----

| x      |   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
|--------|-----------------------------------------------------------------|
|   |   THE SECURITIES EXCHANGE ACT 1934                    |

| o      | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
|--------|------------------------------------------------------|
|   | THE SECURITIES EXCHANGE ACT OF 1934                  |

| WASHINGTON                        | 91-1605464          |
|-----------------------------------|---------------------|
| (State or other jurisdiction      | (I.R.S Employer     |
| of incorporation or organization) | Identification No.) |

----

| EMERITUS CORPORATION                                 |
|------------------------------------------------------|
| Table of Contents                                    |
|                                                 |   |   |   |
| Part I.  Financial Information             |
|                                                 |   |   | Page No. |
|                                                 |   |   |   |
| Item 1.  Financial Statements (unaudited): | 1 |
|                                                 |   |   |   |
|                                                 |   | Condensed Consolidated Balance Sheets as of June 30, 2010, and December 31, 2009 | 2 |
|                                                 |   |   |   |
|                                                 |   | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009 | 3 |
|                                                 |   |   |   |
|                                                 |   | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 | 4 |
|                                                 |   |   |   |
|                                                 |   | Condensed Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2010 | 6 |
|                                                 |   |   |   |
|                                                 |   | Notes to Condensed Consolidated Financial Statements | 7 |
|                                                 |   |   |   |
| Item 2.                                              | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
|                                                 |   |
| Item 3.                                              | Quantitative and Qualitative Disclosures About Market Risk | 42 |
|                                                 |   |   |   |
| Item 4.                                              | Controls and Procedures | 42 |
|                                                 |   |   |   |
| Part II.  Other Information                |
|                                                 |   |   |   |
| Note:                                                | Items 2, 3, 4, and 5 of Part II have been omitted because they are not applicable. |
|                                                 |   |   |   |
| Item 1.                                              | Legal Proceedings | 43 |
|                                                 |   |   |
| Item 1A.                                             | Risk Factors | 43 |
|                                                 |   |   |
| Item 6.                                              | Exhibits | 43 |
|                                                 |   |   |   |
|                                                 |   |
|                                                 | Signature | 44 |
|                                                 |   |   |
|                                                 | Index to Exhibits | 45 |

----

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

----

Table of Contents

| ASSETS                                                                                  |
|-----------------------------------------------------------------------------------------|
|                                                                                    | (unaudited) |   |   |   |   |
|                                                                                    | June 30, |   |   |  December 31, |   |
|                                                                                    | 2010 |   |   |   2009 |   |
| Current Assets:                                                                         |   |   |   |   |
| Cash and cash equivalents                                                               | $ | 50,912 |   |   | $ | 46,070 |   |
| Short-term investments                                                                  |   | 2,398 |   |   |   | 2,208 |   |
| Trade accounts receivable, net of allowance of $895 and $1,009                          |   | 12,746 |   |   |   | 10,861 |   |
| Other receivables                                                                       |   | 7,426 |   |   |   | 7,251 |   |
| Tax, insurance, and maintenance escrows                                                 |   | 20,291 |   |   |   | 23,565 |   |
| Prepaid workers' compensation                                                           |   | 23,045 |   |   |   | 21,397 |   |
| Other prepaid expenses and current assets                                               |   | 32,644 |   |   |   | 27,790 |   |
|           Total current assets        |   | 149,462 |   |   |   | 139,142 |   |
| Long-term investments                                                                   |   | 3,696 |   |   |   | 4,132 |   |
| Property and equipment, net of accumulated depreciation of $261,360 and $222,518        |   | 1,730,105 |   |   |   | 1,716,472 |   |
| Restricted deposits                                                                     |   | 15,121 |   |   |   | 14,349 |   |
| Lease acquisition costs, net of accumulated amortization of $2,118 and $1,889           |   | 3,880 |   |   |   | 3,805 |   |
| Goodwill                                                                                |   | 74,376 |   |   |   | 74,755 |   |
| Other intangible assets, net of accumulated amortization of $32,744 and $28,883         |   | 110,325 |   |   |   | 116,418 |   |
| Other assets, net                                                                       |   | 18,969 |   |   |   | 20,867 |   |
|           Total assets                | $ | 2,105,934 |   |   | $ | 2,089,940 |   |
|                                                                                    |   |   |   |   |   |   |   |
| LIABILITIES, SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST                           |   |
|                                                                                    |   |   |   |   |   |   |   |
| Current Liabilities:                                                                    |   |   |   |   |   |   |   |
| Current portion of long-term debt                                                       | $ | 41,671 |   |   | $ | 21,324 |   |
| Current portion of capital lease and financing obligations                              |   | 12,705 |   |   |   | 11,144 |   |
| Trade accounts payable                                                                  |   | 5,701 |   |   |   | 5,928 |   |
| Accrued employee compensation and benefits                                              |   | 44,101 |   |   |   | 37,624 |   |
| Accrued interest                                                                        |   | 7,773 |   |   |   | 8,013 |   |
| Accrued real estate taxes                                                               |   | 9,527 |   |   |   | 10,715 |   |
| Accrued professional and general liability                                              |   | 9,385 |   |   |   | 8,445 |   |
| Accrued income taxes                                                                    |   | 194 |   |   |   | 542 |   |
| Other accrued expenses                                                                  |   | 14,336 |   |   |   | 13,491 |   |
| Deferred revenue                                                                        |   | 12,883 |   |   |   | 10,729 |   |
| Unearned rental income                                                                  |   | 17,479 |   |   |   | 18,669 |   |
|           Total current liabilities   |   | 175,755 |   |   |   | 146,624 |   |
| Long-term debt obligations, less current portion                                        |   | 1,342,627 |   |   |   | 1,375,088 |   |
| Capital lease and financing obligations, less current portion                           |   | 201,826 |   |   |   | 165,372 |   |
| Deferred gain on sale of communities                                                    |   | 6,504 |   |   |   | 7,111 |   |
| Deferred straight-line rent                                                             |   | 42,775 |   |   |   | 34,659 |   |
| Other long-term liabilities                                                             |   | 42,051 |   |   |   | 42,188 |   |
|           Total liabilities           |   | 1,811,538 |   |   |   | 1,771,042 |   |
| Commitments and contingencies                                                           |   |   |   |   |   |   |   |
| Shareholders' Equity and Noncontrolling Interest:                                       |   |   |   |   |   |   |   |
| Preferred stock, $.0001 par value.  Authorized 20,000,000 shares, none issued |   | - |   |   |   | - |   |
| Common stock, $.0001 par value.  Authorized 100,000,000 shares, issued and    |   |   |   |   |   |   |   |
| outstanding 39,361,205 and 39,274,590 shares                                            |   | 4 |   |   |   | 4 |   |
| Additional paid-in capital                                                              |   | 729,300 |   |   |   | 725,652 |   |
| Accumulated other comprehensive income                                                  |   | 788 |   |   |   | 807 |   |
| Accumulated deficit                                                                     |   | (442,509 | ) |   |   | (414,381 | ) |
| Total Emeritus Corporation shareholders' equity                                         |   | 287,583 |   |   |   | 312,082 |   |
| Noncontrolling interest-related party                                                   |   | 6,813 |   |   |   | 6,816 |   |
| Total shareholders' equity                                                              |   | 294,396 |   |   |   | 318,898 |   |
| Total liabilities, shareholders' equity, and noncontrolling interest                    | $ | 2,105,934 |   |   | $ | 2,089,940 |   |
|                                                                                    |   |   |   |   |   |   |   |

----

Table of Contents

|                                                                        |   | Three Months Ended |     |   | Six Months Ended |   |
|-----------------------------------------------------------------------------|--------|--------------------|----------|--------|------------------|--------|
|                                                                        |   | June 30,           |     |   | June 30,         |   |
|                                                                        |   | 2010               |     |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Revenues:                                                                   |   |               |     |   |             |   |   |   |   |   |   |   |
| Community revenue                                                           |   | $                  | 237,787  |   |             | $      | 220,773 |   |   | $ | 470,660 |   |   | $ | 440,404 |   |
| Management fees                                                             |   |               | 1,344    |   |             |   | 1,453 |   |   |   | 2,675 |   |   |   | 2,920 |   |
| Total operating revenues                                                    |   |               | 239,131  |   |             |   | 222,226 |   |   |   | 473,335 |   |   |   | 443,324 |   |
|                                                                        |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                   |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Community operations (exclusive of depreciation and amortization            |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
|     and community lease expense shown separately below) |   |               | 157,452  |   |             |   | 140,935 |   |   |   | 312,474 |   |   |   | 284,833 |   |
| General and administrative                                                  |   |               | 17,109   |   |             |   | 15,932 |   |   |   | 34,271 |   |   |   | 30,850 |   |
| Acquisitions and development                                                |   |               | 309      |   |             |   | 312 |   |   |   | 351 |   |   |   | 387 |   |
| Impairments on long-lived assets                                            |   |               | -        |   |             |   | 36 |   |   |   | - |   |   |   | 1,132 |   |
| Depreciation and amortization                                               |   |               | 20,655   |   |             |   | 17,952 |   |   |   | 41,101 |   |   |   | 39,617 |   |
| Community leases                                                            |   |               | 29,716   |   |             |   | 29,347 |   |   |   | 58,754 |   |   |   | 58,416 |   |
| Total operating expenses                                                    |   |               | 225,241  |   |             |   | 204,514 |   |   |   | 446,951 |   |   |   | 415,235 |   |
| Operating income from continuing operations                                 |   |               | 13,890   |   |             |   | 17,712 |   |   |   | 26,384 |   |   |   | 28,089 |   |
|                                                                        |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                                                     |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                             |   |               | 131      |   |             |   | 189 |   |   |   | 243 |   |   |   | 327 |   |
| Interest expense                                                            |   |               | (27,211  | )      |             |   | (26,416 | ) |   |   | (54,252 | ) |   |   | (52,608 | ) |
| Change in fair value of interest rate swaps                                 |   |               | 42       |   |             |   | 752 |   |   |   | (12 | ) |   |   | 842 |   |
| Equity earnings for unconsolidated joint ventures                           |   |               | 302      |   |             |   | 560 |   |   |   | 451 |   |   |   | 1,184 |   |
| Other, net                                                                  |   |               | (22      | )      |             |   | 146 |   |   |   | 456 |   |   |   | 358 |   |
| Net other expense                                                           |   |               | (26,758  | )      |             |   | (24,769 | ) |   |   | (53,114 | ) |   |   | (49,897 | ) |
|                                                                        |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations before income taxes                         |   |               | (12,868  | )      |             |   | (7,057 | ) |   |   | (26,730 | ) |   |   | (21,808 | ) |
| Provision for income taxes                                                  |   |               | (326     | )      |             |   | (270 | ) |   |   | (645 | ) |   |   | (540 | ) |
| Loss from continuing operations                                             |   |               | (13,194  | )      |             |   | (7,327 | ) |   |   | (27,375 | ) |   |   | (22,348 | ) |
| Income (loss) from discontinued operations                                  |   |               | (949     | )      |             |   | 23 |   |   |   | (1,170 | ) |   |   | (51 | ) |
| Net loss                                                                    |   |               | (14,143  | )      |             |   | (7,304 | ) |   |   | (28,545 | ) |   |   | (22,399 | ) |
| Net loss attributable to the noncontrolling interest                        |   |               | 226      |   |             |   | 229 |   |   |   | 417 |   |   |   | 443 |   |
| Net loss attributable to Emeritus Corporation common shareholders           |   | $                  | (13,917) |   |             | $      | (7,075 | ) |   | $ | (28,128) |   |   | $ | (21,956 | ) |
|                                                                        |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted loss per common share attributable to                     |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
|    Emeritus Corporation common shareholders:                 |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
|    Continuing operations                                     |   | $                  | (0.33    | )      |             | $      | (0.18 | ) |   | $ | (0.69 | ) |   | $ | (0.56 | ) |
|    Discontinued operations                                   |   |               | (0.02    | )      |             |   | 0.00 |   |   |   | (0.03 | ) |   |   | (0.00 | ) |
|                                                                        |   | $                  | (0.35    | )      |             | $      | (0.18 | ) |   | $ | (0.72 | ) |   | $ | (0.56 | ) |
|                                                                        |   |               |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding; basic and diluted               |   |               | 39,301   |   |             |   | 39,147 |   |   |   | 39,290 |   |   |   | 39,132 |   |

----

Table of Contents

|                                                                 |   | Six Months Ended June 30, |    |
|----------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                 |   | 2010                      |    |   | 2009 |   |
| Cash flows from operating activities:                                |   |                      |    |   |   |   |
| Net loss                                                             |   | $                         | (28,545 | ) |   | $ | (22,399 | ) |
| Adjustments to reconcile net loss to net cash provided by            |   |                      |    |   |   |   |   |   |
| operating activities:                                                |   |                      |    |   |   |   |   |   |
| Depreciation and amortization                                        |   |                      | 41,101  |   |   |   | 39,617 |   |
| Amortization of above/below market rents                             |   |                      | 4,347   |   |   |   | 4,914 |   |
| Amortization of deferred gains                                       |   |                      | (607    | ) |   |   | (148 | ) |
| Loss on sale of assets                                               |   |                      | 1,179   |   |   |   | - |   |
| Impairment of long-lived assets                                      |   |                      | 320     |   |   |   | 1,132 |   |
| Amortization of loan fees                                            |   |                      | 1,512   |   |   |   | 1,572 |   |
| Allowance for doubtful receivables                                   |   |                      | 2,135   |   |   |   | 1,634 |   |
| Equity investment earnings                                           |   |                      | (451    | ) |   |   | (1,184 | ) |
| Stock based compensation                                             |   |                      | 2,931   |   |   |   | 2,063 |   |
| Change in fair value of interest rate swaps                          |   |                      | 12      |   |   |   | (842 | ) |
| Other                                                                |   |                      | (45     | ) |   |   | 454 |   |
| Changes in operating assets and liabilities                          |   |                      |    |   |   |   |   |   |
| Deferred straight-line rent                                          |   |                      | 7,071   |   |   |   | 9,931 |   |
| Deferred revenue                                                     |   |                      | 2,505   |   |   |   | 15 |   |
| Change in other operating assets and liabilities                     |   |                      | 4,458   |   |   |   | (3,410 | ) |
| Net cash provided by operating activities                            |   |                      | 37,923  |   |   |   | 33,349 |   |
| Cash flows from investing activities:                                |   |                      |    |   |   |   |   |   |
| Acquisition of property and equipment                                |   |                      | (10,073 | ) |   |   | (16,108 | ) |
| Community acquisition                                                |   |                      | -       |   |   |   | (10,579 | ) |
| Sale of property and equipment                                       |   |                      | -       |   |   |   | 2,677 |   |
| Lease and contract costs and acquisition deposits                    |   |                      | (4,527  | ) |   |   | (170 | ) |
| Payments (to) from affiliates and other managed communities, net     |   |                      | (1,639  | ) |   |   | 699 |   |
| Distributions from unconsolidated joint ventures/other               |   |                      | 869     |   |   |   | 1,018 |   |
| Net cash used in investing activities                                |   |                      | (15,370 | ) |   |   | (22,463 | ) |
| Cash flows from financing activities:                                |   |                      |    |   |   |   |   |   |
| Proceeds from sale of stock and noncontrolling interest contribution |   |                      | 1,132   |   |   |   | 257 |   |
| Increase in restricted deposits                                      |   |                      | (730    | ) |   |   | (256 | ) |
| Debt issuance and other financing costs                              |   |                      | (145    | ) |   |   | (274 | ) |
| Proceeds from long-term borrowings and financings                    |   |                      | -       |   |   |   | 10,864 |   |
| Repayment of long-term borrowings and financings                     |   |                      | (12,114 | ) |   |   | (2,736 | ) |
| Repayment of capital lease and financing obligations                 |   |                      | (5,854  | ) |   |   | (4,508 | ) |
| Net cash provided by (used in) financing activities                  |   |                      | (17,711 | ) |   |   | 3,347 |   |
| Net increase in cash and cash equivalents                            |   |                      | 4,842   |   |   |   | 14,233 |   |
| Cash and cash equivalents at the beginning of the period             |   |                      | 46,070  |   |   |   | 27,254 |   |
| Cash and cash equivalents at the end of the period                   |   | $                         | 50,912  |   |   | $ | 41,487 |   |

----

Table of Contents

|                                                                 |   | Six Months Ended June 30, |   |
|----------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                 |   | 2010                      |   |   | 2009 |   |
|                                                                 |   |                      |   |   |   |   |
| Supplemental disclosure of cash flow information:                    |   |                      |   |   |   |   |
| Cash paid during the period for interest                             |   | $                         | 52,936 |   |   | $ | 49,483 |   |
| Cash paid during the period for income taxes                         |   |                      | 912    |   |   |   | 1,694 |   |
| Cash received during the period for income tax refunds               |   |                      | 10     |   |   |   | 83 |   |
| Non-cash financing and investing activities:                         |   |                      |   |   |   |   |   |   |
| Capital lease and financing obligations                              |   |                      | 37,666 |   |   |   | 295 |   |
| Unrealized gain (loss) on investment in marketable equity securities |   |                      | (19    | ) |   |   | 621 |   |
| Purchase and sale-leaseback transaction:                             |   |                      |   |   |   |   |   |   |
| Increase in property and equipment                                   |   |                      | 8,250  |   |   |   | 968 |   |
| Increase in intangible assets                                        |   |                      | 600    |   |   |   | - |   |
| Increase in deferred gain                                            |   |                      | -      |   |   |   | (5,212 | ) |
| Decrease in deferred straight-line rent                              |   |                      | -      |   |   |   | 129 |   |
| Financing lease obligation                                           |   |                      | (8,850 | ) |   |   | 4,115 |   |
| Adjustments related to purchase and sale of leased property:         |   |                      |   |   |   |   |   |   |
| Decrease in capital lease assets                                     |   |                      | (2,756 | ) |   |   | - |   |
| Decrease in capital lease obligations                                |   |                      | 2,648  |   |   |   | - |   |

----

Table of Contents

|                                                                          |   | Emeritus Corporation Shareholders |       |   |       |   |    |             |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|------------|--------|------------|--------|---------|------------------|--------|
|                                                                          |   | Common stock                      |       |   | Additional |   |    | Accumulatedother |   |   |   |   |   |   |   |   | Total |   |
|                                                                          |   | Number                            |       |   |       |   |    | paid-in          |   |   | comprehensive |   |   | Accumulated |   |   | Noncontrolling |   |   | shareholders' |   |
|                                                                          |   | of shares                         |       |   | Amount     |   |    | capital          |   |   | income |   |   | deficit |   |   | interest |   |   | equity (deficit) |   |
| Balances at December 31, 2009                                                 |   |                              | 39,274,590 |   |       | $      | 4       |             |   | $ | 725,652 |   |   | $ | 807 |   |   | $ | (414,381 | ) |   | $ | 6,816 |   |   | $ | 318,898 |   |
| Issuances of shares under Employee Stock Purchase Plan                        |   |                              | 19,484     |   |       |   | – |             |   |   | 293 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 293 |   |
| Options exercised                                                             |   |                              | 67,131     |   |       |   | – |             |   |   | 424 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 424 |   |
| Stock option compensation expense                                             |   |                              | –    |   |       |   | – |             |   |   | 2,931 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 2,931 |   |
| Capital contribution                                                          |   |                              | –    |   |       |   | – |             |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 414 |   |   |   | 414 |   |
| Components of comprehensive loss:                                             |   |                              |       |   |       |   |    |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Net loss                                        |   |                              | –    |   |       |   | – |             |   |   | – |   |   |   | – |   |   |   | (28,128 | ) |   |   | (417 | ) |   |   | (28,545 | ) |
|      Unrealized gain (loss) on marketable securities |   |                              | –    |   |       |   | – |             |   |   | – |   |   |   | (19 | ) |   |   | – |   |   |   | – |   |   |   | (19 | ) |
| Comprehensive loss                                                            |   |                              | –    |   |       |   | – |             |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (28,564 | ) |
| Balances at June 30, 2010                                                     |   |                              | 39,361,205 |   |       | $      | 4       |             |   | $ | 729,300 |   |   | $ | 788 |   |   | $ | (442,509 | ) |   | $ | 6,813 |   |   | $ | 294,396 |   |

----

Table of Contents

| 1.   | Description of Business |
|----------------|-------------------------|

| 2.   | Summary of Significant Accounting Policies and Use of Estimates |
|----------------|-----------------------------------------------------------------|

----

Table of Contents

| 3.   | Stock-Based Compensation |
|----------------|--------------------------|

|                                           |   |   |      |   | Weighted- |   |   | Aggregate      |   |
|------------------------------------------------|--------|--------|-----------|--------|-----------|--------|--------|----------------|--------|
|                                           |   |   |      |   | Average   |   |   | Intrinsic      |   |
|                                           |   |   |      |   | Exercise  |   |   | Value          |   |
|                                           |   | Shares |      |   | Price     |   |   | (in thousands) |   |
| Outstanding at beginning of period             |   |   | 3,320,976 |   |      | $      | 16.52  |           |   | $ | - |   |
| Granted                                        |   |   | 78,500    |   |      | $      | 18.70  |           |   | $ | - |   |
| Exercised                                      |   |   | (67,131   | )      |      | $      | 6.32   |           |   | $ | 770 |   |
| Forfeited/expired                              |   |   | (37,775   | )      |      | $      | 13.84  |           |   | $ | - |   |
| Outstanding at end of period                   |   |   | 3,294,570 |   |      | $      | 16.81  |           |   | $ | 10,518 |   |
|                                           |   |   |      |   |      |   |   |           |   |   |   |   |
| Options exercisable                            |   |   | 1,485,562 |   |      | $      | 16.65  |           |   | $ | 6,520 |   |
|                                           |   |   |      |   |      |   |   |           |   |   |   |   |
| Weighted-average fair value of options granted |   |   |      |   |      | $      | 10.67  |           |   |   |   |   |
|                                           |   |   |      |   |      |   |   |           |   |   |   |   |
| Options exercisable in the money               |   |   | 635,550   |   |      |   |   |           |   | $ | 6,520 |   |
| Options exercisable out of the money           |   |   | 850,012   |   |      |   |   |           |   | $ | - |   |

----

Table of Contents

| 4.   | Acquisitions and Other Significant Transactions |
|----------------|-------------------------------------------------|

----

Table of Contents

| 5.   | Long-Term Debt |
|----------------|----------------|

----

Table of Contents

| 6.   | Derivative Instruments |
|----------------|------------------------|

|                |                        |   | As of         |   |   | As of             |   |
|---------------------|-----------------------------|--------|---------------|--------|--------|-------------------|--------|
|                |                        |   | June 30, 2010 |   |   | December 31, 2009 |   |
|                | Balance Sheet               |   | Fair          |   |   | Fair              |   |
|                | Location                    |   | Value         |   |   | Value             |   |
| Interest rate swaps | Other long-term liabilities |   | $             | 1,446  |   |              | $      | 1,434 |   |

| 7.   | Loss Per Share |
|----------------|----------------|

|    |  Three Months Ended                                    |   |  Six Months Ended                                      |
|---------|-------------------------------------------------------------|--------|-------------------------------------------------------------|
|    |  June 30,                                              |   |  June, 30,                                             |
|    | 2010                                                        |   | 2009                                                        |   | 2010 |   | 2009 |
| Options |          3,295 |   |          2,634 |   |          3,295 |   |          2,634 |

----

Table of Contents

| 8.   | Comprehensive Loss |
|----------------|--------------------|

|                                     |   | Three Months Ended |    |   | Six Months Ended |   |
|------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                     |   | June 30,           |    |   | June 30,         |   |
|                                     |   | 2010               |    |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Net loss                                 |   | $                  | (14,143 | )      |             | $      | (7,304 | ) |   | $ | (28,545 | ) |   | $ | (22,399 | ) |
| Other comprehensive income (loss):       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) on     |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| available-for-sale investment securities |   |               | (115    | )      |             |   | 835 |   |   |   | (19 | ) |   |   | 621 |   |
| Comprehensive loss                       |   | $                  | (14,258 | )      |             | $      | (6,469 | ) |   | $ | (28,564 | ) |   | $ | (21,778 | ) |

|                                                              |   | Three Months Ended |    |   | Six Months Ended |   |
|-------------------------------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                                              |   | June 30,           |    |   | June 30,         |   |
|                                                              |   | 2010               |    |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Loss from continuing operations                                   |   | $                  | (12,968 | )      |             | $      | (7,098 | ) |   | $ | (26,958 | ) |   | $ | (21,905 | ) |
| Income (loss) from discontinued operations                        |   |               | (949    | )      |             |   | 23 |   |   |   | (1,170 | ) |   |   | (51 | ) |
| Net loss attributable to Emeritus Corporation common shareholders |   | $                  | (13,917 | )      |             | $      | (7,075 | ) |   | $ | (28,128 | ) |   | $ | (21,956 | ) |

| 9.   | Discontinued Operations |
|----------------|-------------------------|

| 10.   | Liquidity |
|-----------------|-----------|

----

Table of Contents

| 11.   | Fair Value Disclosures |
|-----------------|------------------------|

|                                             |   | Quoted Prices in |   |   | Significant                |   |   |                       |   |   |       |   |
|--------------------------------------------------|--------|----------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|--------|------------|--------|
|                                             |   | Active Markets             |   |   | Other                      |   |   | Significant                |   |   | Balance at |   |
|                                             |   | for Identical              |   |   | Observable                 |   |   | Unobservable               |   |   | June 30,   |   |
|                                             |   | Assets (Level 1)           |   |   | Inputs (Level 2) |   |   | Inputs (Level 3) |   |   | 2010       |   |
| Assets                                           |   |                       |   |   |                       |   |   |                       |   |   |       |   |
| Investment securities – trading            |   | $                          | 2,398  |   |                       | $      | -      |                       |   | $      | -          |   |   | $ | 2,398 |   |
| Investment securities – available-for-sale |   |                       | 2,023  |   |                       |   | -      |                       |   |   | -          |   |   |   | 2,023 |   |
| Liabilities                                      |   |                       |   |   |                       |   |   |                       |   |   |       |   |   |   |   |   |
| Interest rate swap agreements                    |   |                       | -      |   |                       |   | 1,446  |                       |   |   | -          |   |   |   | 1,446 |   |

|           |   | June 30, 2010 |      |   | December 31, 2009 |   |
|----------------|--------|---------------|-----------|--------|-------------------|--------|
|           |   | Carrying      |      |   |              |   |   | Carrying |   |   |   |   |
|           |   | Amount        |      |   | Fair Value        |   |   | Amount |   |   | Fair Value |   |
| Long-term debt |   | $             | 1,384,298 |   |              | $      | 1,373,591 |   |   | $ | 1,396,412 |   |   | $ | 1,383,632 |   |

----

Table of Contents

|                    |   | Quoted Prices in |     |   | Significant                |   |   |                       |   |    |       |   |
|-------------------------|--------|----------------------------|----------|--------|----------------------------|--------|--------|----------------------------|--------|---------|------------|--------|
|                    |   | Active Markets             |     |   | Other                      |   |   | Significant                |   |    |       |   |
|                    |   | for Identical              |     |   | Observable                 |   |   | Unobservable               |   |    | Impairment |   |
|                    |   | Assets (Level 1)           |     |   | Inputs (Level 2) |   |   | Inputs (Level 3) |   |    | Losses     |   |
| Other long-lived assets |   | $                          |  |   |                       | $      | 2,800  |                       |   |  $ |    |   |   | $ | 320 |   |

| 12.   | Income Taxes |
|-----------------|--------------|

| 13.   | Subsequent Events |
|-----------------|-------------------|

----

Table of Contents

----

Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

| ·   | the effects of competition and economic conditions on the occupancy levels in our communities, including possible excess assisted living capacity; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our ability under current market conditions to maintain or increase our community revenues by increasing resident charges without adversely affecting occupancy levels; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our ability to minimize community operations expense, including our oversight of costs largely beyond our control (such as insurance and utility costs) without adversely affecting community revenues; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our ability to generate cash flow sufficient to service our debt and other fixed payment requirements; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | our vulnerability to defaults as a result of noncompliance with various debt and lease covenants, including the effects of cross-default provisions; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our uncertainty related to competition, construction costs, licensing restrictions, environmental regulations, the overall economy, and other matters that affect acquisition, disposition, and development of assisted living communities; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our ability to find sources of financing and capital on satisfactory terms to meet our cash requirements to the extent that they are not met by operations; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our uncertainty related to professional liability and workers’ compensation claims. |
|--------------------|-------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | Total operating revenues increased $30.0 million, or 6.8%, to $473.3 million from $443.3 million in the prior year period. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

| ·   | Operating income from continuing operations was $26.4 million compared to $28.1 million in the prior year period.  Our net loss attributable to Emeritus Corporation common shareholders was $28.1 million compared to $22.0 million in the prior year period. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Average occupancy increased to 87.2% from 86.4% in the prior year period. |
|--------------------|---------------------------------------------------------------------------|

| ·   | Average rate per occupied unit increased 2.5% to $3,719 from $3,629 in the prior year period. |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | Net cash provided by operating activities was $37.9 million compared to $33.3 million in the prior year period. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | We added 13 new leased communities to the Company’s portfolio and disposed of two. |
|--------------------|------------------------------------------------------------------------------------------|

Note 13

|                               | As of June 30,                                                                                     |      | As of December 31,                             |   | As of June 30,                                                             |
|------------------------------------|----------------------------------------------------------------------------------------------------|-----------|------------------------------------------------|--------|----------------------------------------------------------------------------|
|                               | 2010                                                                                               |      | 2009                                           |   | 2009                                                                       |
|                               | Buildings                                                                                          |      | Units                                          |   | Buildings                                                                  |   | Units |   | Buildings |   | Units |
| Owned                              |               167            |      |     13,363                 |   |           167            |   |       13,363 |   |           165 |   |    13,180 |
| Leased                             |               116            |  (1) |     11,443                 |   |           105            |   |       10,632 |   |           105 |   |    10,632 |
| Consolidated Portfolio             |               283            |      |     24,806                 |   |           272            |   |       23,995 |   |           270 |   |    23,812 |
| Managed                            |                 10 |      |       1,159      |   |             12 |   |         1,325 |   |             15 |   |      1,604 |
| Joint Venture                      |                 24 |      |       1,818      |   |             24 |   |         1,818 |   |             24 |   |      1,818 |
| Operated Portfolio                 |               317            |      |     27,783                 |   |           308            |   |       27,138 |   |           309 |   |    27,234 |
|                               |                                                                                               |      |                                           |   |                                                                       |   |   |   |   |   |   |
| Percentage increase  (2) |             2.9%                       |      |        2.4% |   |         0.7%                       |   |          0.7% |   |         1.0% |   |      1.0% |

|                       | Total Units                                                                                         |
|----------------------------|-----------------------------------------------------------------------------------------------------|
| Independent living         |              1,396                 |
| Assisted living            |            19,220                            |
| Memory care                |              3,539                 |
| Skilled nursing care       |                 404 |
| Operating units            |            24,559                            |
| Units taken out of service |                 247 |
| Designed capacity units    |            24,806                            |

----

Table of Contents

Note 4

|                            |          |   |        |   |   |   |   |   | Purchase  |   |   | Amount   |   |   |
|---------------------------------|---------------|--------|-------------|--------|--------|--------|--------|--------|-----------|--------|--------|----------|--------|--------|
| Portfolio or Community          | Date          |   | Communities |   |   | Units  |   |   | Price (1) |   |   | Financed |   |   |
| HCP, Inc.                       | June 2010     |   |        | 4      |   |   |   | 552    |      |   | $      | —  |   |   | $ | — | (3 | ) |
| National Health Investors, Inc. | January 2010  |   |        | 8      |   |   |   | 336    |      |   |   | —  |   |   |   | — | (2 | ) |
| Emeritus at Eastover            | February 2010 |   |        | 1      |   |   |   | 88     |      |   |   | —  |   |   |   | — | (2 | ) |
| Emeritus at Merced              | October 2009  |   |        | 1      |   |   |   | 83     |      |   |   | 6,250    |   |   |   | 5,000 | (4 | ) |
| Emeritus at Trace Pointe        | October 2009  |   |        | 1      |   |   |   | 100    |      |   |   | 15,783   |   |   |   | 14,100 | (4 | ) |
| Emeritus at College Park        | June 2009     |   |        | 1      |   |   |   | 85     |      |   |   | 10,579   |   |   |   | 9,010 | (4 | ) |
| Emeritus at Northdale           | January 2009  |   |        | 1      |   |   |   | 84     |      |   |   | —  |   |   |   | — | (3 | ) |
| Emeritus at Urbandale           | January 2009  |   |        | 1      |   |   |   | 38     |      |   |   | 6,632    |   |   |   | 5,461 | (5 | ) |
|                            |          |   |        | 18     |   |   |   | 1,366  |      |   |   |     |   |   |   |   |   |   |
|                            |          |   |        |   |   |   |   |   |      |   |   |     |   |   |   |   |   |   |
| (1) Excludes closing costs.     |          |   |        |   |   |   |   |   |      |   |   |     |   |   |   |   |   |   |
| (2) Capital/financing lease     |          |   |        |   |   |   |   |   |      |   |   |     |   |   |   |   |   |   |
| (3) Operating lease             |          |   |        |   |   |   |   |   |      |   |   |     |   |   |   |   |   |   |
| (4) Purchase                    |          |   |        |   |   |   |   |   |      |   |   |     |   |   |   |   |   |   |
| (5) New construction            |          |   |        |   |   |   |   |   |      |   |   |     |   |   |   |   |   |   |

----

Table of Contents

|                                | Month  |   | Owned  |    |   | Leased |   |    | Consolidated |   |   | Managed |   |   | Total  |    |
|-------------------------------------|--------|--------|--------|---------|--------|--------|--------|---------|--------------|--------|--------|---------|--------|--------|--------|---------|
| December 31, 2008                   |   |   |   | 164     |   |   |   | 104     |         |   |   | 268     |   |   |   | 38      |   |   |   | 306 |   |
| Autumn Ridge - disposition          | Jan-09 |   |   | (1      | )      |   |   | – |         |   |   | (1      | )      |   |   | – |   |   |   | (1 | ) |
| Emeritus at Northdale               | Jan-09 |   |   | – |   |   |   | 1       |         |   |   | 1       |   |   |   | – |   |   |   | 1 |   |
| Emeritus at Urbandale - development | Jan-09 |   |   | 1       |   |   |   | – |         |   |   | 1       |   |   |   | – |   |   |   | 1 |   |
| New management agreements           | Jan-09 |   |   | – |   |   |   | – |         |   |   | – |   |   |   | 2       |   |   |   | 2 |   |
| March 31, 2009                      |   |   |   | 164     |   |   |   | 105     |         |   |   | 269     |   |   |   | 40      |   |   |   | 309 |   |
| Emeritus at College Park            | Jun-09 |   |   | 1       |   |   |   | – |         |   |   | 1       |   |   |   | (1      | ) |   |   | – |   |
| June 30, 2009                       |   |   |   | 165     |   |   |   | 105     |         |   |   | 270     |   |   |   | 39      |   |   |   | 309 |   |
| No activity in the quarter          |   |   |   | – |   |   |   | – |         |   |   | – |   |   |   | – |   |   |   | – |   |
| September 30, 2009                  |   |   |   | 165     |   |   |   | 105     |         |   |   | 270     |   |   |   | 39      |   |   |   | 309 |   |
| Emeritus at Trace Pointe            | Oct-09 |   |   | 1       |   |   |   | – |         |   |   | 1       |   |   |   | (1      | ) |   |   | – |   |
| Isle at Emerald Court               | Oct-09 |   |   | – |   |   |   | – |         |   |   | – |   |   |   | (1      | ) |   |   | (1 | ) |
| Emeritus at Merced                  | Oct-09 |   |   | 1       |   |   |   | – |         |   |   | 1       |   |   |   | (1      | ) |   |   | – |   |
| December 31, 2009                   |   |   |   | 167     |   |   |   | 105     |         |   |   | 272     |   |   |   | 36      |   |   |   | 308 |   |
| Emeritus at Westwind Gardens        | Jan-10 |   |   | -       |   |   |   | (1      | )            |   |   | (1      | )      |   |   | 1       |   |   |   | - |   |
| National Health Investors, Inc.     | Jan-10 |   |   | -       |   |   |   | 8       |         |   |   | 8       |   |   |   | -       |   |   |   | 8 |   |
| Cottonbloom Assisted Living         | Feb-10 |   |   | -       |   |   |   | -       |         |   |   | -       |   |   |   | (1      | ) |   |   | (1 | ) |
| Emeritus at Eastover                | Feb-10 |   |   | -       |   |   |   | 1       |         |   |   | 1       |   |   |   | -       |   |   |   | 1 |   |
| March 31, 2010                      |   |   |   | 167     |   |   |   | 113     |         |   |   | 280     |   |   |   | 36      |   |   |   | 316 |   |
| HCP, Inc.                           | Jun-10 |   |   | -       |   |   |   | 4       |         |   |   | 4       |   |   |   |    |   |   |   | 4 |   |
| South Dayton                        | Jun-10 |   |   | -       |   |   |   | (1      | )            |   |   | (1      | )      |   |   | -       |   |   |   | (1 | ) |
| Peachtree Village Retirement        | Jun-10 |   |   | -       |   |   |   | -       |         |   |   | -       |   |   |   | (1      | ) |   |   | (1 | ) |
| Rainbow Assisted Living             | Jun-10 |   |   | -       |   |   |   |    |         |   |   | -       |   |   |   | (1      | ) |   |   | (1 | ) |
| June 30, 2010                       |   |   |   | 167     |   |   |   | 116     |         |   |   | 283     |   |   |   | 34      |   |   |   | 317 |   |

----

Table of Contents

----

Table of Contents

|                                                                                                                  |   |                                   |   |   |             |   |   |         |   |   |         |   |   | Period-to-Period Percentage of Change Fav/ (Unfav) |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------|------------------|--------|--------|--------------|--------|--------|--------------|--------|--------|----------------------------------------------------|--------|
|                                                                                                                  |   | Percentage of Total Operating Revenues |   |   | Three            |   |   | Six          |   |
|                                                                                                                  |   | Three Months Ended                     |   |   | Six Months Ended |   |   | Months Ended |   |   | Months Ended |   |
|                                                                                                                  |   | June 30,                               |   |   | June 30,         |   |   | June 30,     |   |   | June 30,     |   |
|                                                                                                                  |   | 2010                                   |   |   | 2009             |   |   | 2010         |   |   | 2009         |   |   |  2010-2009                                    |   |   |  2010-2009 |   |
| Total operating revenues:                                                                                             |   |                                   | 100.0  | %      |             |   | 100.0  | %            |   |   | 100.0        | %      |   |                                               | 100.0  | % |   |   | 7.6 | % |   |   | 6.8 | % |
|                                                                                                                  |   |                                   |   |   |             |   |   |         |   |   |         |   |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                                             |   |                                   |   |   |             |   |   |         |   |   |         |   |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Community operations (exclusive of depreciation and amortization and community leases expense shown separately below) |   |                                   | 65.8   |   |             |   | 63.4   |         |   |   | 66.0         |   |   |                                               | 64.2   |   |   |   | (11.7 | ) |   |   | (9.7 | ) |
| General and administrative                                                                                            |   |                                   | 7.3    |   |             |   | 7.2    |         |   |   | 7.3          |   |   |                                               | 7.0    |   |   |   | (7.4 | ) |   |   | (11.1 | ) |
| Impairments on long-lived assets                                                                                      |   |                                   | -      |   |             |   | -      |         |   |   | -            |   |   |                                               | 0.3    |   |   |   | 100.0 |   |   |   | 100.0 |   |
| Depreciation and amortization                                                                                         |   |                                   | 8.6    |   |             |   | 8.1    |         |   |   | 8.7          |   |   |                                               | 8.9    |   |   |   | (15.1 | ) |   |   | (3.7 | ) |
| Community leases                                                                                                      |   |                                   | 12.4   |   |             |   | 13.2   |         |   |   | 12.4         |   |   |                                               | 13.2   |   |   |   | (1.3 | ) |   |   | (0.6 | ) |
| Total operating expenses                                                                                              |   |                                   | 94.2   |   |             |   | 92.0   |         |   |   | 94.5         |   |   |                                               | 93.7   |   |   |   | (10.1 | ) |   |   | (7.6 | ) |
| Operating income from continuing operations                                                                           |   |                                   | 5.8    |   |             |   | 8.0    |         |   |   | 5.6          |   |   |                                               | 6.3    |   |   |   | (21.6 | ) |   |   | (6.1 | ) |
|                                                                                                                  |   |                                   |   |   |             |   |   |         |   |   |         |   |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                                                                                               |   |                                   |   |   |             |   |   |         |   |   |         |   |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                       |   |                                   | 0.1    |   |             |   | 0.1    |         |   |   | 0.1          |   |   |                                               | 0.1    |   |   |   | (30.7 | ) |   |   | (25.7 | ) |
| Interest expense                                                                                                      |   |                                   | (11.4  | )      |             |   | (11.9  | )            |   |   | (11.5        | )      |   |                                               | (11.9  | ) |   |   | (3.0 | ) |   |   | (3.1 | ) |
| Change in fair value of interest rate swaps                                                                           |   |                                   | -      |   |             |   | 0.3    |         |   |   | -            |   |   |                                               | 0.2    |   |   |   | (94.4 | ) |   |   | (101.4 | ) |
| Equity earnings for unconsolidated joint ventures                                                                     |   |                                   | 0.1    |   |             |   | 0.3    |         |   |   | 0.1          |   |   |                                               | 0.3    |   |   |   | (46.1 | ) |   |   | (61.9 | ) |
| Others, net                                                                                                           |   |                                   | -      |   |             |   | 0.1    |         |   |   | 0.1          |   |   |                                               | 0.1    |   |   |   | (115.1 | ) |   |   | 27.4 |   |
| Net other expense                                                                                                     |   |                                   | (11.2  | )      |             |   | (11.1  | )            |   |   | (11.2        | )      |   |                                               | (11.2  | ) |   |   | (8.0 | ) |   |   | (6.4 | ) |
|                                                                                                                  |   |                                   |   |   |             |   |   |         |   |   |         |   |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations before income taxes                                                                   |   |                                   | (5.4   | )      |             |   | (3.1   | )            |   |   | (5.6         | )      |   |                                               | (4.9   | ) |   |   | (82.3 | ) |   |   | (22.6 | ) |
| Provision for income taxes                                                                                            |   |                                   | (0.1   | )      |             |   | (0.1   | )            |   |   | (0.1         | )      |   |                                               | (0.1   | ) |   |   | (20.7 | ) |   |   | (19.4 | ) |
| Loss from continuing operations                                                                                       |   |                                   | (5.5   | )      |             |   | (3.2   | )            |   |   | (5.7         | )      |   |                                               | (5.0   | ) |   |   | (80.1 | ) |   |   | (22.5 | ) |
| Income (loss) from discontinued operations                                                                            |   |                                   | (0.4   | )      |             |   | -      |         |   |   | (0.2         | )      |   |                                               | -      |   |   |   | N/M |   |   |   | N/M |   |
| Net loss                                                                                                              |   |                                   | (5.9   | )      |             |   | (3.2   | )            |   |   | (5.9         | )      |   |                                               | (5.0   | ) |   |   | (93.6 | ) |   |   | (27.4 | ) |
| Net loss attributable to the noncontrolling interest                                                                  |   |                                   | 0.1    |   |             |   | 0.1    |         |   |   | 0.1          |   |   |                                               | 0.1    |   |   |   | (1.3 | ) |   |   | (5.9 | ) |
| Net loss attributable to Emeritus Corporation common shareholders                                                     |   |                                   | (5.8   | %)     |             |   | (3.1   | %)           |   |   | (5.8         | %)     |   |                                               | (4.9   | %) |   |   | (96.7 | )% |   |   | (28.1 | )% |

----

Table of Contents

|                                    |   | Three Months Ended June 30,        |    |
|-----------------------------------------|--------|------------------------------------|---------|
|                                    |   | 2010                               |    |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                    |   | (in thousands, except percentages) |    |
| Same community                          |   | $                                  | 227,648 |   |   | $ | 219,398 |   |   | $ | 8,250 |   |   |   | 3.8 | % |
| Acquisitions, development and expansion |   |                               | 11,585  |   |   |   | 1,268 |   |   |   | 10,317 |   |   |   | N/M |   |
| Unallocated community revenue           |   |                               | (1,446  | ) |   |   | 107 |   |   |   | (1,553 | ) |   |   | N/M |   |
| Community revenue                       |   |                               | 237,787 |   |   |   | 220,773 |   |   |   | 17,014 |   |   |   | 7.7 | % |
| Management fees                         |   |                               | 1,344   |   |   |   | 1,453 |   |   |   | (109 | ) |   |   | (7.5 | %) |
| Total operating revenues                |   | $                                  | 239,131 |   |   | $ | 222,226 |   |   | $ | 16,905 |   |   |   | 7.6 | % |

|                                      |   | Three Months Ended June 30, |   |
|-------------------------------------------|--------|-----------------------------|--------|
|                                      |   | 2010                        |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
| Average monthly revenue per occupied unit |   | $                           | 3,739  |   |   | $ | 3,626 |   |   | $ | 113 |   |   |   | 3.1 | % |
| Average occupancy rate                    |   |                        | 87.2   | % |   |   | 86.6 | % |   |   |   |   |   | 0.6 ppt* |   |

Same Community Comparison

----

Table of Contents

|                                        |   | Three Months Ended June 30,        |    |
|---------------------------------------------|--------|------------------------------------|---------|
|                                        |   | 2010                               |    |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |    |
| Same community                              |   | $                                  | 146,348 |   |   | $ | 140,658 |   |   | $ | 5,690 |   |   |   | 4.0 | % |
| Acquisitions, development and expansion     |   |                               | 8,280   |   |   |   | 1,439 |   |   |   | 6,841 |   |   |   | N/M |   |
| Unallocated community expenses              |   |                               | 2,824   |   |   |   | (1,162 | ) |   |   | 3,986 |   |   |   | 343.0 | % |
| Community operations                        |   | $                                  | 157,452 |   |   | $ | 140,935 |   |   | $ | 16,517 |   |   |   | 11.7 | % |
| As a percentage of total operating revenues |   |                               | 65.8    | % |   |   | 63.4 | % |   |   |   |   |   | 2.4 ppt |   |

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| General and administrative                  |   | $                                  | 17,109 |   |   | $ | 15,932 |   |   | $ | 1,177 |   |   |   | 7.4 | % |
| As a percentage of total operating revenues |   |                               | 7.3    | % |   |   | 7.2 | % |   |   |   |   |   | 0.1 ppt |   |

----

Table of Contents

|                                                                       |   | Three Months Ended June 30, |    |
|----------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                       |   | 2010                        |    |   | 2009 |   |
| General and administrative expenses                                        |   |                        |    |   | $ | 17,109 |   |   |   |   |   | $ | 15,932 |   |
| Sources of revenue:                                                        |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |
| Owned and leased                                                           |   | $                           | 237,787 |   |   |   |   |   |   | $ | 220,773 |   |   |   |   |   |
| Managed for third parties                                                  |   |                        | 27,790  |   |   |   |   |   |   |   | 29,357 |   |   |   |   |   |
| Other                                                                      |   |                        | -       |   |   |   |   |   |   |   | 489 |   |   |   |   |   |
| Total revenue for all communities                                          |   |                        |    |   |   | $ | 265,577 |   |   |   |   |   |   | $ | 250,619 |   |
| General and administrative expenses as a percent of all sources of revenue |   |                        |    |   |   |   | 6.4 | % |   |   |   |   |   |   | 6.4 | % |

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Depreciation and amortization               |   | $                                  | 20,655 |   |   | $ | 17,952 |   |   | $ | 2,703 |   |   |   | 15.1 | % |
| As a percentage of total operating revenues |   |                               | 8.6    | % |   |   | 8.1 | % |   |   |   |   |   | 0.5 ppt |   |

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Operating lease expense                     |   | $                                  | 24,063 |   |   | $ | 21,975 |   |   | $ | 2,088 |   |   |   | 9.5 | % |
| Above/below market rent                     |   |                               | 2,173  |   |   |   | 2,427 |   |   |   | (254 | ) |   |   | (10.5 | %) |
| Deferred straight-line rent accruals        |   |                               | 3,480  |   |   |   | 4,945 |   |   |   | (1,465 | ) |   |   | (29.6 | %) |
| Community leases                            |   | $                                  | 29,716 |   |   | $ | 29,347 |   |   | $ | 369 |   |   |   | 1.3 | % |
| As a percentage of total operating revenues |   |                               | 12.4   | % |   |   | 13.2 | % |   |   |   |   |   | (0.8) ppt |   |

----

Table of Contents

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Interest income                             |   | $                                  | 131    |   |   | $ | 189 |   |   | $ | (58 | ) |   |   | (30.7 | %) |
| As a percentage of total operating revenues |   |                               | 0.1    | % |   |   | 0.1 | % |   |   |   |   |   | - ppt |   |

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Interest expense                            |   | $                                  | 27,211 |   |   | $ | 26,416 |   |   | $ | 795 |   |   |   | 3.0 | % |
| As a percentage of total operating revenues |   |                               | 11.4   | % |   |   | 11.9 | % |   |   |   |   |   | (0.5) ppt |   |

|                                              |   | Three Months Ended June 30,        |   |
|---------------------------------------------------|--------|------------------------------------|--------|
|                                              |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                              |   | (in thousands, except percentages) |   |
| Equity earnings for unconsolidated joint ventures |   | $                                  | 302    |   |   | $ | 560 |   |   | $ | (258 | ) |   |   | (46.1 | %) |
| As a percentage of total operating revenues       |   |                               | 0.1    | % |   |   | 0.3 | % |   |   |   |   |   | (0.2) ppt |   |

----

Table of Contents

|                                      |   | Three Months Ended |   |
|-------------------------------------------|--------|--------------------|--------|
|                                      |   | June 30,           |   |
|                                      |   | 2010               |   |   | 2009 |   |
| Total revenues                            |   | $                  | 20,993 |   |   | $ | 20,752 |   |
| Community operations expense              |   |               | 16,047 |   |   |   | 15,259 |   |
| Operating income                          |   |               | 3,397  |   |   |   | 3,958 |   |
| Interest expense                          |   |               | 2,706  |   |   |   | 2,647 |   |
| Unrealized gain on interest rate swaps    |   |               | 920    |   |   |   | 1,680 |   |
| Net income                                |   |               | 1,639  |   |   |   | 2,963 |   |
|                                      |   |               |   |   |   |   |   |   |
| Average monthly revenue per occupied unit |   | $                  | 4,249  |   |   | $ | 4,230 |   |
| Average occupancy rate                    |   |               | 84.5   | % |   |   | 83.8 | % |

|                                        |   | Three Months Ended June 30,        |    |
|---------------------------------------------|--------|------------------------------------|---------|
|                                        |   | 2010                               |    |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |    |
| Other, net                                  |   | $                                  | (22     | ) |   | $ | 146 |   |   | $ | (168 | ) |   |   | N/M |   |
| As a percentage of total operating revenues |   |                               | – |   |   |   | 0.1 | % |   |   |   |   |   | (0.1) ppt |   |

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Provision for income taxes                  |   | $                                  | (326   | ) |   | $ | (270 | ) |   | $ | (56 | ) |   |   | (20.7 | %) |
| As a percentage of total operating revenues |   |                               | (0.1   | %) |   |   | (0.1 | %) |   |   |   |   |   | - ppt |   |

|                                        |   | Three Months Ended June 30,        |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Income (loss) from discontinued operations  |   | $                                  | (949   | ) |   | $ | 23 |   |   | $ | (972 | ) |   |   | N/M |   |
| As a percentage of total operating revenues |   |                               | (0.4   | %) |   |   | – |   |   |   |   |   |   | (0.4) ppt |   |

----

Table of Contents

|                                    |   | Six Months Ended June 30,          |    |
|-----------------------------------------|--------|------------------------------------|---------|
|                                    |   | 2010                               |    |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                    |   | (in thousands, except percentages) |    |
| Same community                          |   | $                                  | 453,564 |   |   | $ | 437,669 |   |   | $ | 15,895 |   |   |   | 3.6 | % |
| Acquisitions, development and expansion |   |                               | 19,501  |   |   |   | 2,650 |   |   |   | 16,851 |   |   |   | N/M |   |
| Unallocated community revenue           |   |                               | (2,405  | ) |   |   | 85 |   |   |   | (2,490 | ) |   |   | N/M |   |
| Community revenue                       |   |                               | 470,660 |   |   |   | 440,404 |   |   |   | 30,256 |   |   |   | 6.9 | % |
| Management fees                         |   |                               | 2,675   |   |   |   | 2,920 |   |   |   | (245 | ) |   |   | (8.4 | %) |
| Total operating revenues                |   | $                                  | 473,335 |   |   | $ | 443,324 |   |   | $ | 30,011 |   |   |   | 6.8 | % |

|                                      |   | Six Months Ended June 30, |   |
|-------------------------------------------|--------|---------------------------|--------|
|                                      |   | 2010                      |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
| Average monthly revenue per occupied unit |   | $                         | 3,719  |   |   | $ | 3,629 |   |   | $ | 90 |   |   |   | 2.5 | % |
| Average occupancy rate                    |   |                      | 87.2   | % |   |   | 86.4 | % |   |   |   |   |   | 0.8 ppt* |   |

Same Community Comparison

----

Table of Contents

|                                        |   | Six Months Ended June 30,          |    |
|---------------------------------------------|--------|------------------------------------|---------|
|                                        |   | 2010                               |    |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |    |
| Same community                              |   | $                                  | 294,781 |   |   | $ | 282,723 |   |   | $ | 12,058 |   |   |   | 4.3 | % |
| Acquisitions, development and expansion     |   |                               | 13,811  |   |   |   | 2,770 |   |   |   | 11,041 |   |   |   | N/M |   |
| Unallocated community expenses              |   |                               | 3,882   |   |   |   | (660 | ) |   |   | 4,542 |   |   |   | N/M |   |
| Community operations                        |   | $                                  | 312,474 |   |   | $ | 284,833 |   |   | $ | 27,641 |   |   |   | 9.7 | % |
| As a percentage of total operating revenues |   |                               | 66.0    | % |   |   | 64.2 | % |   |   |   |   |   | 1.8 ppt |   |

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| General and administrative                  |   | $                                  | 34,271 |   |   | $ | 30,850 |   |   | $ | 3,421 |   |   |   | 11.1 | % |
| As a percentage of total operating revenues |   |                               | 7.3    | % |   |   | 7.0 | % |   |   |   |   |   | 0.3 ppt |   |

----

Table of Contents

|                                                                       |   | Six Months Ended June 30, |    |
|----------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                       |   | 2010                      |    |   | 2009 |   |
| General and administrative expenses                                        |   |                      |    |   | $ | 34,271 |   |   |   |   |   | $ | 30,850 |   |
| Sources of revenue:                                                        |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |
| Owned and leased                                                           |   | $                         | 470,660 |   |   |   |   |   |   | $ | 440,404 |   |   |   |   |   |
| Managed for third parties                                                  |   |                      | 55,443  |   |   |   |   |   |   |   | 58,783 |   |   |   |   |   |
| Other                                                                      |   |                      | -       |   |   |   |   |   |   |   | 957 |   |   |   |   |   |
| Total revenue for all communities                                          |   |                      |    |   |   | $ | 526,103 |   |   |   |   |   |   | $ | 500,144 |   |
| General and administrative expenses as a percent of all sources of revenue |   |                      |    |   |   |   | 6.5 | % |   |   |   |   |   |   | 6.2 | % |

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Depreciation and amortization               |   | $                                  | 41,101 |   |   | $ | 39,617 |   |   | $ | 1,484 |   |   |   | 3.7 | % |
| As a percentage of total operating revenues |   |                               | 8.7    | % |   |   | 8.9 | % |   |   |   |   |   | (0.2) ppt |   |

----

Table of Contents

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Operating lease expense                     |   | $                                  | 47,336 |   |   | $ | 43,571 |   |   | $ | 3,765 |   |   |   | 8.6 | % |
| Above/below market rent                     |   |                               | 4,347  |   |   |   | 4,914 |   |   |   | (567 | ) |   |   | (11.5 | %) |
| Deferred straight-line rent accruals        |   |                               | 7,071  |   |   |   | 9,931 |   |   |   | (2,860 | ) |   |   | (28.8 | %) |
| Community leases                            |   | $                                  | 58,754 |   |   | $ | 58,416 |   |   |   | 338 |   |   |   | 0.6 | % |
| As a percentage of total operating revenues |   |                               | 12.4   | % |   |   | 13.2 | % |   |   |   |   |   | (0.8) ppt |   |

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Interest income                             |   | $                                  | 243    |   |   | $ | 327 |   |   | $ | (84 | ) |   |   | (25.7 | %) |
| As a percentage of total operating revenues |   |                               | 0.1    | % |   |   | 0.1 | % |   |   |   |   |   | - ppt |   |

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Interest expense                            |   | $                                  | 54,252 |   |   | $ | 52,608 |   |   | $ | 1,644 |   |   |   | 3.1 | % |
| As a percentage of total operating revenues |   |                               | 11.5   | % |   |   | 11.9 | % |   |   |   |   |   | (0.4) ppt |   |

----

Table of Contents

|                                              |   | Six Months Ended June 30,          |   |
|---------------------------------------------------|--------|------------------------------------|--------|
|                                              |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                              |   | (in thousands, except percentages) |   |
| Equity earnings for unconsolidated joint ventures |   | $                                  | 451    |   |   | $ | 1,184 |   |   | $ | (733 | ) |   |   | (61.9 | %) |
| As a percentage of total operating revenues       |   |                               | 0.1    | % |   |   | 0.3 | % |   |   |   |   |   | (0.2) ppt |   |

|                                      |   | Six Months Ended |   |
|-------------------------------------------|--------|------------------|--------|
|                                      |   | June 30,         |   |
|                                      |   | 2010             |   |   | 2009 |   |
| Total revenues                            |   | $                | 41,686 |   |   | $ | 41,124 |   |
| Community operations expense              |   |             | 31,972 |   |   |   | 30,815 |   |
| Operating income                          |   |             | 6,615  |   |   |   | 7,608 |   |
| Interest expense                          |   |             | 5,422  |   |   |   | 5,438 |   |
| Unrealized gain on interest rate swaps    |   |             | 1,035  |   |   |   | 4,203 |   |
| Net income                                |   |             | 2,284  |   |   |   | 6,452 |   |
|                                      |   |             |   |   |   |   |   |   |
| Average monthly revenue per occupied unit |   | $                | 4,271  |   |   | $ | 4,208 |   |
| Average occupancy rate                    |   |             | 83.5   | % |   |   | 83.5 | % |

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Other, net                                  |   | $                                  | 456    |   |   | $ | 358 |   |   | $ | 98 |   |   |   | 27.4 | % |
| As a percentage of total operating revenues |   |                               | 0.1    | % |   |   | 0.1 | % |   |   |   |   |   | - ppt |   |

----

Table of Contents

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Provision for income taxes                  |   | $                                  | (645   | ) |   | $ | (540 | ) |   | $ | (105 | ) |   |   | (19.4 | %) |
| As a percentage of total operating revenues |   |                               | (0.1   | %) |   |   | (0.1 | %) |   |   |   |   |   | - ppt |   |

|                                        |   | Six Months Ended June 30,          |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | 2010                               |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
|                                        |   | (in thousands, except percentages) |   |
| Loss from discontinued operations           |   | $                                  | (1,170 | ) |   | $ | (51 | ) |   | $ | (1,119 | ) |   |   | N/M |   |
| As a percentage of total operating revenues |   |                               | (0.2   | %) |   |   | – |   |   |   |   |   |   | (0.2) ppt |   |

|                                    |   | Three Months Ended June 30, |     |
|-----------------------------------------|--------|-----------------------------|----------|
|                                    |   | (In thousands)              |     |
|                                    |   | 2010                        |     |   | 2009 |   |   |  $ DFav/(Unfav) |   |   |  % DFav/(Unfav) |   |
| Revenue                                 |   | $                           | 227,648  |   |   | $ | 219,398 |   |   | $ | 8,250 |   |   |   | 3.8 | % |
| Community operations expense*           |   |                        | (146,348 | ) |   |   | (140,658 | ) |   |   | (5,690 | ) |   |   | (4.0 | ) |
| Community operating income              |   |                        | 81,300   |   |   |   | 78,740 |   |   |   | 2,560 |   |   |   | 3.3 |   |
| Depreciation and amortization           |   |                        | (14,644  | ) |   |   | (14,180 | ) |   |   | (464 | ) |   |   | (3.3 | ) |
| Community leases expense                |   |                        | (28,606  | ) |   |   | (27,342 | ) |   |   | (1,264 | ) |   |   | (4.6 | ) |
| Operating income                        |   |                        | 38,050   |   |   |   | 37,218 |   |   |   | 832 |   |   |   | 2.2 |   |
| Interest expense, net                   |   |                        | (20,850  | ) |   |   | (20,849 | ) |   |   | (1 | ) |   |   | (0.0 | ) |
| Operating income after interest expense |   | $                           | 17,200   |   |   | $ | 16,369 |   |   | $ | 831 |   |   |   | 5.1 | % |

|                                      |   | Three Months Ended June 30, |   |
|-------------------------------------------|--------|-----------------------------|--------|
|                                      |   | 2010                        |   |   | 2009 |   |   |  $ D |   |   |  % D |   |
| Average monthly revenue per occupied unit |   | $                           | 3,742  |   |   | $ | 3,628 |   |   | $ | 114 |   |   |   | 3.1 | % |
|                                      |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average occupancy rate                    |   |                        | 87.4   | % |   |   | 86.9 | % |   |   |   |   |   | 0.5 ppt |   |

----

Table of Contents

Note 13

----

Table of Contents

|                                                     |   | Six Months Ended June 30, |    |
|----------------------------------------------------------|--------|---------------------------|---------|
|                                                     |   | 2010                      |    |   | 2009 |   |
|                                                     |   |                      |    |   |   |   |
| Cash provided by operating activities                    |   | $                         | 37,923  |   |   | $ | 33,349 |   |
| Cash used in investing activities                        |   |                      | (15,370 | ) |   |   | (22,463 | ) |
| Cash (used in) provided by financing activities          |   |                      | (17,711 | ) |   |   | 3,347 |   |
| Net increase in cash and cash equivalents                |   |                      | 4,842   |   |   |   | 14,233 |   |
| Cash and cash equivalents at the beginning of the period |   |                      | 46,070  |   |   |   | 27,254 |   |
| Cash and cash equivalents at the end of the period       |   | $                         | 50,912  |   |   | $ | 41,487 |   |

----

Table of Contents

|                                                   |   | Principal and Lease Payments Due by Period |      |
|--------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                   |   |                                       |      |   |   |   |   |   |   |   |   |   |   | More than |   |
| Contractual Obligations                                |   | Total                                      |      |   | 1 year |   |   | 2-3 years |   |   | 4-5 years |   |   | 5 years |   |
| Long-term debt, including current portion              |   | $                                          | 1,384,298 |   |   | $ | 41,671 |   |   | $ | 372,417 |   |   | $ | 100,119 |   |   | $ | 870,091 |   |
| Capital and financing leases including current portion |   |                                       | 214,531   |   |   |   | 12,705 |   |   |   | 30,072 |   |   |   | 37,416 |   |   |   | 134,338 |   |
| Operating leases                                       |   |                                       | 1,042,590 |   |   |   | 104,984 |   |   |   | 220,605 |   |   |   | 225,460 |   |   |   | 491,541 |   |
| Liability related to unrecognized tax benefits (1)     |   |                                       | 2,505     |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                   |   | $                                          | 2,643,924 |   |   | $ | 159,360 |   |   | $ | 623,094 |   |   | $ | 362,995 |   |   | $ | 1,495,970 |   |

|                                    |   | Interest Due by Period |    |
|-----------------------------------------|--------|------------------------|---------|
|                                    |   |                   |    |   |   |   |   |   |   |   |   |   |   | More than |   |
| Contractual Obligations                 |   | Total                  |    |   | 1 year |   |   | 2-3 years |   |   | 4-5 years |   |   | 5 years |   |
| Long-term debt                          |   | $                      | 504,885 |   |   | $ | 88,392 |   |   | $ | 142,815 |   |   | $ | 118,318 |   |   | $ | 155,360 |   |
| Capital and financing lease obligations |   |                   | 104,053 |   |   |   | 15,325 |   |   |   | 27,721 |   |   |   | 22,949 |   |   |   | 38,058 |   |
|                                    |   | $                      | 608,938 |   |   | $ | 103,717 |   |   | $ | 170,536 |   |   | $ | 141,267 |   |   | $ | 193,418 |   |

----

Table of Contents

| ·   | Mortgage debt financed through Freddie Mac and Fannie Mae of approximately $975.4 million, or approximately 71% of our total debt outstanding.  These obligations were incurred to facilitate community acquisitions over the past few years, were issued to single purpose entities (“SPE”s) and are secured by the assets of each SPE, which consists of the real and personal property and intangible assets of a single community.  The debt is generally nonrecourse debt to the Company in that only the assets or common stock of each SPE are available to the lender in the event of default, with some limited exceptions.  These debt obligations do not contain provisions requiring ongoing maintenance of specific financial covenants, but do contain typical events of default such as nonpayment of monetary obligations, failure to maintain insurance coverage, fraud and/or misrepresentation of facts, unauthorized sale or transfer of assets, and the institution of legal proceedings under bankruptcy.  These debt instruments typically contain cross-default provisions, which are limited to other related loans provided by the specific lender.  Remedies under an event of default include the acceleration of payment of the related obligations. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Mortgage debt financed primarily through traditional financial lending institutions of approximately $278.7 million, or approximately 20% of our total debt outstanding.  These obligations were incurred to facilitate community acquisitions over the past few years, were typically issued to SPEs and are secured by the assets of each SPE, which consists of the real and personal property and intangible assets of a single community.  The debt is generally recourse debt to the Company in that not only are the assets or common stock of each SPE available to the lender in the event of default, but the Company has guaranteed performance of the SPE’s obligations under the mortgage.  These debt obligations generally contain provisions requiring ongoing maintenance of specific financial covenants, such as debt service coverage ratios, operating income yields, occupancy requirements, and/or net operating income thresholds.  The Company’s guarantees generally contain requirements to maintain minimum cash and/or net worth balances.  In addition, the mortgages contain other typical events of default such as nonpayment of monetary obligations, failure to maintain insurance coverage, fraud and/or misrepresentation of facts, unauthorized sale or transfer of assets, and the institution of legal proceedings under bankruptcy.  These debt instruments may contain cross-default provisions, but are limited to other loans provided by the specific lender.  Remedies under an event of default include the acceleration of payment of the related obligations. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Mezzanine debt financing in the amount of $129.1 million provided by real estate investment trusts (“REIT”s) to facilitate community acquisitions, or approximately 9% of our total debt outstanding.  These obligations are generally unsecured or are secured by mortgages on leasehold interests on community lease agreements between the specific REIT and the Company, and performance under the debt obligations are guaranteed by the Company.  The Company’s guaranty generally contains a requirement to maintain minimum cash and/or net worth balances.  Typical events of default under these obligations include nonpayment of monetary obligations, events of default under related lease agreements, and the institution of legal proceedings under bankruptcy.  Remedies under an event of default include the acceleration of payments of the related obligations. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

Note 4

Note 1

----

Table of Contents

| ·   | Income or losses from discontinued operations, |
|--------------------|------------------------------------------------|

| ·   | provision or benefit for income taxes, |
|--------------------|----------------------------------------|

| ·   | equity earnings or losses in unconsolidated joint ventures, |
|--------------------|-------------------------------------------------------------|

| ·   | noncontrolling interests, |
|--------------------|---------------------------|

| ·   | gains or losses on sale of assets, termination of leases, or investments, |
|--------------------|---------------------------------------------------------------------------|

| ·   | acquisition and development expenses, |
|--------------------|---------------------------------------|

| ·   | depreciation and amortization, |
|--------------------|--------------------------------|

| ·   | deferred straight-line rent accruals and above/below market rent amortization, |
|--------------------|--------------------------------------------------------------------------------|

| ·   | deferred move-in fee revenues, |
|--------------------|--------------------------------|

| ·   | impairment losses, |
|--------------------|--------------------|

| ·   | amortization of deferred gains, |
|--------------------|---------------------------------|

| ·   | non-cash stock-based compensation expense, |
|--------------------|--------------------------------------------|

| ·   | interest expense, |
|--------------------|-------------------|

| ·   | change in fair value of interest rate swaps, |
|--------------------|----------------------------------------------|

| ·   | loan prepayment fees and debt refinancing costs, |
|--------------------|--------------------------------------------------|

| ·   | interest income, and |
|--------------------|----------------------|

| ·   | other non-cash unusual adjustments |
|--------------------|------------------------------------|

| ·   | The items excluded from the calculation of Adjusted EBITDA/EBITDAR generally represent income or expense items that may have a significant effect on our financial results, |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Items determined to be non-recurring in nature could, nevertheless, re-occur in the future, and |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Depreciation expense, while not directly affecting our current cash position, does represent wear and tear and/or reduction in value of our properties.  If the cost to maintain our properties exceeds our expected routine capital expenditures, this could affect our ability to attract and retain residents at our communities. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                                             |   | Three Months Ended |    |   | Six Months Ended |   |
|--------------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                             |   | June 30,           |    |   | June 30,         |   |
|                                             |   | 2010               |    |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Net loss                                         |   | $                  | (14,143 | )      |             | $      | (7,304 | ) |   | $ | (28,545 | ) |   | $ | (22,399 | ) |
| Equity earnings in unconsolidated joint ventures |   |               | (302    | )      |             |   | (560 | ) |   |   | (451 | ) |   |   | (1,184 | ) |
| Provision for income taxes                       |   |               | 326     |   |             |   | 270 |   |   |   | 645 |   |   |   | 540 |   |
| Depreciation and amortization                    |   |               | 20,655  |   |             |   | 17,952 |   |   |   | 41,101 |   |   |   | 39,617 |   |
| Interest expense                                 |   |               | 27,211  |   |             |   | 26,416 |   |   |   | 54,252 |   |   |   | 52,608 |   |
| Interest income                                  |   |               | (131    | )      |             |   | (189 | ) |   |   | (243 | ) |   |   | (327 | ) |
| Non-cash stock option compensation expenses      |   |               | 1,495   |   |             |   | 1,116 |   |   |   | 2,931 |   |   |   | 2,063 |   |
| Amortization of deferred gains                   |   |               | (302    | )      |             |   | (74 | ) |   |   | (607 | ) |   |   | (148 | ) |
| Deferred straight-line rent                      |   |               | 3,480   |   |             |   | 4,945 |   |   |   | 7,071 |   |   |   | 9,931 |   |
| Above/below market rent amortization             |   |               | 2,173   |   |             |   | 2,427 |   |   |   | 4,347 |   |   |   | 4,914 |   |
| Deferred revenues                                |   |               | 1,496   |   |             |   | (57 | ) |   |   | 2,505 |   |   |   | 15 |   |
| Change in fair value of interest rate swaps      |   |               | (42     | )      |             |   | (752 | ) |   |   | 12 |   |   |   | (842 | ) |
| Impairment of long-lived assets                  |   |               | 320     |   |             |   | 36 |   |   |   | 320 |   |   |   | 1,132 |   |
| Acquisition and development expenses             |   |               | 459     |   |             |   | 351 |   |   |   | 512 |   |   |   | 464 |   |
| Discontinued operations                          |   |               | 949     |   |             |   | (23 | ) |   |   | 1,170 |   |   |   | 51 |   |
| Actuarial self-insurance reserve adjustments     |   |               | 1,864   |   |             |   | (1,726 | ) |   |   | 2,461 |   |   |   | (1,726 | ) |
| Adjusted EBITDA                                  |   |               | 45,508  |   |             |   | 42,828 |   |   |   | 87,481 |   |   |   | 84,709 |   |
| Operating lease expense                          |   |               | 24,063  |   |             |   | 21,975 |   |   |   | 47,336 |   |   |   | 43,571 |   |
| Adjusted EBITDAR                                 |   | $                  | 69,571  |   |             | $      | 64,803 |   |   | $ | 134,817 |   |   | $ | 128,280 |   |

----

Table of Contents

|                                             |   | Three Months Ended |    |   | Six Months Ended |   |
|--------------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                             |   | June 30,           |    |   | June 30,         |   |
|                                             |   | 2010               |    |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Adjusted EBITDAR                                 |   | $                  | 69,571  |   |             | $      | 64,803 |   |   | $ | 134,817 |   |   | $ | 128,280 |   |
| Provision for income taxes                       |   |               | (326    | )      |             |   | (270 | ) |   |   | (645 | ) |   |   | (540 | ) |
| Interest expense                                 |   |               | (27,211 | )      |             |   | (26,416 | ) |   |   | (54,252 | ) |   |   | (52,608 | ) |
| Interest income                                  |   |               | 131     |   |             |   | 189 |   |   |   | 243 |   |   |   | 327 |   |
| Operating lease expense                          |   |               | (24,063 | )      |             |   | (21,975 | ) |   |   | (47,336 | ) |   |   | (43,571 | ) |
| Acquisition and development expenses             |   |               | (459    | )      |             |   | (351 | ) |   |   | (512 | ) |   |   | (464 | ) |
| Actuarial self-insurance reserve adjustments     |   |               | (1,864  | )      |             |   | 1,726 |   |   |   | (2,461 | ) |   |   | 1,726 |   |
| Amortization of loan fees                        |   |               | 760     |   |             |   | 797 |   |   |   | 1,512 |   |   |   | 1,572 |   |
| Allowance for doubtful receivables               |   |               | 1,073   |   |             |   | 902 |   |   |   | 2,135 |   |   |   | 1,634 |   |
| Changes in operating assets and liabilities, net |   |               | 2,954   |   |             |   | (7,613 | ) |   |   | 4,458 |   |   |   | (3,410 | ) |
| Discontinued operationscash component    |   |               | (0      | )      |             |   | 108 |   |   |   | 10 |   |   |   | 79 |   |
| Other                                            |   |               | (20     | )      |             |   | 259 |   |   |   | (46 | ) |   |   | 324 |   |
| Net cash provided by operating activities        |   | $                  | 20,546  |   |             | $      | 12,159 |   |   | $ | 37,923 |   |   | $ | 33,349 |   |

| ·   | changes in operating assets and liabilities, |
|--------------------|----------------------------------------------|

| ·   | principal amortization of capital lease obligations, |
|--------------------|------------------------------------------------------|

| ·   | recurring routine capital expenditures, and |
|--------------------|---------------------------------------------|

| ·   | distributions (to) from unconsolidated joint ventures, net. |
|--------------------|-------------------------------------------------------------|

----

Table of Contents

|                                                    |   | Three Months Ended |   |   | Six Months Ended |   |
|--------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                         |   | June 30,           |   |   | June 30,         |   |
|                                                         |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Net cash provided by operating activities                    |   | $                  | 20,546 |   |             | $      | 12,159 |   |   | $ | 37,923 |   |   | $ | 33,349 |   |
| Remove effect of changes in operating assets and liabilities |   |               | (2,954 | )      |             |   | 7,613 |   |   |   | (4,458 | ) |   |   | 3,410 |   |
| Recurring capital expenditures                               |   |               | (3,055 | )      |             |   | (3,723 | ) |   |   | (5,847 | ) |   |   | (7,582 | ) |
| Repayment of capital lease and financing obligations         |   |               | (2,980 | )      |             |   | (2,274 | ) |   |   | (5,854 | ) |   |   | (4,508 | ) |
| Distributions from unconsolidated joint ventures, net        |   |               | 490    |   |             |   | 470 |   |   |   | 869 |   |   |   | 1,018 |   |
| Cash From Facility Operations                                |   | $                  | 12,047 |   |             | $      | 14,245 |   |   | $ | 22,633 |   |   | $ | 25,687 |   |

----

Table of Contents

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Item 4.  Controls and Procedures

----

Table of Contents

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Item 1A.  Risk Factors

Item 6.  Exhibits

----

Table of Contents

SIGNATURE

| Dated:  August 9, 2010 | EMERITUS CORPORATION                                                                  |
|----------------------------------|---------------------------------------------------------------------------------------|
|                             | (Registrant)                                                                          |
|                             |                                                                                  |
|                             |                                                                                  |
|                             | /s/ Robert C. Bateman                                                                 |
|                             | Robert C. Bateman, Executive Vice President—Finance and Chief Financial Officer |
|                             |                                                                                  |

----

Table of Contents

Index to Exhibits

|   |   |   |        |                                                                                        |     |   | Footnote                                                                                                  |   |
|--------|--------|--------|-------------|---------------------------------------------------------------------------------------------|----------|--------|-----------------------------------------------------------------------------------------------------------|--------|
| Number |   |   | Description |                                                                                        | Number   |   |
|   |   |   |        |                                                                                        |     |   |                                                                                                      |   |
|   | 10.8   |   |        | Office Lease                                                                                |     |   |                                                                                                      |
|   |   |   |        |                                                                                        | 10.8.1   |   | Office Lease dated June 29, 2010 between Selig Holdings Company as lessor, and registrant, as lessee.     |   |   | (3 | ) |
|   | 10.9   |   |        | Executive Employment Agreements.                                                            |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 10.9.3   |   | First Amendment to Employment Agreement between Emeritus Corporation and Raymond R.                       |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | Brandstrom Jr., effective June 23, 2010.                                                                  |   |   |   |   |
|   | 10.22  |   |        | Documents Relating to Merger with Summerville Senior Living, Inc.                           |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 10.22.5  |   | First Amendment to Amended and Restated Shareholders Agreement effective April 30, 2010                   |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | among registrant, certain of its shareholders and certain shareholders of Summerville Senior Living, Inc. |   |   |   |   |
|   | 10.71  |   |        | Documents Relating to the Purchase and Financing of Communities from Health Care REIT, Inc. |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 10.71.23 |   | First Amended and Restated Promissory Note Dated July 9, 2010 in the principal amount of $50.0            |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | million payable to Health Care Reit, Inc.                                                                 |   |   |   |   |
|   | 10.78  |   |        | Documents Relating to the BRE/SW Portfolio LLC (144 communities) Dated 2010.                |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 10.78.01 |   | Limited Liability Company Agreement by and between Emeritus Corporation, CPDF II, LLC and                 |   |   | (1 | ) |
|   |   |   |        |                                                                                        |     |   | BRE/SW Member LLC dated January 15, 2010.                                                                 |   |   |   |   |
|   |   |   |        |                                                                                        | 10.78.02 |   | Agreement of Purchase and Sale dated January 15, 2010 between Stayton SW Assisted Living, LLC             |   |   | (1 | ) |
|   |   |   |        |                                                                                        |     |   | and BRE/SW Portfolio LLC dated January 15, 2010.                                                          |   |   |   |   |
|   |   |   |        |                                                                                        | 10.78.03 |   | Amendment No. 1 to Agreement of Purchase and Sale between Stayton SW Assisted Living, LLC                 |   |   | (1 | ) |
|   |   |   |        |                                                                                        |     |   |  and BRE/SW Portfolio LLC Dated February 12, 2010.                                                   |   |   |   |   |
|   |   |   |        |                                                                                        | 10.78.04 |   | Amendment No. 2 to Agreement of Purchase and Sale between Stayton SW Assisted Living, LLC                 |   |   | (1 | ) |
|   |   |   |        |                                                                                        |     |   |  and BRE/SW Portfolio LLC Dated March 25, 2010.                                                      |   |   |   |   |
|   |   |   |        |                                                                                        | 10.78.05 |   | Amendment No. 3 to Agreement of Purchase and Sale between Stayton SW Assisted Living, LLC                 |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   |  and BRE/SW Portfolio LLC Dated March 25, 2010.                                                      |   |   |   |   |
|   | 10.80  |   |        | Documents Relating to the Purchase of HCP (4 Communities) Dated 2010.                       |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 10.80.01 |   | Master Lease and Security Agreement among HCP, Inc. and Texas HCP Holding, L.P.,                          |   |   | (2 | ) |
|   |   |   |        |                                                                                        |     |   | as Lessor, and Emeritus Corporation, as Lessee, dated as of May 14, 2010.                                 |   |   |   |   |
|   | 31.10  |   |        | Certification of Periodic Reports                                                           |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 31.1.1   |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302                      |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | of the Sarbanes-Oxley Act of 2002 for Daniel R. Baty dated August 9, 2010.                                |   |   |   |   |
|   |   |   |        |                                                                                        | 31.1.2   |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302                      |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | of the Sarbanes-Oxley Act of 2002 for L. Granger Cobb dated August 9, 2010.                               |   |   |   |   |
|   |   |   |        |                                                                                        | 31.1.3   |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302                      |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | of the Sarbanes-Oxley Act of 2002 for Robert C. Bateman dated August 9, 2010.                             |   |   |   |   |
|   | 32.10  |   |        | Certification of Periodic Reports                                                           |     |   |                                                                                                      |   |
|   |   |   |        |                                                                                        | 32.1.1   |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906                      |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | of the Sarbanes-Oxley Act of 2002 for Daniel R. Baty dated August 9, 2010.                                |   |   |   |   |
|   |   |   |        |                                                                                        | 32.1.2   |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906                      |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | of the Sarbanes-Oxley Act of 2002 for L. Granger Cobb dated August 9, 2010.                               |   |   |   |   |
|   |   |   |        |                                                                                        | 32.1.3   |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906                      |   |   | (3 | ) |
|   |   |   |        |                                                                                        |     |   | of the Sarbanes-Oxley Act of 2002 for Robert C. Bateman dated August 9, 2010.                             |   |   |   |   |

|   |   | Footnotes: |                                                                                                        |   |   |
|--------|--------|------------|-------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |       |                                                                                                        |   |   |
|   |   | (1)        | Filed as the indicated Exhibit to Form 8-K filed on May 18, 2010 and incorporated herein by reference. |   |   |
|   |   | (2)        | Filed as the indicated Exhibit to Form 8-K filed on May 19, 2010 and incorporated herein by reference. |   |   |
|   |   | (3)        | Filed herewith.                                                                                             |   |   |

----