the obligations.  Many of our debt instruments and leases contain cross-default provisions pursuant to which a default under one obligation can cause a default under one or more other obligations to the same or other lenders or lessors.  Such cross-default provisions affect 17 owned assisted living properties and 122 properties operated under leases.  Accordingly, any event of default could cause a material adverse effect on our financial condition if such debt or leases are cross-defaulted.  At June 30, 2004, we complied with all such covenants, except for two leased buildings.  We have obtained a waiver from the lessor and are considered to be in full compliance as of June 30, 2004.  Management believes that we will be able to sustain positive operating cash flow on an annual basis and will have adequate cash for all necessary investing and financing activities including required debt service and capital expenditures through at least June 30, 2005.









|                                          |  | Payments Due by Period
|----------------------------------------- |  | ----------------------
|                                          |  |                       
|                                          |  |                       
|Contractual Obligations                   |  | Total                 
|                                          |  |                       
|Bank line of credit                       |  | $                     
|Long-Term Debt, including current portion |  |                       
|Operating Leases                          |  |                       
|Convertible Debentures                    |  |                       
|                                          |  |                       
|                                          |  | $                     
|                                          |  |                       






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|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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Impact of Inflation










Forward-Looking Statements




















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Item 3. Quantitative and Qualitative Disclosures About Market Risk










Item 4. Controls and Procedures




























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PART II. OTHER INFORMATION





Item 1, Item 3, and Item 5 are not applicable.





Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

















|                        |  |           |            | Total      |                
|----------------------- |  | --------- | ---------- | ---------- | ---------------
|                        |  |           |            | Number of  |                
|                        |  |           |            | Shares     | Approximate    
|                        |  |           |            | Purchased  | Dollar Value of
|                        |  |           |            | as Part of | Shares that may
|                        |  | Total     |            | Publicly   | yet be         
|                        |  | Number of | Average    | Announced  | Purchased      
|                        |  | Shares    | Price Paid | Plans or   | under the Plans
|Period                  |  | Purchased | per Share  | Programs   | or Programs    
|                        |  |           |            |            |                
|04/01/04  04/30/04     |  |           |           |            | $              
|05/01/04  05/31/04     |  |           |           |            |                
|06/01/04  06/30/04 (1) |  |           | 4,476      |            |                
|                        |  |           |            |            |                
|Total                   |  |           | 4,476      |            | $              
|                        |  |           |            |            |                




(1)








Item 4. Submission of Matters to a Vote of Security Holders















Nominees for Election





Class II Directors (terms to expire 2007)











Class III Director (term to expire in 2005)









Continuing Directors





Class I Directors (terms to expire in 2006)









Class III Directors (terms to expire in 2005)











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|Election of Directors:                            |  |     |            |                
|------------------------------------------------- |  | --- | ---------- | ---------------
|                                                  |  |     |            |                
|                                                  |  |     |            | Abstain or     
|Name                                              |  | For | Against    | Broker Non-vote
|                                                  |  |     |            |                
|Raymond R. Brandstrom                             |  |     | 14,604,825 |                
|T. Michael Young                                  |  |     | 14,971,656 |                
|Bruce L. Busby                                    |  |     | 14,971,656 |                
|                                                  |  |     |            |                
|Ratification of Independent Public Accountants:   |  |     |            |                
|                                                  |  |     |            |                
|                                                  |  |     |            |                
|For                                               |  |     | Against    |                
|                                                  |  |     |            |                
|14,955,236                                        |  |     | 108,250    |                
|                                                  |  |     |            |                
|Approval of an Amendment to the Stock Option Plan |  |     |            |                
|for Nonemployee Directors                         |  |     |            |                
|                                                  |  |     |            |                
|                                                  |  |     |            |                
|For                                               |  |     | Against    |                
|                                                  |  |     |            |                
|11,503,898                                        |  |     | 228,068    |                






















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Item 6. Exhibits and Reports on Form 8-K





(a) Exhibits










Number


Description

Footnote10.52

Emeritrust communities10.52.15
Fourth Amendment to Management Agreement with Option to Purchase by and among EmeritusManagement LLC ("Emeritus Management"), Emeritus Management I LP ("Texas Management"), EmeritusCorporation ("Emeritus"), and AL Investors LLC ("AL Investors"), effective April 1, 2004.

(5)10.52.16
Fifth Amendment to Management Agreement by and among Emeritus Management LLC ("EmeritusManagement"), Emeritus Corporation ("Emeritus"), and AL Investors LLC ("AL Investors"), effectiveJune 1, 2004.

(1)10.79

Loyalton of Folsom, California, The Lakes, Florida, Canterbury Woods, Massachusetts, Beckett Meadows,Texas, Creekside, Texas, Oak Hollow, Texas, Pinehurst, Texas, Stonebridge, Texas, Desert Springs, Texas,Austin Gardens, California, Kingsley Place Shreveport, Louisiana, Silverleaf Manor, Mississippi,Pine Meadow, Mississippi, Pines of Goldsboro, North Carolina, Loyalton of Rockford, Illinois,and Charleston Gardens, West Virginia. The following agreements are representative of those executedin connection with these properties:10.79.1
Purchase and Sale Agreement ("Agreement") by and between Lodi Care Group LLC, Aurora Bay/Columbus,L.L.C., Aurora Bay/Hattiesburg, L.L.C., Spring Creek Group, Ltd., Bedford Care Group, Ltd.,Tyler Group, Ltd., White Rock Care Group, Ltd., El Paso Care Group, Ltd., and Lubbock Group, Ltd.,(each of the foregoing individually, a "Seller" and collectively, "Sellers") and Emeritus Corporation,"Purchaser") and Aurora Bay Investments, LLC, ("ABI"), and JCI, LLC, ("JCI" and together with ABI,the "Guarantors") dated March, 30, 2004 (the "Execution Date").

(3)10.79.2
Purchase and Sale Agreement ("Agreement") by and among (i) The Lakes Assisted Living, LLC,Sacramento County Assisted LLC, Rockford Retirement Residence, LLC, HB-ESC I,LLC, Canterbury Woods Assisted Living, LLC, Autumn Ridge Herculaneum, L.L.C.,Meridian Assisted, L.L.C., Goldsboro Assisted, L.L.C., Cape May Assisted Living, LLC,Travis County Assisted Living LP, Richland Assisted, L.L.C., Silver Lake AssistedLiving LLC, Charleston Assisted Living, LLC, and Joliet Assisted L.L.C., (each of theforegoing individually, a "Seller" and collectively, the "Sellers") and (ii) Emeritus Corporation,("Purchaser") dated March, 31, 2004 (the "Execution Date").

(3)10.79.3
Master Lease agreement between NHP Senior Housing, Inc., ("Landlord"), and EmeritusCorporation, ("Tenant"), dated March 31, 2004 to be effective as of April 1, 2004(the "Effective Date").

(3)10.79.4
Master Lease among the Entities Listed on Schedule 1A (collectively, "Landlord"), and the Entities Listedon Schedule 1B (collectively, "Tenant"), for the respective real properties and improvements thereon(each a "Facility" and collectively, the "Facilities"), dated March 31, 2004, to be effective as ofApril 1, 2004 (the "Effective Date").

(3)10.79.5
Nomination Agreement ("Agreement") made as of March 31, 2004, by and betweenNationwide Health Properties, Inc., ("NHP"), and Emeritus Corporation, ("Emeritus").

(3)10.79.6
Nomination Agreement ("Agreement") made as of March 31, 2004, by and betweenNationwide Health Properties, Inc., ("NHP"), and Emeritus Corporation, ("Emeritus").

(3)10.79.7
First Amendment to Master Lease made as of May 28, 2004 to be effective as of June 1, 2004 byand among Nationwide Health Properties, Inc., a Maryland corporation, NHTexas Properties Limited Partnership, a Texas limited partnership, MLD Delaware Trust,a Delaware business trust, and MLD Properties, LLC, a Delaware limited liability company (collectively,as Landlord), and Emeritus Corporation, a Washington corporation, and ESC IV, LP,a Washington limited partnership (collectively as Tenant)

(1)10.80

Credit Agreement10.80.1
Credit Agreement between U.S. National Association and Emeritus Corporation dated March 16, 2004.

(5)10.80.2
Exhibit A to Credit Agreement; Revolving Note.

(5)10.80.3
Exhibit B to Credit Agreement; Pledge Agreement.

(5)10.80.4
First Amendment to Credit Agreement between U.S. National Association and Emeritus Corporationdated July 20, 2004.

(1)10.80.5
Certificate As To Authorizing Resolutions And Incumbency Certificate dated July 20, 2004

(1)10.80.6
US Bank Line Of Credit Resolutions

(1)


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Number


Description

Footnote10.81

Grand Terrace, California10.81.1
Master Lease Agreement as of June 1, 2004 between Grand Terrace Assisted LP, a limitedpartnership organized under the laws of the State of Washington (Landlord) and Emeritus Corporation,a corporation organized under the laws of the State of Washington (Tenant)

(1)10.82

Health Care Properties Investors, Inc.10.82.1
Contract Of Acquisition Between Emeritus Corporation and Health Care Property Investors, Inc., datedJuly 30, 2004.

(1)10.82.2
Fourth Amendment to Amended And Restated Master Lease (This Amendment) dated July 30 , 2004 (theEffective Date), among Health Care Property Investors, Inc., a Maryland corporation (HCP), HCPI TrustHCPI Trust, a Maryland real estate trust (HCP Trust), Emeritus Realty III, LLC, a Delaware limitedliability company (ER-III), Emeritus Realty V, LLC, a Delaware limited liability company (ER-V),ESC-La Casa Grande, LLC, a Delaware limited liability company (La Casa Grande) and Texas HCP Holding,L.P., a Delaware limited partnership (Texas HCP, and together with HCP, HCP Trust, ER-III, ER-V and LaCasa Grande, Lessor), on the one hand, and Emeritus Corporation, a Washington Corporation (Emeritus),ESC III, L.P., a Washington limited partnership d/b/a Texas-ESC III, L.P. (Texas ESC), Emeritus PropertiesII, Inc., a Washington corporation (Emeritus II), Emeritus Properties III, Inc., a Washington corporation(Emeritus III), Emeritus Properties V, Inc., a Washington Corporation (Emeritus V), Emeritus PropertiesXIV, LLC, a Washington Limited Liability Company (Emeritus XIV"), ESC-Bozeman, LLC, a WashingtonLimited Liability Company (ESC Bozeman) and ESC-New Port Richey, LLC, A Washington Limited LiabilityCompany (ESC New Port Richey) (collectively, As Lessee).

(1)10.82.3
Amendment of Loan Documents - Heritage Hills.

(1)10.82.4
Amended and Restated Secured Promissory Note - Heritage Hills.

(1)31.1

Certification of Periodic Reports31.1.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 for Daniel R. Baty dated August 12, 2004.

(1)31.1.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 for Raymond R. Brandstrom dated August 12, 2004.

(1)32.1

Certification of Periodic Reports32.1.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 for Daniel R. Baty dated August 12, 2004.

(1)32.1.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 for Raymond R. Brandstrom dated August 12, 2004.

(1)99.1

Press Releases99.1.1
Press Release dated April 23, 2004, announcing appointment of new directors.

(5)99.1.2
Press Release dated May 12, 2004, reports on first quarter 2004 results.

(4)99.1.3
Press Release dated August 2, 2004, announcing sale-leaseback of 11 communities

(1)99.1.4
Press Release dated August 12, 2004, reports on second quarter 2004 results.

(6)






































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Table of Contents****

**(b) Reports on Form 8-K.**










































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SIGNATURE



























/s/ Raymond R. Brandstrom
















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