UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ______________________

                                    FORM 10-Q

(Mark  One)

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

               For the quarterly period ended September 30, 2003.

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

                        Commission file number   1-14012

                              EMERITUS CORPORATION
             (Exact name of registrant as specified in its charter)

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

                         3131 Elliott Avenue, Suite 500
                                Seattle, WA 98121
                    (Address of principal executive offices)

                                 (206) 298-2909
              (Registrant's telephone number, including area code)
                          ____________________________

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.  [X]  Yes   [  ]  No

Indicate  by  check  mark  whether  the  Registrant  is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Act).  [  ]  Yes   [X]  No

As  of October 31, 2003, there were 10,263,063 shares of the Registrant's Common
Stock,  par  value  $.0001,  outstanding.

<PAGE>

<TABLE>
<CAPTION>

                                      EMERITUS CORPORATION

                                              INDEX


                                 Part I.  Financial Information


<S>                                                                                     <C>

                                                                                        Page No.
                                                                                        --------
Item 1.  Financial Statements: . . . . . . . . . . . . . . . . . . . . . . . . . . . .         1

         Condensed Consolidated Balance Sheets as of September 30, 2003, and
         December 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .         2

         Condensed Consolidated Statements of Operations for the Three
         Months and Nine Months ended September 30, 2003 and 2002. .. .. . . . . . . .         3

         Condensed Consolidated Statements of Cash Flows for the Nine
         Months ended September 30, 2003 and 2002 . . . . . . . . . . . . . . . . . . .        4

         Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . .        5

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations . . . .. . . . . . . . . . . . .. . . . .. .  . . . . . . . .  .       17


Item 3.  Quantitative  and  Qualitative  Disclosures  About  Market  Risk . . . .  . . .      33


Item 4.  Controls  and  Procedures  . . . . . . . . . . . .. . . . .. .  . . . . . . . .      33



                                 Part II.  Other Information

Note:     Items 1 through 4 of Part II are omitted because they are not
          applicable.

Item  5.  Other Information . . . . . .  . . . . . . . . . . . . . . . . . . .. ... . .  . .  34

Item  6.  Exhibits  and  Reports  on  Form  8-K  . . . . . .  . . . .  . . . .  . . . .  . .  34


          Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    37

</TABLE>

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM  1.  FINANCIAL  STATEMENTS

               [The rest of this page is intentionally left blank]

                                        1

<PAGE>

<TABLE>
<CAPTION>

                                                      EMERITUS CORPORATION
                                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                                           (unaudited)
                                                (In thousands, except share data)
                                                             ASSETS
                                                                                                  September 30,    December 31,
                                                                                                      2003             2002
                                                                                                 ---------------  --------------
<S>                                                                                              <C>              <C>
Current Assets:
 Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       10,791   $       6,960
 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               -           2,759
 Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,276           1,662
 Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,341           3,645
 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . .           8,829           5,217
                                                                                                 ---------------  --------------
 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          24,237          20,243
                                                                                                 ---------------  --------------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          94,491         119,583
Property held for development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,254           1,254
Notes receivable from and investments in affiliates . . . . . . . . . . . . . . . . . . . . . .           2,469           6,358
Restricted deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5,613           5,555
Lease acquisition costs, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          19,054           6,081
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5,221           3,759
                                                                                                 ---------------  --------------
 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $      152,339   $     162,833
                                                                                                 ===============  ==============

                                                 LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
 Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $        3,161   $       3,604
 Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           3,404           3,108
 Accrued employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . .           6,133           5,355
 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,430           1,737
 Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           3,793           2,463
 Accrued dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           7,578          13,457
 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           7,279           9,080
 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5,750           2,884
 Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5,590           5,040
                                                                                                 ---------------  --------------
 Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          44,118          46,728
                                                                                                 ---------------  --------------
Long-term debt, less current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         114,648         119,887
Convertible debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          32,000          32,000
Deferred gain on sale of communities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          38,069          20,324
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             282           2,508
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             530             894
                                                                                                 ---------------  --------------
 Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         229,647         222,341
                                                                                                 ---------------  --------------
Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               -             558
Redeemable preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               -          25,000
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 70,000 shares; issued and outstanding
    34,486 and 33,473 at September 30, 2003, and December 31, 2002, respectively. . . . . . . .               -               -
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and outstanding
    10,251,975 and 10,247,226 shares at September 30, 2003, and December 31, 2002, respectively               1               1
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          71,326          68,944
Accumulated other comprehensive gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               -           1,247
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (148,635)       (155,258)
                                                                                                 ---------------  --------------
 Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (77,308)        (85,066)
                                                                                                 ---------------  --------------
 Total liabilities and shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . . . . .  $      152,339   $     162,833
                                                                                                 ===============  ==============
</TABLE>


      See accompanying Notes to Condensed Consolidated Financial Statements
                   and Management's Discussion  and  Analysis
               of  Financial  Condition  and  Results  of Operations
                                        2
<PAGE>

<TABLE>
<CAPTION>



                                          EMERITUS CORPORATION
                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (unaudited)
                                 (In thousands, except per share data)

                                                         Three Months ended            Nine Months ended
                                                            September 30,                 September 30,
                                                    ----------------------------  ----------------------------
                                                         2003           2002           2003           2002
                                                    -------------  -------------  -------------  -------------
<S>                                                 <C>            <C>            <C>            <C>
Revenues:
  Community revenue. . . . . . . . . . . . . . . .  $     46,702   $     32,226   $    134,949   $     94,640
  Other service fees . . . . . . . . . . . . . . .         1,131          1,149          3,165          3,244
  Management fees. . . . . . . . . . . . . . . . .         2,376          2,662          8,671          8,313
                                                    -------------  -------------  -------------  -------------
          Total operating revenues . . . . . . . .        50,209         36,037        146,785        106,197
                                                    -------------  -------------  -------------  -------------

Expenses:
  Community operations . . . . . . . . . . . . . .        32,056         21,474         90,486         63,120
  General and administrative . . . . . . . . . . .         6,151          5,385         17,366         15,175
  Depreciation and amortization. . . . . . . . . .         1,799          1,653          5,486          5,179
  Facility lease expense . . . . . . . . . . . . .         9,767          7,282         27,697         21,420
                                                    -------------  -------------  -------------  -------------
          Total operating expenses . . . . . . . .        49,773         35,794        141,035        104,894
                                                    -------------  -------------  -------------  -------------
          Income from operations . . . . . . . . .           436            243          5,750          1,303

Other income (expense):
  Interest income. . . . . . . . . . . . . . . . .           172             46            500            268
  Interest expense . . . . . . . . . . . . . . . .        (3,311)        (2,838)        (9,813)        (8,616)
  Other, net . . . . . . . . . . . . . . . . . . .            97           (153)         1,537           (894)
                                                    -------------  -------------  -------------  -------------
          Net other expense. . . . . . . . . . . .        (3,042)        (2,945)        (7,776)        (9,242)
                                                    -------------  -------------  -------------  -------------

          Net loss before income taxes. . .  . . .        (2,606)        (2,702)        (2,026)        (7,939)
          Provision for income taxes . . . . . . .          (576)             -           (576)             -
                                                    -------------  -------------  -------------  -------------
          Net loss . . . . . . . . . . . . . . . .        (3,182)        (2,702)        (2,602)        (7,939)

Preferred stock dividends. . . . . . . . . . . . .        (1,464)        (1,777)        (5,240)        (5,506)
Gain on repurchase of Series A preferred stock . .        14,465              -         14,465              -
                                                    -------------  -------------  -------------  -------------
          Net income (loss) to common shareholders  $      9,819   $     (4,479)  $      6,623   $    (13,445)
                                                    =============  =============  =============  =============

Income (loss) per common share:
    Basic. . . . . . . . . . . . . . . . . . . . .  $       0.96   $      (0.44)  $       0.65   $      (1.32)
                                                    =============  =============  =============  =============

    Diluted. . . . . . . . . . . . . . . . . . . .  $       0.63   $      (0.44)  $       0.59   $      (1.32)
                                                    =============  =============  =============  =============

Weighted average common shares outstanding:
    Basic. . . . . . . . . . . . . . . . . . . . .        10,252         10,215         10,249         10,204
                                                    =============  =============  =============  =============

    Diluted. . . . . . . . . . . . . . . . . . . .        18,687         10,215         11,311         10,204
                                                    =============  =============  =============  =============
</TABLE>


      See accompanying Notes to Condensed Consolidated Financial Statements
                   and Management's Discussion  and  Analysis
               of  Financial  Condition  and  Results  of Operations
                                        3
<PAGE>

<TABLE>
<CAPTION>

                                                 EMERITUS CORPORATION
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (unaudited)
                                                    (In thousands)

                                                                          Nine Months Ended September 30,
                                                                       ------------------------------------
                                                                              2003               2002
                                                                       -----------------  -----------------
<S>                                                                    <C>                <C>
Cash flows from operating activities:
          Net loss . . . . . . . . . . . . . . . . . . . . . . .  $         (2,602)  $         (7,939)
Adjustments to reconcile net loss to
          net cash provided by (used in) operating activities:
    Minority interests . . . . . . . . . . . . . . . . . . . . .               152                141
    Depreciation and amortization. . . . . . . . . . . . . . . .             5,486              5,179
    Amortization of deferred gain. . . . . . . . . . . . . . . .              (387)              (244)
    Loss on sale of properties . . . . . . . . . . . . . . . . .                 -                515
    Impairment of long-lived asset . . . . . . . . . . . . . . .               950                  -
    Gain on sale of investment securities. . . . . . . . . . . .            (1,437)                 -
    Write down of lease acquisition costs. . . . . . . . . . . .                25                191
    Write off of deferred gain . . . . . . . . . . . . . . . . .                 -                243
    Changes in operating assets and liabilities. . . . . . . . .            (1,275)               850
                                                                  -----------------  -----------------
          Net cash provided by (used in) operating activities. .               912             (1,064)
                                                                  -----------------  -----------------

Cash flows from investing activities:
  Acquisition of property and equipment. . . . . . . . . . . . .            (2,013)           (11,763)
  Purchase of minority partner interest. . . . . . . . . . . . .            (2,500)            (3,070)
  Sale of property and equipment . . . . . . . . . . . . . . . .            44,800             25,010
  Proceeds from sale of investment securities. . . . . . . . . .             2,949                  -
  Management and lease acquisition costs . . . . . . . . . . . .           (12,140)            (1,602)
  Advances to affiliates and other managed communities . . . . .              (190)              (603)
  Proceeds from sales of interest in affiliates. . . . . . . . .                 -                750
  Investment in affiliates . . . . . . . . . . . . . . . . . . .              (137)               (94)
  Distributions to minority partners . . . . . . . . . . . . . .              (250)              (500)
          Net cash provided by investing activities. . . . . . .            30,519              8,128
                                                                  -----------------  -----------------

Cash flows from financing activities:
  Proceeds from sale of stock under employee stock purchase plan                 -                 57
  Increase in restricted deposits. . . . . . . . . . . . . . . .               (58)               (35)
  Repayment of short-term borrowings . . . . . . . . . . . . . .            (1,993)            (1,733)
  Debt issue and other financing costs . . . . . . . . . . . . .              (283)            (1,424)
  Repurchase of Series A preferred stock . . . . . . . . . . . .           (20,516)                 -
  Proceeds from long-term borrowings . . . . . . . . . . . . . .            19,600             46,818
  Repayment of long-term borrowings. . . . . . . . . . . . . . .           (24,350)           (53,097)
                                                                  -----------------  -----------------
          Net cash used in financing activities. . . . . . . . .           (27,600)            (9,414)
                                                                  -----------------  -----------------
          Net increase (decrease) in cash and cash equivalents .             3,831             (2,350)
Cash and cash equivalents at the beginning of the period . . . .             6,960              9,811
                                                                  -----------------  -----------------
Cash and cash equivalents at the end of the period . . . . . . .  $         10,791   $          7,461
                                                                  =================  =================

Supplemental disclosure of cash flow information -
    cash paid during the period for interest . . . . . . . . . .  $         10,120   $         10,220

Noncash investing and financing activities:
  Unrealized holding gains in investment securities. . . . . . .  $              -   $          1,020
  Accrued and in-kind preferred stock dividends. . . . . . . . .  $          5,240   $          5,506
  Gain on repurchase of Series A preferred stock . . . . . . . .  $         14,465   $              -
  Common stock warrants issued . . . . . . . . . . . . . . . . .  $          1,358   $              -
</TABLE>


      See accompanying Notes to Condensed Consolidated Financial Statements
                   and Management's Discussion  and  Analysis
               of  Financial  Condition  and  Results  of Operations
                                        4
<PAGE>

                              EMERITUS CORPORATION
               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES

The preparation of condensed consolidated financial statements requires Emeritus
to  make  estimates  and  judgments  that affect the reported amounts of assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and  liabilities.  On  an  ongoing  basis,  Emeritus  evaluates  its  estimates,
including  those  related  to  resident  programs  and  incentives,  bad  debts,
investments,  intangible  assets, income taxes, restructuring, long-term service
contracts,  contingencies, self-insured retention, insurance deductibles, health
insurance,  and  litigation.  Emeritus  bases  its  estimates  on  historical
experience  and  on various other assumptions that are believed to be reasonable
under  the  circumstances,  the  results  of  which  form  the  basis for making
judgments  about  the  carrying  values  of  assets and liabilities that are not
readily  apparent  from  other  sources.  Actual  results  may differ from these
estimates  under  different  assumptions  or  conditions.

Emeritus  believes  the  following  critical  accounting  policies  are  most
significant  to  the  judgments  and  estimates  used  in the preparation of its
condensed  consolidated  financial  statements.  Revisions in such estimates are
charged  to  income  in  the  period  in  which  the facts that give rise to the
revision  become  known.

*     For  commercial  general  liability  and professional liability insurance,
      Emeritus  uses  a captive insurance structure essentially to self-fund its
      primary  layer  of  insurance. This policy is claims-made based and covers
      losses and liabilities associated with general and professional liability.
      The  primary  layer  has  per occurrence and aggregate limits. Within that
      primary layer is a self-insured retention, which also has a per occurrence
      and  aggregate limit. The Company also has an excess policy, which applies
      to claims in excess of the primary layer on a per occurrence basis. Losses
      within  the  primary  layer, which include the self-insured retention, are
      accrued  based  upon  actuarial  estimates  of the aggregate liability for
      claims  incurred.

*     For health insurance, Emeritus self-insures up to a certain level for each
      occurrence  above  which  a  catastrophic  insurance  policy  covers  any
      additional  costs.  Health  insurance  expense  is  accrued  based  upon
      historical  experience  of the aggregate liability for claims incurred. If
      these  estimates  are  insufficient,  additional  charges may be required.

*     For  workers'  compensation  insurance for insured states (excluding Texas
      and  compulsory  State  Funds),  the  Company  is  on  an  incurred  loss,
      retrospective  insurance  policy,  retroactively  adjusted,  upward  or
      downward,  based  upon total incurred loss experience. The premium charged
      by  the  insurance underwriter is based upon a standard rate determined by
      the underwriter to cover, amongst other things, estimated losses and other
      fixed  costs. The difference between the premium charged and the actuarial
      based  estimate of costs, which is expensed on a monthly basis, is carried
      as  an  asset  on the balance sheet. After the end of the policy year, the
      insurance  company  conducts  an audit and adjusts the total premium based
      upon  the actual payroll and actual incurred loss for the policy year. Any
      premium  adjustment  for  the  differences  between  estimated  and actual
      payroll  and  estimated  and  actual  losses  will first be applied to the
      accrued  asset  and then as an adjustment to workers' compensation expense
      at  the  time  such  adjustment  is  determined.  There  is  a  reasonable
      expectation  that the incurred loss adjustment will be downward, resulting
      in a premium refund. The incurred loss adjustment is limited to 50% of the
      standard  premium  with  the  initial  adjustment  six months after policy
      expiration on December 31, 2003, and annually thereafter. For work-related
      injuries  in  Texas,  the  Company  is  a  non-subscriber,  meaning  that
      work-related losses are covered under a defined benefit program outside of
      the  Texas  Workers'  Compensation system. Losses are paid as incurred and
      estimated  losses  are  accrued  on  a  monthly  basis
..

                                        5
<PAGE>

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

*     Emeritus maintains allowances for  doubtful  accounts for estimated losses
      resulting  from  the inability of its residents to make required payments.
      If  the  financial  condition of Emeritus's residents were to deteriorate,
      resulting  in  an impairment of their ability to make payments, additional
      charges  may  be  required.

*     Emeritus  records  a valuation allowance to reduce its deferred tax assets
      to  the  amount that is more likely than not to be realized, which at this
      time  shows  a net asset valuation of zero. Emeritus has considered future
      taxable income and ongoing prudent and feasible tax planning strategies in
      assessing  the  need  for  the  valuation allowance. However, in the event
      Emeritus  were  to determine that it would be able to realize its deferred
      tax  assets  in  the  future  in  excess  of  its  net recorded amount, an
      adjustment  to  the deferred tax asset would increase income in the period
      such  determination  was  made.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June  2001,  FASB  issued  SFAS  No.  143,  Accounting  for Asset Retirement
Obligations.  SFAS  No.  143 requires the Company to record the fair value of an
asset  retirement  obligation  as a liability in the period in which it incurs a
legal  obligation  associated  with the retirement of tangible long-lived assets
that  result  from the acquisition, construction, development, and/or normal use
of  the  assets.  The  Company  also  records  a  corresponding  asset  that  is
depreciated over the life of the asset. Subsequent to the initial measurement of
the  asset  retirement obligation, the obligation will be adjusted at the end of
each  period  to reflect the passage of time and changes in the estimated future
cash  flows  underlying  the  obligation.  The  Company  adopted SFAS No. 143 on
January  1,  2003.  Adoption  did  not have an impact on the Company's financial
condition  and  results  of  operations.

In April 2002, the FASB issued SFAS No.145, Rescission of FASB Statements No. 4,
44  and  64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS
No.  145  amends  existing  guidance  on  reporting  gains  and  losses  on  the
extinguishment  of  debt  to  prohibit the classification of the gain or loss as
extraordinary,  as  the use of such extinguishments have become part of the risk
management  strategy  of many companies. SFAS No. 145 also amends SFAS No. 13 to
require  sale-leaseback  accounting  for  certain  lease modifications that have
economic  effects  similar to sale-leaseback transactions. The provisions of the
Statement  related  to  the  rescission of Statement No. 4 are applied in fiscal
years  beginning  after May 15, 2002. The provisions of the Statement related to
Statement  No.  13 were effective for transactions occurring after May 15, 2002,
with  early  application  encouraged.  The  Company  adopted SFAS No. 145 in the
fourth  quarter  of  2002.

In  November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and  Disclosure  Requirements  for  Guarantees, Including Indirect Guarantees of
Indebtedness  to Others, an interpretation of FASB Statements No. 5, 57, and 107
and  a rescission of FASB Interpretation No. 34.  This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements  about  its  obligations under guarantees issued.  The Interpretation
also  clarifies  that  a  guarantor  is required to recognize, at inception of a
guarantee,  a  liability  for  the fair value of the obligation undertaken.  The
initial  recognition  and  measurement  provisions  of  the  Interpretation  are
applicable  to  guarantees  issued  or  modified  after  December 31, 2002.  The
disclosure  requirements  are  effective  for financial statements of interim or
annual  periods ending after December 15, 2002.  Adoption did not have an impact
on  the  Company's  financial  condition  and  results  of  operations.

In  December  2002,  the  FASB  issued  SFAS No. 148, Accounting for Stock-Based
Compensation  -  Transition  and  Disclosure, an amendment of FASB Statement No.
123.  This  Statement  amends FASB Statement No. 123, Accounting for Stock-Based
Compensation,  to  provide  alternative  methods  of  transition for a voluntary
change  to  the  fair  value  method  of  accounting  for  stock-based  employee
compensation.  In addition, this Statement amends the disclosure requirements of
Statement  No.  123  to require prominent disclosures in both annual and interim
financial  statements.  Certain of the disclosure modifications are required for
fiscal  years  ending  after December 15, 2002, and are included in the notes to
these  condensed  consolidated  financial  statements.

                                        6
<PAGE>

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

In  January  2003,  the  FASB  issued  Interpretation  No.  46  (FIN  No.  46),
"Consolidation  of  Variable  Interest Entities."  This Interpretation addresses
consolidation  by business enterprises of variable interest entities (VIE's).  A
VIE  is  subject  to  the  consolidation  provisions  of FIN No. 46 if it cannot
support  its  financial  activities  without  additional  subordinated financial
support from third parties or its equity investors lack any one of the following
characteristics:  the  ability  to  make  decisions about its activities through
voting  rights,  the obligation to absorb losses of the entity if they occur, or
the  right  to receive residual returns of the entity if they occur.  FIN No. 46
requires  a  VIE  to  be  consolidated  by its primary beneficiary.  The primary
beneficiary  is  the party that holds the variable interests that expose it to a
majority  of the entity's expected losses and/or residual returns.  For purposes
of  determining  a  primary  beneficiary,  all  related  party interests must be
combined  with  the actual interests of the Company in the VIE.  The application
of  this  Interpretation is immediate for VIE's created or altered after January
31,  2003,  and  is  effective  at the end of the first interim or annual period
ending  after  December  15,  2003,  for variable interest entities that existed
prior  to  February  1,  2003.

The  Company  is  evaluating the impact of FIN No. 46 on all its current related
party  management  agreements  including  those  more  fully  discussed  in  the
Company's  December 31, 2002, Annual Report on Form 10-K, under Item 13 "CERTAIN
RELATIONSHIPS  AND  RELATED TRANSACTIONS," under sections denoted as "Emeritrust
Transactions" and "Baty Transactions" as well as other management agreements and
other  arrangements  with  potential  VIE's.  Implementation of FIN No. 46 would
have more likely than not resulted in consolidation of both the Emeritrust I and
Emeritrust  II  communities and possibly some of the other entities discussed in
the  referenced  sections.  However, these relationships have been modified such
that  they  are  not  believed  to be VIE's under FIN No. 46.  The Emeritrust II
communities  are  leased as of September 30, 2003, and the operating results are
now  consolidated.

In  May  2003,  the  FASB  issued SFAS No. 150, Accounting for Certain Financial
Instruments  with  Characteristics  of  both Liabilities and Equity.  For public
enterprises,  such  as  the  Company,  this statement is effective for financial
instruments  entered  into  or  modified  after  May  31, 2003, and otherwise is
effective  at the beginning of the first interim period beginning after June 15,
2003.  Management  has  determined  that no financial instruments of the Company
are  covered  by  this  pronouncement.

BASIS  OF  PRESENTATION

The  unaudited interim financial information furnished herein, in the opinion of
the  Company's management, reflects all adjustments, consisting of only normally
recurring  adjustments,  which  are  necessary  to  state  fairly  the condensed
consolidated  financial  position,  results  of  operations,  and  cash flows of
Emeritus  as  of  September  30,  2003,  and for the three and nine months ended
September  30,  2003  and  2002.  The results of operations for the period ended
September  30, 2003, are not necessarily indicative of the operating results for
the  full  year.  The Company presumes that those reading this interim financial
information  have read or have access to its 2002 audited consolidated financial
statements  and  Management's Discussion and Analysis of Financial Condition and
Results  of  Operations that are contained in the 2002 Form 10-K filed March 28,
2003.  Therefore,  the  Company  has  omitted  footnotes  and  other disclosures
herein,  which  are  disclosed  in  the  Form  10-K.

               [The rest of this page is intentionally left blank]

                                        7
<PAGE>

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

STOCK-BASED  COMPENSATION

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

Had  compensation  costs  for  the  Company's  stock option plan been determined
pursuant  to  SFAS  123, the Company's pro forma net income (loss) and pro forma
net  income  (loss)  per  share  would  have  been  as  follows:
<TABLE>
<CAPTION>

                                                                     Three Months ended              Nine Months ended
                                                                       September 30,                   September 30,
                                                            -------------------------------  --------------------------------
                                                                  2003              2002            2003            2002
                                                            ---------------  ---------------  ---------------  --------------
                                                                          (In thousands, except per share data)
<S>                                                        <C>              <C>              <C>              <C>
Net income (loss) to common shareholders:
As reported. . . . . . . . . . . . . . . . . . . . . . . .  $        9,819   $       (4,479)  $        6,623   $      (13,445)
Add:  Stock-based employee compensation expense
  included in reported net income (loss) . . . . . . . . .               -                -                -                -
Deduct:  Stock-based employee compensation
  determined under fair value based method for all awards.            (129)             (62)            (594)            (522)
                                                            ---------------  ---------------  ---------------  ---------------
Pro forma. . . . . . . . . . . . . . . . . . . . . . . . .  $        9,690   $       (4,541)  $        6,029   $      (13,967)
                                                            ===============  ===============  ===============  ===============

Net income (loss) per common share:
As reported - Basic. . . . . . . . . . . . . . . . . . . .  $         0.96   $        (0.44)  $         0.65   $        (1.32)
                                                            ===============  ===============  ===============  ===============

Pro forma - Basic. . . . . . . . . . . . . . . . . . . . .  $         0.95   $        (0.44)  $         0.59   $        (1.37)
                                                            ===============  ===============  ===============  ===============

As reported - Diluted. . . . . . . . . . . . . . . . . . .  $         0.63   $        (0.44)  $         0.59   $        (1.32)
                                                            ===============  ===============  ===============  ===============

Pro forma - Diluted. . . . . . . . . . . . . . . . . . . .  $         0.57   $        (0.44)  $         0.53   $        (1.37)
                                                            ===============  ===============  ===============  ===============
</TABLE>

We  estimate  the fair value of our options using the Black-Scholes option value
model,  which  is  one  of  several  methods that can be used to estimate option
values.  The  Black-Scholes  option  valuation  model  was  developed for use in
estimating  the  fair  value of traded options that have no vesting restrictions
and are fully transferable.  Option valuation models require the input of highly
subjective  assumptions,  including  the  expected  stock price volatility.  Our
options  have  characteristics  significantly  different  from  those  of traded
options,  and  changes in the subjective input assumptions can materially affect
the  fair  value  estimates.  The  fair  value  of  options granted and employee
purchase  plan  shares  were  estimated at the date of grant using the following
weighted  average  assumptions:
<TABLE>
<CAPTION>


                                         Three Months             Nine Months
                                            Ended                    Ended
                                         September 30,           September 30,
                                         -------------   ----------------------------
                                         2003   2002         2003          2002
                                         -----  -----    -------------  -------------
<S>                                      <C>    <C>      <C>            <C>
Expected life from vest date (in years)      4       4               4             4
Risk-free interest rate . . . . . . . .    1.96%   4.3%     1.96%-  4.3%    2.9%- 4.3%
Volatility. . . . . . . . . . . . . . .   90.0%   90.4%    89.3% - 91.1%   90.4%-93.3%
Dividend yield. . . . . . . . . . . . .      -       -                -             -
Weighted average fair value (per share)  $2.33   $1.24             $2.55         $2.00
</TABLE>

                                        8
<PAGE>

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

GAINS  ON  INVESTMENT  SECURITIES

On  April  23, 2003, ARV announced that, at a special meeting held on that date,
its  shareholders voted to approve the Agreement and Plan of Merger, dated as of
January  3, 2003, between ARV and Prometheus Assisted Living LLC ("Prometheus").
ARV  further announced that the merger transaction closed and trading of the ARV
stock  on the American Stock Exchange ceased on April 23, 2003.  Under the terms
of  the merger, shares of ARV's stock held by shareholders other than Prometheus
and its affiliates were converted into the right to receive merger consideration
of  $3.90  per share, without interest.  On April 25, 2003, the Company received
approximately  $2.9  million  in  exchange  for its 755,884 shares of ARV common
stock  in  which  it  had  a  carrying value of approximately $1.5 million, thus
recognizing  a  gain of approximately $1.4 million, which is included in "Other,
net"  in  the  Company's  Condensed  Consolidated Statements of Operations and a
reduction  in  "Accumulated other comprehensive gain" in the Company's Condensed
Consolidated  Balance  Sheets.

EMERITRUST  TRANSACTIONS

As  of July 1, 2003, the Company held interests in 45 communities referred to as
the Emeritrust communities, including 24 Emeritrust I communities, 16 Emeritrust
II  Operating communities, and five Emeritrust II Development communities, under
management  agreements.  In  August  2003,  the  Emeritrust  I  investors sold a
building  in  Casper,  Wyoming,  reducing the number of Emeritrust I communities
under  management from 24 to 23.  The Company does not recognize management fees
on the Emeritrust communities as revenue in its condensed consolidated financial
statements  to  the  extent  that  it  is funding the cash operating losses that
include  them,  although the amounts of the funding obligation each year include
management  fees  earned  by  Emeritus  under  the  management  agreements.
Correspondingly,  the  Company  recognizes  the  funding  obligation  under  the
agreement,  less  the applicable management fees, as an expense in its condensed
consolidated  financial statements under the category "Other, net".  Conversely,
if  the  applicable  management  fees exceed the funding obligation, the Company
recognizes  the  management  fees  less the funding obligation as management fee
revenue  in  its  condensed  consolidated  financial  statements.

The  management  agreements  and  related  options to purchase these communities
expired  June  30,  2003 (except that management agreements with respect to five
communities  were  to continue until December 31, 2003). Because the Company was
not  in  a  position to exercise the options to acquire the communities prior to
expiration,  it  was in discussions with the owners of the communities and their
lenders  to  extend  the  management agreements and related purchase options. On
July  2,  2003,  the  Company  executed  an  initial extension of its management
agreement  with  respect  to  the  Emeritrust II communities. The management and
purchase option agreements related to the Emeritrust II communities were amended
to  expire  October  1, 2003, which allowed the owners of the communities, their
lenders,  and  the Company to consider a longer-term agreement. On September 30,
2003,  the  Company  acquired  the  leasehold  interests of the 21 Emeritrust II
communities. The Company facilitated the purchase of these communities by a real
estate  investment trust for a cash purchase price of $118.6 million and issued,
or  agreed  to  issue,  to the seller warrants to purchase 500,000 shares of the
Company's  common  stock. The Company financed the cash purchase price through a
real  estate investment trust with a combination of lease and mortgage financing
in  the  aggregate  amount of $121.5 million, which is described below under "21
Building  Lease  Acquisition  and  Debt  Consolidation."  The  warrants  expire
September  30,  2008,  and  have  an exercise price of $7.60 (subject to certain
adjustments). The holders have limited registration rights. The Company included
the  fair value of these warrants, totaling approximately $1.4 million, as lease
acquisition  costs  and  will  amortize  them  over  the  life  of  the  lease.

The  Company  continued to operate under the existing operating structure of the
Emeritrust  I  communities  on  a  day-to-day basis pending renegotiation of the
terms  of  financing,  management, and purchase option agreements.  In the third
quarter  of  2003, the Company executed a short-term extension of the management
agreement  from  June  30,  2003, to January 2, 2004, and the Company's purchase
option was terminated.  As a result of recent sales or transfers of communities,
it  is likely that the number of Emeritrust I communities will have reduced from
24  to  21  communities.  The interest rate on the underlying mortgage financing
was

                                        9
<PAGE>

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

increased,  effective  July  1,  2003,  which  has  the effect of decreasing the
portion  of  the management fee that is dependent on 50% of the cash flow of the
communities.  Because  of  the decrease in the number of managed communities and
the  reduction in cash flow, the Company anticipates that management fees earned
on  the  Emeritrust  I  communities  will  decline.  The  Company  has also been
indemnified  against  any  funding  obligations  it  may have under the extended
management  agreement  by  certain  of the Emeritrust I investors, including Mr.
Baty.  The  management  agreement  related  to  the Emeritrust I communities was
further  extended from January 2, 2004, to September 30, 2005.  This longer-term
extension of the management contract excludes any funding obligation, excludes a
purchase  option,  and  may  be  terminated  by  either party on 90 days notice.
Subject  to  the lender's consent, the investor group may transfer one community
in  Grand  Terrace,  California, to  an  entity  owned or controlled by Mr. Baty
subject  to  mortgage  financing  of  $3.2 million, the amount of the underlying
mortgage  financing  allocated  to  this community.  If the transfer occurs, Mr.
Baty  will  lease the community to the Company under a 10-year lease with a fair
value  rental  rate  of  (i)  debt  service  (including  interest and principal)
computed  on a $4.2 million base amount, the Emeritrust I mortgage interest rate
and  a  25  year  amortization,  and (ii) 50% of cash flow (after accounting for
assumed  management  fees and capital expenditures).  The base amount represents
the  principal  amount of Emeritrust I mortgage debt allocated to this community
and  a  portion  of  the  debt  reductions  funded  by  Mr.  Baty.

In  connection  with  these  management  arrangements,  Mr. Baty entered into an
agreement  with  the  investor  group  pursuant  to  which  he guaranteed to the
investor  group  (i)  on  or  before  September  30,  2005, the repayment of its
invested  capital  together with a 6% rate of return, compounded annually, (less
any  cash  distributions  received)  and  (ii) the funding of operating deficits
related  to  the  Emeritrust  I communities.  Under these arrangements, Mr. Baty
would also assume responsibility for the underlying GMAC debt.  Mr. Baty secured
these  obligations  through  a  pledge  of  unrelated  partnership interests and
capital  stock.  The  prior  agreements  under  which  the  investor group could
require  Mr.  Baty  to  purchase  up  to  12  communities  were  terminated.

Additional  information  relating to the Emeritrust transactions is set forth in
the  Company's  Form  8-K  filed  October  14,  2003.

For  the  three  months  and  nine months ended September 30, 2003 and 2002, the
total  gross  management  fees  earned,  management fees recognized, and funding
obligations accrued for all Emeritrust communities are shown in the tables below
(In  thousands):

<TABLE>
<CAPTION>
Management  Fees  Earned:
                                Three Months Ended                             Nine Months Ended
                                  September 30,                                   September 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         510  $         511  $          (1)  $       2,346  $       1,611  $         735
Emeritrust II Operating .            493            486              7           1,479          1,451             28
Emeritrust II Development            176            183             (7)            540            579            (39)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,179  $       1,180  $          (1)  $       4,365  $       3,641  $         724
                           =============  =============  ==============  =============  =============  ==============
</TABLE>

<TABLE>
<CAPTION>

Management  Fees  Recognized:

                                Three Months Ended                             Nine Months Ended
                                  September 30,                                   September 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         510  $         349  $          161  $       2,335  $       1,449  $         886
Emeritrust II Operating .            493            486               7          1,479          1,451             28
Emeritrust II Development            172            170               2            525            529             (4)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,175  $       1,005  $          170  $       4,339  $       3,429  $         910
                           =============  =============  ==============  =============  =============  ==============
</TABLE>

                                       10
<PAGE>

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

<TABLE>
<CAPTION>

Funding  Obligations  Accrued:

                                Three Months Ended                             Nine Months Ended
                                  September 30,                                   September 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>             <C>            <C>
Emeritrust I. . . . . . .  $           -  $         162  $        (162)  $          11   $         162  $        (151)
Emeritrust II Development              4              2              2             (16)            123           (139)
                           -------------  -------------  --------------  --------------  -------------  --------------
Total . . . . . . . . . .  $           4  $         164  $        (160)  $          (5)  $         285  $        (290)
                           =============  =============  ==============  ==============  =============  ==============
</TABLE>

ACCRUED  DIVIDENDS  ON  PREFERRED  STOCK

In  a two-tranche transaction that closed on July 31, 2003, and August 28, 2003,
the  Company  repurchased  all  of  its outstanding shares of Series A Preferred
Stock  (the  "Series A Stock") for an aggregate purchase price of $20.5 million,
of  which  approximately  $516,000  is due to transaction related expenses.  The
Series  A  Stock  had a face value of $25.0 million.  In addition, the holder of
the  Series  A Stock agreed to forego approximately $10.1 million in accrued and
unpaid  dividends on the Series A Stock.  The Company financed the first tranche
through  a previously announced lease transaction involving three communities in
which the Company raised $10.2 million, discussed below in "Other Transactions".
The  second tranche was primarily financed through $7.5 million of mortgage debt
with  a  real  estate  investment  trust  and  proceeds  from  a  sale-leaseback
transaction  involving  four  buildings,  also  discussed  below  in  "Other
Transactions".  The  mortgage  debt is secured by the seven properties discussed
above.  The  Company  recognized a one-time gain of approximately $14.5 million,
net of transaction costs, related to the repurchase of the Series A Stock, which
reduced  retained  deficit and is shown as a separate line item on the Condensed
Consolidated  Statements  of  Operations  in  arriving  at "Net income (loss) to
common  shareholders".

Since  the  third quarter of 2000, the Company has accrued its obligation to pay
cash  dividends  to  the  Series  B  preferred  shareholders,  which amounted to
approximately  $7.6  million  at September 30, 2003, including all penalties for
non-payment.  Since  the  Company had not paid these dividends for more than six
consecutive  quarters,  under  the  Designation of Rights and Preferences of the
Series  B preferred stock in the Company's Articles of Incorporation, the Series
B  preferred  shareholders  may  designate one director in addition to the other
directors that they are entitled to designate under the shareholders' agreement.
As  of  January  1, 2002, the Series B preferred shareholders became entitled to
designate  an  additional  director under the Articles, but thus far have chosen
not  to  do  so.

Series  B preferred dividends are to be paid in cash and in additional shares of
Series B preferred shares.  As of September 30, 2003, an additional 4,486 Series
B  preferred  shares  had  been issued as paid-in-kind dividends for all periods
prior  to  the  third quarter of 2003.  As of October 1, 2003, an additional 344
shares of Series B preferred stock were issued as paid-in-kind dividends for the
third  quarter  of  2003.

EIGHT  BUILDING  ACQUISITION

On  May  1,  2003,  the  Company  entered  into  a  lease agreement with certain
affiliates  of  a  real  estate  investment  trust,  for  eight  assisted living
communities  (the  "Eight Properties") in four states containing an aggregate of
489  units.

The  lease  is  for  an  initial 10-year period with three 5-year extensions and
includes  an opportunity for the Company to acquire the Eight Properties anytime
during the second year for $42.2 million and a purchase option in the third year
at a 3% premium over the original purchase option price.  In addition, the lease
gives  the  Company the right of first refusal to purchase any of the properties
if  the  owner  decides  to  sell.  The  lease  is a net lease, with base rental
approximating  $3.45  million  annually with a lease escalator at the end of the
first  and  second  lease  years  based  on  a percentage of increased operating
revenues,  with  an  aggregate annual cap of $275,000, and lease escalators each
year thereafter based on increases in the consumer price index.  The real estate
investment  trust  has  agreed  to  fund  up  to  $500,000  for  capital

                                       11
<PAGE>

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

expenditure  requirements.  The  capital  expenditures funded by the real estate
investment  trust  will  increase  the basis and purchase option and carry a 10%
lease  rate.

The real estate investment trust also loaned $600,000 to the Company for general
working  capital  purposes  and  for capital and other improvements to the Eight
Properties.  This  loan  has a 10-year term with no extensions, bearing interest
at  10%  annually  with  monthly  interest-only  payments.  In  addition, if the
Company  exercises  its  purchase  option  at  any  time  on  any  of  the Eight
Properties,  the  pro  rata principal portion of the loan will become due at the
time  the  closing  of  the  sale  of  such  facility  occurs.

The  Eight  Properties  in  this  acquisition  are purpose-built assisted living
communities  in  which  the Company plans to offer both assisted and memory loss
services  to  select  communities.

21  BUILDING  LEASE  ACQUISITION  AND  DEBT  CONSOLIDATION

On  September  30,  2003,  the  Company  entered  into  a master operating lease
agreement  to  lease  21  assisted  living communities previously managed as the
Emeritrust  II  communities  (the "21 Properties").  The agreement is an amended
master operating lease agreement (the "Master Lease") with certain affiliates of
a  real  estate  investment trust.  The Master Lease relates to four communities
from  a  March 2002 lease transaction and the 21 Emeritrust II communities for a
total  of  25  communities.

The  Master Lease is for an initial 15-year period with one 15-year renewal.  In
addition, the lease gives the Company the right of first refusal to purchase any
of  the  21  Properties if the owner decides to sell.  The lease is a net lease,
with  base  rent  approximating  $14.7  million  annually  with  certain  lease
escalators.

The  real  estate  investment  trust  also  provided  financing  secured  by the
Company's  leasehold  mortgage  in  the  21  Properties  of $11.5 million to the
Company  in  connection  with  the  Emeritrust  II  communities  transaction.
Additionally,  the  real  estate  investment  trust  and  the  Company agreed to
consolidate  this  new  debt  with the $6.8 million in outstanding debt from the
March  2002  transaction  referenced  above  and  the $7.5 million debt from the
Series  A  Stock repurchase described above, which closed in August 2003, all as
further  discussed  below  in "Other Transactions". The new consolidated loan of
$25.8  million  matures  on June 30, 2007, and bears an initial interest rate of
12.13%  per  annum  with  periodic  increases  up  to 13%. The new note requires
monthly  interest-only  payments  in  the  first  year,  interest  and principal
starting  in  the  second  year,  and  a  balloon principal payment at maturity.
Additional  principal reductions may occur, at the Company's option, through the
increase  in  the amount of the lease financing based on the portfolio achieving
certain  coverage  ratios.

OTHER  TRANSACTIONS

In  July  2003,  the  Company entered into a transaction involving three leased,
purpose-built  assisted  living  communities  located  in  Louisville, Kentucky;
Auburn,  Massachusetts;  and  Rocky  Hill, Connecticut, wherein the three leases
with  the  Company  were  transferred  to  a  new  lessor.  The Company received
approximately $10.2 million in cash proceeds recognizing a gain of approximately
$8.5  million,  of  which  $2.2  million  of  deferred  rent was reclassified as
deferred  gains,  all  of  which  was  deferred  and  will be amortized over the
remaining  life  of  the leases.  As part of the transaction, approximately $4.4
million  in  notes  and  interest receivable related to the three facilities was
retired.

Effective  July  1,  2003, the Company ceased managing 12 Regent Assisted Living
communities.  On  August  1,  2003,  the  Company  ceased managing an additional
Regent  Assisted  Living  community.

In  August  of  2003, a real estate investment trust provided mortgage financing
for  $7.5  million.  The  mortgage  loan  had  a  36  month  term  and  required
interest-only  payments  and bore an initial interest rate of 12% per annum with
periodic increases.  This mortgage loan was subsequently consolidated with other
then  outstanding and newly issued debt as discussed above in "21 Building Lease
Acquisition  and  Debt  Consolidation".

On  September  30,  2003,  wholly owned subsidiaries of the Company, established
pursuant  to  financing  requirements,  which  owned three buildings and jointly
owned  one  building,  participated  with  a real estate

                                       12
<PAGE>

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

investment  trust  in  the  sale-leasebacks of four buildings, and the leasehold
assets continue to be owned by the subsidiaries and are not available to satisfy
debts  or  obligations  of  the  consolidated  Company.  The  four buildings are
purpose-built  assisted  living  communities  located  in  Manassas,  Virginia;
Kirkland, Washington; Chelmsford, Massachusetts; and Ridgeland, Mississippi. The
jointly  owned  building was 50% owned by the Company's subsidiary and 50% owned
by  an  unrelated third party. The Company purchased the unrelated third party's
interest for $2.5 million. The consideration for the transaction was paid by the
real  estate  investment trust by assuming the underlying debt on the facilities
and paying cash consideration to the Company. The Company received approximately
$6.6  million  in  cash  proceeds.  As a result of this transaction, the Company
recognized  a  gain of $9.9 million, which will be deferred over the term of the
new  operating  leases.

Effective  October  1, 2003, the Company ceased managing two communities located
in  Tacoma,  Washington,  and  Coeur  d'Alene,  Idaho.

HORIZON  BAY  TRANSACTIONS

On  September  30,  2003,  the  Company entered into an agreement to lease eight
communities  that  the Company was then managing for a series of entities, which
are  owned  or controlled by Dan Baty ("Baty entities").  These transactions are
subject  to  the  transfer  of applicable licenses and the receipt of lender and
landlord  approvals,  which  the  Company  expects  to  occur  within  90  days.

Under  the terms of the agreement between the Company and the Baty entities, the
Company  has  agreed  to  assume  the  existing  leases relating to seven of the
facilities,  which  are  leased  by the Baty entities.  In lieu of acquiring the
remaining  community  and  assuming the existing mortgage financing, the Company
has  agreed,  subject  to  securing necessary lender and licensure approvals, to
enter  into  an agreement to lease the community from the applicable Baty entity
for  a  term  of  10  years, with rent equal to the debt service on the mortgage
indebtedness  (including  interest  and  principal) plus 25% of cash flow (after
accounting  for  assumed  management  fees  and capital expenditures).  The debt
which  is secured by this community may be cross-collateralized by Mr. Baty with
an  Emeritrust  I community that Mr. Baty has agreed to acquire and lease to the
Company,  as described above in "Emeritrust Transactions".  Annual rent relating
to  the  eight  communities  is  estimated  at  $3.7  million,  plus annual rent
escalators  based  upon  changes in the consumer price level index.  The Company
will  pay  the Baty entities approximately $65,000, which represented their cash
investment  plus  9% per annum, as provided in the original agreement related to
the  management  of  these  communities  between Emeritus and the Baty entities.
Under  the  new  agreement,  obligations  previously  existing to fund operating
losses  do  not  continue.  As  a result, the Company may incur operating losses
that  will  not  be  reimbursed.

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                                       13
<PAGE>

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

INCOME  (LOSS)  PER  SHARE
The  capital  structure  of  Emeritus  includes  convertible  debentures,  and
redeemable  and  non-redeemable  convertible  preferred  stock,  common  stock
warrants,  and  stock  options.  Basic  net  income (loss) per share is computed
based  on  weighted  average  shares  outstanding  and  excludes  any  potential
dilution.  Diluted net income (loss) per share is computed based on the weighted
average  number  of  shares  outstanding  plus dilutive potential common shares.
Options  and  warrants  are  included  under  the "treasury stock method" to the
extent  they  are  dilutive.  Certain shares issuable upon the exercise of stock
options  and  warrants  and  conversion  of convertible debentures and preferred
stock  have  been  excluded  from  the  computation  because the effect of their
inclusion would be anti-dilutive.  The following table summarizes those that are
excluded  in  each  period  because  they  are  anti-dilutive  (in  thousands):
<TABLE>
<CAPTION>
                             Three Months ended           Nine Months ended
                                September 30,               September 30,
                         --------------------------  --------------------------
                             2003          2002          2003          2002
                         ------------  ------------  ------------  ------------
<S>                      <C>           <C>           <C>           <C>
Convertible Debentures.             -         1,455         1,455         1,455
Options . . . . . . . .            31         1,763            31         1,763
Warrants. . . . . . . .             -         1,000             -         1,000
Series A Preferred (1).             -         1,374         1,145         1,374
Series B Preferred. . .             -         4,590         4,714         4,590
                         ------------  ------------  ------------  ------------
                                   31        10,182         7,345        10,182
                         ============  ============  ============  ============
</TABLE>
(1)  Repurchased  in  July  and  August  2003.

Dilutive  potential common shares and adjustments to net income (loss) to common
shareholders  arising  under  the  assumed  conversion  into common stock of the
convertible  debentures, Series A redeemable convertible preferred, and Series B
convertible  preferred  stock  are  included  under  the  "if-converted method".

The  following  table summarizes the computation of basic and diluted net income
(loss)  per  common  share  amounts  presented  in  the  accompanying  condensed
consolidated  statements of operations (in thousands, except per share amounts):

<TABLE>
<CAPTION>


                                                               Three Months ended            Nine Months ended
                                                                  September 30,                 September 30,
                                                         -----------------------------  -----------------------------
                                                             2003            2002           2003            2002
                                                         -------------  --------------  -------------  --------------
<S>                                                      <C>            <C>             <C>            <C>
Basic:
Numerator for basic net income (loss) per share:
    Net income (loss) to common shareholders . . . . . .  $       9,819  $      (4,479)  $       6,623  $     (13,445)
                                                          =============  ==============  =============  ==============
Denominator for basic net income (loss) per share:
   Weighted average number of common shares outstanding.         10,252         10,215          10,249         10,204
                                                          =============  ==============  =============  ==============

Basic net income (loss) per share. . . . . . . . . . . .  $        0.96  $       (0.44)  $        0.65  $       (1.32)
                                                          =============  ==============  =============  ==============


Diluted:
Numerator for diluted net income (loss) per share:
    Net income (loss) to common shareholders . . . . . .  $       9,819  $      (4,479)  $       6,623  $     (13,445)
    Assumed conversion of convertible debentures . . . .            500              -               -              -
    Assumed conversion of Series A preferred stock . . .            476              -               -              -
    Assumed conversion of Series B preferred stock . . .            988              -               -              -
                                                          -------------  --------------  -------------  --------------
                                                          $      11,783  $      (4,479)  $       6,623  $     (13,445)
                                                          =============  ==============  =============  ==============
</TABLE>

                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                               Three Months ended            Nine Months ended
                                                                  September 30,                 September 30,
                                                         -----------------------------  -----------------------------
                                                             2003            2002           2003            2002
                                                         -------------  --------------  -------------  --------------
<S>                                                      <C>            <C>             <C>            <C>
Denominator for diluted net income (loss) per share:
    Weighted average number of common shares outstanding  $      10,252  $      10,215   $      10,249  $      10,204
    Assumed exercise of options and warrants . . . . . .          1,517              -           1,062              -
    Assumed conversion of convertible debentures . . . .          1,455              -               -              -
    Assumed conversion of Series A preferred stock . . .            687              -               -              -
    Assumed conversion of Series B preferred stock . . .          4,776              -               -              -
                                                          -------------  --------------  -------------  --------------
                                                          $      18,687  $      10,215   $      11,311  $      10,204
                                                          =============  ==============  =============  ==============

Diluted net income (loss) per share. . . . . . . . . . .  $        0.63  $       (0.44)  $        0.59  $       (1.32)
                                                          =============  ==============  =============  ==============
</TABLE>

OTHER  COMPREHENSIVE  INCOME  (LOSS)

Other  comprehensive  income  (loss) includes the following transactions for the
three-month  and  nine-month  periods  ended  September  30,  2003  and  2002,
respectively:

<TABLE>
<CAPTION>
                                               Three Months ended                  Nine Months ended
                                                  September 30,                      September 30,
                                         --------------------------------  --------------------------------
                                                                  (In  thousands)
                                              2003             2002             2003             2002
                                         ---------------  ---------------  ---------------  ---------------
<S>                                      <C>              <C>              <C>              <C>
Net income (loss) to common shareholders.  $        9,819  $       (4,479)  $        6,623   $      (13,445)
Other comprehensive income:
     Unrealized holding gains
          on investment securities. . . .               -             771           (1,247)           1,020
                                           --------------  ---------------  ---------------  ---------------
Comprehensive income (loss) . . . . . . .  $        9,819  $       (3,708)  $        5,376   $      (12,425)
                                           ==============  ===============  ===============  ===============
</TABLE>

LIQUIDITY

The  Company  has  incurred significant operating losses since its inception and
has a working capital deficit of $19.9 million, although $5.8 million represents
deferred revenue and $7.6 million of preferred dividends is due only if declared
by the Company's board of directors.  At times in the past, the Company has been
dependent  upon  third  party  financing  or  disposition  of  assets  to  fund
operations.  If  such  transactions are necessary in the future, Emeritus cannot
guarantee  that they will be available on a timely basis, on terms attractive to
the  Company,  or  at  all.

Throughout  2002  and  continuing  in  the  first  quarter  of 2003, the Company
refinanced  substantially  all of its debt obligations, extending the maturities
of  such  financings  to  dates in 2005 or thereafter, at which time the Company
will  need  to  refinance  or  otherwise  repay  the  obligations.  Many  of the
Company's  debt  instruments  and  leases  contain  "cross-default"  provisions
pursuant  to  which a default under one obligation can cause a default under one
or  more  other  obligations  to  the same lender or lessor.  Such cross-default
provisions affect 12 owned assisted living properties and 97 properties operated
under  leases.  Accordingly, any event of default could cause a material adverse
effect  on  the  Company's  financial  condition  if  such  debt  or  leases are
cross-defaulted.  At  September  30,  2003,  the  Company complied with all such
covenants.

Management  believes that the Company will be able to sustain positive operating
cash  flow  at least through September 30, 2004, and will have adequate cash for
all necessary investing and financing activities including required debt service
and  capital  expenditures.

                                       15
<PAGE>

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

The  following  table  summarizes  the  Company's  contractual  obligations  at
September  30,  2003  (In  thousands):

<TABLE>
<CAPTION>
                                       Payments Due by Period
                         -----------------------------------------------------
                                    Less than                         After 5
Contractual Obligations    Total     1 year    1-3 years  4-5 years    years
                         ---------  ---------  ---------  ---------  ---------
<S>                      <C>        <C>        <C>        <C>        <C>
Long-Term Debt. . . . .  $ 117,809  $     745  $  23,041  $  93,405  $     618
Operating Leases. . . .  $ 639,770  $  39,099  $ 102,940  $ 102,567  $ 395,164
</TABLE>

OTHER  EVENTS

Alterra  Healthcare  Corporation ("Alterra"), a national assisted living company
headquartered  in  Milwaukee, Wisconsin, filed a voluntary Chapter 11 bankruptcy
petition  on January 22, 2003.  On April 10, 2003, the Bankruptcy Court approved
bidding  procedures  establishing  a  process  for  Alterra to seek and select a
transaction  to  address  its capital and liquidity needs upon completion of its
bankruptcy  reorganization  by  selling  its  capital  stock  or  assets.

The  Company  previously announced its intent to acquire Alterra through a joint
venture  entity  controlled by Emeritus.  The Company has renegotiated the terms
of  the  joint  venture  with  its partners under which an affiliate of Fortress
Investment  Group  LLC, which was to contribute $1.5 million of equity and $62.5
million  of  debt,  will now contribute $49 million of equity and $15 million of
debt  and  have  the  right  to  appoint  a  majority  of  the  directors of the
reorganized  Alterra.  The Company's investment in Alterra will be $7.0 million,
excluding  any  transaction  costs.  The transaction continues to be conditioned
on,  among  other  things,  confirmation  of  Alterra's  Chapter  11  Plan  of
Reorganization and the receipt of regulatory approvals, and is still expected to
close  in  the  fourth  quarter  of  this  year.



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                                       16
<PAGE>


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

Emeritus  is  a Washington corporation organized by Daniel R. Baty and two other
founders  in  1993.  In  November 1995, we completed our initial public offering
and  began  our  expansion  strategy.

Through  1998,  we  focused  on  rapidly  expanding  our  operations in order to
assemble  a  portfolio  of  assisted  living communities with a critical mass of
capacity.  We  pursued an aggressive acquisition and development strategy during
that  time,  acquiring 35 and developing 10 communities in 1996, acquiring seven
and  developing 20 communities in 1997, and developing five communities in 1998.
During  1999  and  continuing through 2001, we substantially reduced our pace of
acquisition  and  development activities to concentrate our efforts on improving
the  performance  of  our  existing facilities.  During 2002 and the first three
quarters  of  2003,  we  have resumed pursuing, on a selective basis, management
contracts  and acquisition opportunities, which we believe will be beneficial to
us.

In our consolidated portfolio, we had an increase in average monthly revenue per
occupied unit to $2,765 for the first three quarters of 2003 from $2,535 for the
first  three  quarters  of 2002, primarily brought about by our rate enhancement
program.  This  represents  an  average  revenue  increase of $230 per month per
occupied  unit,  or 9.1%.  The average occupancy rate decreased to 77.1% for the
first  three  quarters  of 2003 from 81.8% for the first three quarters of 2002.
However, the year-to-year comparison of these results is skewed by the impact of
the  24  building  lease  acquisition  in  the  fourth quarter of 2002 and the 8
building lease acquisition in the second quarter of 2003.  The table below shows
the  results  exclusive  of  these  acquisitions:

<TABLE>
<CAPTION>
                                          Nine months ended September 30,
                          -------------------------------------------------------------
                                              2003                           2002
                          ---------------------------------------------  --------------
                                A              B                 C             D                E
                                             Recent       (A without B)                       (C-D)
                           Consolidated      Lease                        Consolidated      Increase
                             Portfolio     Acquisitions                     Portfolio       (Decrease)
                          --------------  -------------  --------------  --------------  ---------------
<S>                       <C>             <C>             <C>             <C>             <C>
 Average monthly revenue
   per occupied unit . .  $       2,765   $       2,981   $       2,703   $       2,535   $          168
                          ==============  ==============  ==============  ==============  ==============

 Average occupancy rate.           77.1%           65.1%           81.4%           81.8%          (0.4%)
                          ==============  ==============  ==============  ==============  ==============
</TABLE>

In  our  total operated portfolio, which includes managed communities, we had an
increase  in  average  monthly revenue per occupied unit to $2,681 for the first
three  quarters  of  2003  from  $2,532  for  the  first three quarters of 2002,
primarily  brought  about  by  our rate enhancement program.  This represents an
average  revenue  increase  of  $149  per month per occupied unit, or 5.9%.  The
average  occupancy  rate decreased to 78.8% for the first three quarters of 2003
from  81.1%  for  the  first  three quarters of 2002.  However, the year-to-year
comparison  of  these  results  is skewed by the impact of the 24 building lease
acquisition  in  the fourth quarter of 2002 and the 8 building lease acquisition
in  the  second quarter of 2003.  The table below shows the results exclusive of
these  acquisitions:

<TABLE>
<CAPTION>

                                          Nine months ended September 30,
                          -------------------------------------------------------------
                                              2003                           2002
                          ---------------------------------------------  --------------
                                A              B                 C             D                E
                              Total          Recent       (A without B)      Total            (C-D)
                             Operated        Lease                          Operated         Increase
                             Portfolio     Acquisitions                     Portfolio       (Decrease)
                          --------------  -------------  --------------  --------------  ---------------
<S>                       <C>             <C>             <C>             <C>             <C>
 Average monthly revenue
   per occupied unit . .  $       2,681   $       2,981   $       2,646   $       2,532   $          114
                          ==============  ==============  ==============  ==============  ==============

 Average occupancy rate.           78.8%           65.1%           80.7%           81.1%          (0.4%)
                          ==============  ==============  ==============  ==============  ==============
</TABLE>

                                       17
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

While  our  focus  during the upcoming year will be to continue evaluating other
acquisition  opportunities,  we  also  intend  to  concentrate on integration of
existing and pending acquisitions.  We are interested in opportunities that have
neutral  capitalization  requirements, enhance or expand existing offerings, and
offer  upside  potential.

The  following  table  sets  forth  a  summary  of  our  property  interests:

<TABLE>
<CAPTION>


                                          As  of September 30,     As of December 31,     As of September 30,
                                                  2003                    2002                   2002
                                         ----------------------  ----------------------  ----------------------
                                         Buildings     Units     Buildings     Units     Buildings     Units
                                         ----------  ----------  ----------  ----------  ----------  ----------
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
Owned (1) . . . . . . . . . . . . . . .          14       1,458         17       1,687          17       1,687
Leased (1). . . . . . . . . . . . . . .         100       7,640         67       5,279          43       3,628
Managed/Admin Services (2). . . . . . .          54       5,206         94       8,577          93       8,505
Joint Venture/Partnership . . . . . . .           1         140          2         219           3         333
                                         ----------  ----------  ----------  ----------  ----------  ----------
     Operated Portfolio . . . . . . . .         169      14,444        180      15,762         156      14,153

     Percentage increase (decrease) (3)      (6.1%)      (8.4%)       35.3%       28.7%       17.3%       15.6%
</TABLE>
--------
(1)  Included  in  our  consolidated  portfolio  of  communities.
(2)  Buildings  managed  decreased  due  to  termination of 13 Regent management
     contracts  and  the  21  Emeritrust  II communities, which are leased as of
     September  30,  2003.
(3)  The  percentage  increase  (decrease)  indicates  the change from the prior
     year,  or,  in the case of September 30, 2003 and 2002, from the end of the
     prior  year.

We rely primarily on our residents' ability to pay our charges for services from
their  own  or  familial  resources  and  expect  that  we  will  do  so for the
foreseeable  future.  Although care in an assisted living community is typically
less  expensive  than  in  a skilled nursing facility, we believe that generally
only  seniors with income or assets meeting or exceeding the regional median can
afford  to  reside  in  our  communities.  Therefore,  inflation  or  other
circumstances  that adversely affect seniors' ability to pay for assisted living
services  could  have  an  adverse  effect  on  our  business.  All  sources  of
resident-related revenue other than residents' private resources constitute less
than  10%  of  our  total  revenues.

We  have  incurred net losses since our inception, and as of September 30, 2003,
we  had  an  accumulated  deficit of approximately $148.6 million.  These losses
resulted  from  a  number  of  factors,  including:

     * occupancy  levels  at our communities that were lower for longer periods
       than  we  originally  anticipated;

     * financing  costs  that we incurred as a result of multiple financing and
       refinancing  transactions;  and

     * administrative and corporate expenses that we increased to facilitate our
       growth  and  maintain  operations.

During  1998,  we  decided  to reduce acquisition and development activities and
dispose  of  select  communities  that had been operating at a loss.  We believe
that  slowing  our  acquisition and development activities enabled us to use our
resources  more  efficiently  and  increase  our  focus  on  enhancing community
operations.  In  2002  and through the third quarter of 2003, along with a focus
on operations, we selectively acquired additional communities and new management
contracts.

                                       18
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

EMERITRUST  TRANSACTIONS

As  of  July  1,  2003,  we  held interests in 45 communities referred to as the
Emeritrust  communities, including 24 Emeritrust I communities, 16 Emeritrust II
Operating  communities  and  five  Emeritrust  II Development communities, under
management  agreements.  In  August  2003,  the  Emeritrust  I  investors sold a
building  in  Casper,  Wyoming,  reducing the number of Emeritrust I communities
under  management  from  24  to  23.  We do not recognize management fees on the
Emeritrust  communities  as  revenue  in  our  condensed  consolidated financial
statements  to  the  extent  that  we are funding the cash operating losses that
include  them,  although the amounts of the funding obligation each year include
management  fees earned by us under the management agreements.  Correspondingly,
we  recognize  the  funding  obligation under the agreement, less the applicable
management  fees,  as  an  expense  in  our  condensed  consolidated  financial
statements  under  the  category  "Other,  net".  Conversely,  if the applicable
management  fees exceed the funding obligation, we recognize the management fees
less  the  funding  obligation  as  management  fee  revenue  in  our  condensed
consolidated  financial  statements.

The  management  agreements  and  related  options to purchase these communities
expired  June  30,  2003 (except that management agreements with respect to five
communities  were to continue until December 31, 2003). Because we were not in a
position to exercise the options to acquire the communities prior to expiration,
we  were  in discussions with the owners of the communities and their lenders to
extend  the management agreements and related purchase options. On July 2, 2003,
we executed an initial extension of the management agreement with respect to the
Emeritrust  II communities. The management and purchase option agreement related
to  the  Emeritrust II communities were amended to expire October 1, 2003, which
allowed  us,  the  owners  of  the  communities, and their lenders to consider a
longer-term  agreement.  On  September  30,  2003,  we  acquired  the  leasehold
interests  of  the  21 Emeritrust II communities. We facilitated the purchase of
these communities by a real estate investment trust for a cash purchase price of
$118.6  million  and  issued,  or  agreed  to  issue,  to the seller warrants to
purchase 500,000 shares of our common stock. We financed the cash purchase price
through  a real estate investment trust with a combination of lease and mortgage
financing  in  the  aggregate amount of $121.5 million, which is described below
under  "21  Building  Lease  Acquisition  and  Debt Consolidation." The warrants
expire  September  30,  2008,  and  have  an exercise price of $7.60 (subject to
certain  adjustments). The holders have limited registration rights. We included
the  fair value of these warrants, totaling approximately $1.4 million, as lease
acquisition  costs  and  will  amortize  them  over  the  life  of  the  lease.

We continued to operate under the existing operating structure of the Emeritrust
I  communities  on  a  day-to-day  basis  pending  renegotiation of the terms of
financing,  management, and purchase option agreements.  In the third quarter of
2003,  we  executed a short-term extension of the management agreement from June
30,  2003,  to  January  2,  2004, and our purchase option was terminated.  As a
result of recent sales or transfers of communities, it is likely that the number
of  Emeritrust  I  communities will have reduced from 24 to 21 communities.  The
interest rate on the underlying mortgage financing was increased, effective July
1,  2003,  which  has the effect of decreasing the portion of the management fee
that  is  dependent  on 50% of the cash flow of the communities.  Because of the
decrease in the number of managed communities and the reduction in cash flow, we
anticipate  that  management  fees  earned  on the Emeritrust I communities will
decline.  We  have  also been indemnified against any funding obligations we may
have  under  the  extended  management  agreement by certain of the Emeritrust I
investors,  including  Mr.  Baty.  The  management  agreement  related  to  the
Emeritrust I communities was further extended from January 2, 2004, to September
30,  2005.  This  longer-term  extension of the management contract excludes any
funding  obligation, excludes a purchase option, and may be terminated by either
party  on  90  days notice.  Subject to the lender's consent, the investor group
may  transfer  one community in Grand Terrace, California, to an entity owned or
controlled by Mr. Baty subject to mortgage financing of $3.2 million, the amount
of  the  underlying  mortgage  financing  allocated  to  this community.  If the
transfer  occurs,  Mr. Baty will lease the community to us under a 10-year lease
with  a  fair  value  rental  rate  of  (i) debt service (including interest and
principal)  computed  on  a  $4.2 million base amount, the Emeritrust I mortgage
interest  rate  and  a  25  year  amortization, and (ii) 50% of cash flow (after
accounting  for  assumed  management  fees  and capital expenditures).  The base
amount  represents  the principal amount of Emeritrust I mortgage debt allocated
to  this  community  and  a  portion  of the debt reductions funded by Mr. Baty.

                                       19
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

In  connection  with  these  management  arrangements,  Mr. Baty entered into an
agreement  with  the  investor  group  pursuant  to  which  he guaranteed to the
investor  group  (i)  on  or  before  September  30,  2005, the repayment of its
invested  capital  together with a 6% rate of return, compounded annually, (less
any  cash  distributions  received)  and  (ii) the funding of operating deficits
related  to  the  Emeritrust  I communities.  Under these arrangements, Mr. Baty
would also assume responsibility for the underlying GMAC debt.  Mr. Baty secured
these  obligations  through  a  pledge  of  unrelated  partnership interests and
capital  stock.  The  prior  agreements  under  which  the  investor group could
require  Mr.  Baty  to  purchase  up  to  12  communities  were  terminated.

Additional  information  relating to the Emeritrust transactions is set forth in
our  Form  8-K  filed  October  14,  2003.

For  the  three  months  and  nine months ended September 30, 2003 and 2002, the
total  gross  management  fees  earned,  management fees recognized, and funding
obligations accrued for all Emeritrust communities are shown in the tables below
(In  thousands):
<TABLE>
<CAPTION>
Management  Fees  Earned:
                                Three Months Ended                             Nine Months Ended
                                  September 30,                                   September 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         510  $         511  $          (1)  $       2,346  $       1,611  $         735
Emeritrust II Operating .            493            486              7           1,479          1,451             28
Emeritrust II Development            176            183             (7)            540            579            (39)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,179  $       1,180  $          (1)  $       4,365  $       3,641  $         724
                           =============  =============  ==============  =============  =============  ==============
</TABLE>

<TABLE>
<CAPTION>

Management  Fees  Recognized:

                                Three Months Ended                             Nine Months Ended
                                  September 30,                                   September 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>            <C>            <C>
Emeritrust I. . . . . . .  $         510  $         349  $          161  $       2,335  $       1,449  $         886
Emeritrust II Operating .            493            486               7          1,479          1,451             28
Emeritrust II Development            172            170               2            525            529             (4)
                           -------------  -------------  --------------  -------------  -------------  --------------
Total . . . . . . . . . .  $       1,175  $       1,005  $          170  $       4,339  $       3,429  $         910
                           =============  =============  ==============  =============  =============  ==============
</TABLE>

<TABLE>
<CAPTION>

Funding  Obligations  Accrued:

                                Three Months Ended                             Nine Months Ended
                                  September 30,                                   September 30,
                           ----------------------------     Increase     ----------------------------     Increase
Communities                    2003           2002         (Decrease)        2003           2002         (Decrease)
-------------------------  -------------  -------------  --------------  -------------  -------------  --------------
<S>                        <C>            <C>            <C>             <C>             <C>            <C>
Emeritrust I. . . . . . .  $           -  $         162  $        (162)  $          11   $         162  $        (151)
Emeritrust II Development              4              2              2             (16)            123           (139)
                           -------------  -------------  --------------  --------------  -------------  --------------
Total . . . . . . . . . .  $           4  $         164  $        (160)  $          (5)  $         285  $        (290)
                           =============  =============  ==============  ==============  =============  ==============
</TABLE>

                                       20
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

SERIES  A  PREFERRED  STOCK

In  a two-tranche transaction that closed on July 31, 2003, and August 28, 2003,
we  repurchased  all the outstanding shares of our Series A Preferred Stock (the
"Series  A  Stock")  for  an aggregate purchase price of $20.5 million, of which
approximately  $516,000  is  due  to transaction related expenses.  The Series A
Stock  had a face value of $25.0 million.  In addition, the holder of the Series
A  Stock  agreed  to  forego  approximately  $10.1 million in accrued and unpaid
dividends.  We  financed  the first tranche through a previously announced lease
transaction  involving  three  communities  in  which  we  raised $10.2 million,
discussed  below  in  "Other  Transactions".  The  second  tranche was primarily
financed  through  $7.5  million  of  secured  mortgage  debt with a real estate
investment  trust  and proceeds from a sale-leaseback transaction involving four
buildings,  also  discussed below in "Other Transactions".  The mortgage debt is
secured  by the seven properties discussed above.  We recognized a one-time gain
of  approximately  $14.5  million,  net  of  transaction  costs,  related to the
repurchase of the Series A Stock, which reduced retained deficit and is shown as
a  separate  line item on the Condensed Consolidated Statements of Operations in
arriving  at  "Net  income  (loss)  to  common  shareholders".

EIGHT  BUILDING  ACQUISITION

On  May  1, 2003, we entered into a lease agreement with certain affiliates of a
real  estate investment trust, for eight assisted living communities (the "Eight
Properties")  in  four  states  containing  an  aggregate  of  489  units.

The  lease  is  for  an  initial 10-year period with three 5-year extensions and
includes  an  opportunity  for us to acquire the Eight Properties anytime during
the  second  year for $42.2 million and a purchase option in the third year at a
3%  premium  over  the  original  purchase option price.  In addition, the lease
gives  us  the  right  of first refusal to purchase any of the properties if the
owner decides to sell.  The lease is a net lease, with base rental approximating
$3.45 million annually with a lease escalator at the end of the first and second
lease  years  based  on  a  percentage  of increased operating revenues, with an
aggregate  annual  cap  of  $275,000,  and lease escalators each year thereafter
based  on  increases  in  the  consumer price index.  The real estate investment
trust  has  agreed  to fund up to $500,000 for capital expenditure requirements.
The  capital  expenditures  funded  by  the  real  estate  investment trust will
increase  the  basis  and  purchase  option  and  carry  a  10%  lease  rate.

The  real estate investment trust also loaned $600,000 to us for general working
capital purposes and for capital and other improvements to the Eight Properties.
This  loan  has  a  10-year  term  with  no  extensions, bearing interest at 10%
annually  with  monthly interest-only payments.  In addition, if we exercise our
purchase  option  at  any  time  on  any  of  the Eight Properties, the pro rata
principal  portion  of  the loan will become due at the time the closing of such
facility  occurs.

The  Eight  Properties  in  this  acquisition  are purpose-built assisted living
communities  in which we plan to offer both assisted and memory loss services to
select  communities.

21  BUILDING  LEASE  ACQUISITION  AND  DEBT  CONSOLIDATION

On  September  30,  2003,  we entered into a master operating lease agreement to
lease  21  assisted  living  communities previously managed as the Emeritrust II
communities (the "21 Properties").  The agreement is an amended master operating
lease  agreement  (the  "Master Lease") with certain affiliates of a real estate
investment  trust.  The  Master  Lease  relates to four communities from a March
2002  lease  transaction  and the 21 Emeritrust II communities for a total of 25
communities.

The  Master Lease is for an initial 15-year period with one 15-year renewal.  In
addition,  the  lease gives us the right of first refusal to purchase any of the
21 Properties if the owner decides to sell.  The lease is a net lease, with base
rent  approximating  $14.7  million  annually  with  certain  lease  escalators.

The  real  estate  investment  trust  also  provided  financing  secured  by our
leasehold  mortgage in the 21 Properties of $11.5 million in connection with the
Emeritrust II communities transaction.  Additionally, the real estate investment
trust  agreed  to consolidate this new debt with the $6.8 million in outstanding
debt
                                       21
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

from  the March 2002 transaction referenced above and the $7.5 million debt from
the  Series A Stock repurchase described above, which closed in August 2003, all
as further discussed below in "Other Transactions". The new consolidated loan of
$25.8  million  matures  on June 30, 2007, and bears an initial interest rate of
12.13%  per  annum  with  periodic  increases  up  to 13%. The new note requires
monthly  interest-only  payments  in  the  first  year,  interest  and principal
starting  in  the  second  year,  and  a  balloon principal payment at maturity.
Additional  principal  reductions may occur, at our option, through the increase
in  the  amount  of the lease financing based on the portfolio achieving certain
coverage  ratios.

OTHER  TRANSACTIONS

In  July  2003,  we  entered  into  a  transaction  involving  three  leased,
purpose-built  assisted  living  communities  located  in  Louisville, Kentucky;
Auburn,  Massachusetts;  and  Rocky  Hill, Connecticut, wherein the three leases
with  us  were  transferred  to  a  new lessor.  We received approximately $10.2
million in cash proceeds and recognized a gain of approximately $8.5 million, of
which  $2.2  million of deferred rent was reclassified as deferred gains, all of
which  was deferred and will be amortized over the remaining life of the leases.
As  part  of  the  transaction, approximately $4.4 million in notes and interest
receivable  related  to  the  three  facilities  was  retired.

Effective  July  1,  2003,  we  ceased  managing  12  Regent  Assisted  Living
communities.  On  August  1,  2003,  we  ceased  managing  an  additional Regent
Assisted  Living  community.

In  August  of  2003, a real estate investment trust provided mortgage financing
for  $7.5  million.  The  mortgage  loan  had  a  36  month  term  and  required
interest-only  payments  and bore an initial interest rate of 12% per annum with
periodic increases.  This mortgage loan was subsequently consolidated with other
then  outstanding and newly issued debt as discussed above in "21 Building Lease
Acquisition  and  Debt  Consolidation".

On  September  30,  2003, our wholly owned subsidiaries, established pursuant to
financing  requirements,  which  owned  three  buildings  and  jointly owned one
building,  participated  with  a  real  estate  investment  trust  in  the
sale-leasebacks of four buildings, and the leasehold assets continue to be owned
by the subsidiaries and are not available to satisfy debts or obligations of the
consolidated  Company.  The  four  buildings  are  purpose-built assisted living
communities  located  in  Manassas,  Virginia; Kirkland, Washington; Chelmsford,
Massachusetts;  and  Ridgeland,  Mississippi. The jointly owned building was 50%
owned  by our subsidiary and 50% owned by an unrelated third party. We purchased
the  unrelated  third party interest for $2.5 million. The consideration for the
transaction  was  paid  by  the  real  estate  investment  trust by assuming the
underlying  debt  on  the  facilities  and  paying  cash consideration to us. We
received  approximately  $6.6  million  in  cash  proceeds.  As a result of this
transaction,  we  recognized a gain of $9.9 million, which will be deferred over
the  term  of  the  new  operating  leases.

Effective October 1, 2003, we ceased managing two communities located in Tacoma,
Washington,  and  Coeur  d'Alene,  Idaho.

HORIZON  BAY  TRANSACTIONS

On  September  30, 2003, we entered into an agreement to lease eight communities
that  we  were  then  managing  for  a  series  of  entities, which are owned or
controlled by Dan Baty ("Baty entities").  These transactions are subject to the
transfer  of  applicable  licenses and receipt of lender and landlord approvals,
which  we  expect  to  occur  within  90  days.

Under  the  terms  of  the  agreement  between us and the Baty entities, we have
agreed  to assume the existing leases relating to seven of the facilities, which
are  leased  by the Baty entities.  In lieu of acquiring the remaining community
and  assuming  the  existing  mortgage  financing,  we  have  agreed, subject to
securing necessary lender and licensure approvals, to enter into an agreement to
lease the community from the applicable Baty entity for a term of 10 years, with
rent  equal to the debt service on the mortgage indebtedness (including interest
and  principal)  plus  25% of cash flow (after accounting for assumed management
fees and capital expenditures).  The debt which is secured by this community may
be cross-collateralized by Mr. Baty with an Emeritrust I community that Mr. Baty
has  agreed  to  acquire  and  lease  to  us,  as described above in "Emeritrust
Transactions".  Annual  rent  relating  to  the  eight  communities  is

                                       22
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

estimated at $3.7 million, plus annual rent escalators based upon changes in the
consumer price level index. We will pay the Baty entities approximately $65,000,
which  represented  their  cash investment plus 9% per annum, as provided in the
original agreement related to the management of these communities between us and
the  Baty  entities. Under the new agreement, obligations previously existing to
fund  operating  losses  do  not  continue.  As a result, we may incur operating
losses  that  will  not  be  reimbursed.


OTHER  EVENTS

Alterra  Healthcare  Corporation ("Alterra"), a national assisted living company
headquartered  in  Milwaukee, Wisconsin, filed a voluntary Chapter 11 bankruptcy
petition  on January 22, 2003.  On April 10, 2003, the Bankruptcy Court approved
bidding  procedures  establishing  a  process  for  Alterra to seek and select a
transaction  to  address  its capital and liquidity needs upon completion of its
bankruptcy  reorganization  by  selling  its  capital  stock  or  assets.

We  previously  announced  our intent to acquire Alterra through a joint venture
entity  controlled  by  us.  We have renegotiated the terms of the joint venture
with  its  partners  under  which an affiliate of Fortress Investment Group LLC,
which  was  to contribute $1.5 million of equity and $62.5 million of debt, will
now  contribute $49 million of equity and $15 million of debt and have the right
to  appoint  a  majority  of  the  directors  of  the  reorganized Alterra.  Our
investment  in  Alterra  will  be $7.0 million, excluding any transaction costs.
The transaction continues to be conditioned on, among other things, confirmation
of  Alterra's  Chapter  11  Plan of Reorganization and the receipt of regulatory
approvals,  and  is  still expected to close in the fourth quarter of this year.



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                                       23
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

RESULTS  OF  OPERATIONS

Critical  Accounting  Policies  and  Estimates.

Management's  discussion  and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have  been  prepared in accordance with accounting principles generally accepted
in the United States.  The preparation of these condensed consolidated financial
statements  requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent  assets  and  liabilities.  On  an  ongoing  basis,  we  evaluate our
estimates,  including  those  related  to  resident programs and incentives, bad
debts,  investments,  intangible  assets, income taxes, restructuring, long-term
service contracts, contingencies, self-insured retention, insurance deductibles,
health  insurance,  and  litigation.  We  base  our  estimates  on  historical
experience  and  on  various  other assumptions that we believe to be reasonable
under  the  circumstances,  the  results  of  which  form  the  basis for making
judgments  about  the  carrying  values  of  assets and liabilities that are not
readily  apparent  from  other  sources.  Actual  results  may differ from these
estimates  under  different  assumptions  or  conditions.

We  believe  the  following critical accounting policies are most significant to
the  judgments  and  estimates  used  in  the  preparation  of  our  condensed
consolidated  financial  statements.  Revisions in such estimates are charged to
income  in  the  period in which the facts that give rise to the revision become
known.

*     For  commercial general liability and professional liability insurance, we
      use  a  captive  insurance  structure essentially to self-fund our primary
      layer of insurance. This policy is claims-made based and covers losses and
      liabilities  associated  with  general  and  professional  liability.  The
      primary layer has per occurrence and aggregate limits. Within that primary
      layer  is  a  self-insured  retention, which also has a per occurrence and
      aggregate limit. We also have an excess policy, which applies to claims in
      excess  of  the primary layer on a per occurrence basis. Losses within the
      primary layer, which include the self-insured retention, are accrued based
      upon  actuarial  estimates of the aggregate liability for claims incurred.

*     For  health  insurance,  we  self-insure  up  to  a certain level for each
      occurrence  above  which  a  catastrophic  insurance  policy  covers  any
      additional  costs.  Health  insurance  expense  is  accrued  based  upon
      historical  experience  of the aggregate liability for claims incurred. If
      these  estimates  are  insufficient,  additional  charges may be required.

*     For  workers'  compensation  insurance for insured states (excluding Texas
      and  compulsory  State  Funds),  we are on an incurred loss, retrospective
      insurance  policy,  retroactively adjusted, upward or downward, based upon
      total  incurred  loss  experience.  The  premium  charged by the insurance
      underwriter is based upon a standard rate determined by the underwriter to
      cover,  amongst  other things, estimated losses and other fixed costs. The
      difference between the premium charged and the actuarial based estimate of
      costs, which is expensed on a monthly basis, is carried as an asset on the
      balance  sheet.  After  the  end of the policy year, the insurance company
      conducts  an  audit  and  adjusts  the total premium based upon the actual
      payroll  and  actual  incurred  loss  for  the  policy  year.  Any premium
      adjustment  for  the  differences between estimated and actual payroll and
      estimated and actual losses will first be applied to the accrued asset and
      then  as  an  adjustment to workers' compensation expense at the time such
      adjustment  is  determined.  There  is  a  reasonable expectation that the
      incurred  loss adjustment will be downward, resulting in a premium refund.
      The  incurred  loss  adjustment  is limited to 50% of the standard premium
      with the initial adjustment six months after policy expiration on December
      31,  2003, and annually thereafter. For work-related injuries in Texas, we
      are a non-subscriber, meaning that work-related losses are covered under a
      defined benefit program outside of the Texas Workers' Compensation system.
      Losses  are paid as incurred and estimated losses are accrued on a monthly
      basis.


                                       24
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

*     We  maintain  allowances  for  doubtful  accounts  for  estimated  losses
      resulting  from  the inability of our residents to make required payments.
      If the financial condition of our residents were to deteriorate, resulting
      in  an impairment of their ability to make payments, additional allowances
      may  be  required.

*     We  record  a valuation allowance to reduce our deferred tax assets to the
      amount  that  is  more  likely than not to be realized, which at this time
      shows  a  net  asset  valuation of zero. We have considered future taxable
      income  and  ongoing  prudent  and  feasible  tax  planning  strategies in
      assessing  the  need  for  a valuation allowance. However, in the event we
      were to determine that we would be able to realize our deferred tax assets
      in  the  future in excess of our net recorded amount, an adjustment to the
      deferred  tax  asset  would  increase  income  in  the period we made such
      determination.

COMMON-SIZE  INCOME  STATEMENTS  AND  PERIOD-TO-PERIOD  PERCENTAGE  CHANGE

The  following  table  sets forth, for the periods indicated, certain items from
our  Condensed  Consolidated  Statements  of Operations as a percentage of total
revenues  and the percentage change of the dollar amounts from period to period.

<TABLE>
<CAPTION>
                                                                                                      Period-to-Period
                                                                                                        Percentage
                                                                                                          Increase
                                                                                                         (Decrease)
                                                       Percentage  of  Revenues                 ----------------------------
                                     ----------------------------------------------------------   Three Months   Nine Months
                                           Three Months ended            Nine Months Ended           ended          ended
                                             September 30,                September 30,           September 30,  September 30,
                                     ----------------------------  ----------------------------  -------------  -------------
                                          2003           2002          2003           2002         2003-2002      2003-2002
                                     -------------  -------------  -------------  -------------  -------------  -------------
<S>                                  <C>            <C>            <C>            <C>            <C>            <C>

Revenues. . . . . . . . . . . . . .         100.0%         100.0%         100.0%         100.0%          39.3%          38.2%
Expenses:
     Community operations . . . . .          63.8           59.6           61.6           59.4           49.3           43.4
     General and administrative . .          12.3           14.9           11.8           14.3           14.2           14.4
     Depreciation and amortization.           3.6            4.6            3.7            4.9            8.8            5.9
     Facility lease expense . . . .          19.4           20.2           18.9           20.2           34.1           29.3
                                     -------------  -------------  -------------  -------------  -------------  -------------
         Total operating expenses .          99.1           99.3           96.0           98.8           39.1           34.5
                                     -------------  -------------  -------------  -------------  -------------  -------------
Income from operations. . . . . . .           0.9            0.7            4.0            1.2           79.4          341.3
Other income (expense)
     Interest income. . . . . . . .           0.3            0.1            0.3            0.3          273.9           86.6
     Interest expense . . . . . . .          (6.6)          (7.9)          (6.7)          (8.2)          16.7           13.9
     Other, net . . . . . . . . . .           0.2           (0.4)           1.0           (0.8)           N/A            N/A
                                     -------------  -------------  -------------  -------------  -------------  -------------
         Net other expense. . . . .          (6.1)          (8.2)          (5.4)          (8.7)           3.3          (15.9)
                                     -------------  -------------  -------------  -------------  -------------  -------------

         Net loss . . . . . . . . .         (5.2%)         (7.5%)         (1.4%)         (7.5%)           N/A            N/A
                                     =============  =============  =============  =============  =============  =============
</TABLE>



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                                       25
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Comparison  of  the  three  months  ended  September  30,  2003  and  2002
--------------------------------------------------------------------------

Total  Operating  Revenues:  Total operating revenues for the three months ended
September  30,  2003,  increased  by  $14.2  million to $50.2 million from $36.0
million  for  the  comparable  period  in  2002,  or  39.3%.

Community  revenue  increased by approximately $14.5 million in the three months
ended September 30, 2003, compared to the three months ended September 30, 2002.
This  increase  is  primarily due to additional revenue related to a 24 building
lease  acquisition  in  the  fourth  quarter  of  2002  and  an 8 building lease
acquisition  in  the  second quarter of 2003.  These acquired communities, which
represent  revenue  of  approximately  $12.4  million,  were  included  in  our
consolidated  portfolio  in  the third quarter of 2003, but were not included in
the comparable quarter of 2002.  The remaining increase in revenue is attributed
to the net effect of an increase in average monthly revenue per unit, a decrease
in  the  occupancy  rate,  and  a  reduction  in management fee income.  Average
monthly  revenue per unit (excluding the acquisition impact, which was favorable
by  $67)  was  $2,714  for  the third quarter of 2003 compared to $2,554 for the
comparable  quarter  of  2002, an increase of approximately 6.3%.  The occupancy
rate for the three months ended September 30, 2003, decreased 5.0% to 77.3% from
82.3%  primarily  from  the  repositioning  of  the  above  mentioned  acquired
communities.  The  occupancy  rate  excluding  the acquisition impact, which was
unfavorable  by  4.8 percentage points, decreased 0.2 percentage points from the
prior  year  quarter.

Management  fee  income decreased by approximately $286,000 to $2.4 million from
$2.7  million  for  the  three  months  ended  September  30,  2003,  and  2002,
respectively.  This  decrease  is  primarily  due  to  termination  of 13 Regent
managed  communities  in  July  and  August  of  2003  as  discussed  in  "Other
Transactions".  Regent  related  management  fee income recognized for the three
months  ended September 30, 2003, was approximately $32,000 compared to $371,000
for  the  three  months  ended  September  30,  2002.

Community  Operations:  Community  operating expenses for the three months ended
September  30,  2003,  increased  by  $10.5  million to $32.1 million from $21.5
million in the third quarter of 2003, or 49.3%.  The change was primarily due to
a  24 building lease acquisition in the fourth quarter of 2002 and an 8 building
lease  acquisition  in  the second quarter of 2003.  These acquired communities,
which  approximates  $10.1 million of expense, were included in our consolidated
portfolio  in the third quarter of 2003, but were not included in the comparable
quarter of 2002.  Additionally, in August 2003, we recognized an impairment loss
on  one  community  in  Scottsdale,  Arizona,  of  $950,000.  The  increases
attributable  to  the  two  lease acquisitions and impairment loss are partially
offset  by  improvements  in  insurance,  bad  debt expense, and other operating
expenses.  Our  insurance  expense  improved  mainly  due  to  a  change  in our
professional  and  general liability insurance structure, which is essentially a
captive  insurance  policy,  and  a  change  in  our  health insurance policies,
resulting in lower expected costs in 2003 compared to 2002.  Community operating
expenses  as  a  percentage of total operating revenue increased to 63.8% in the
third  quarter of 2003 from 59.6% in the third quarter of 2002, inclusive of the
impairment  loss  that  occurred  in  August  2003.

General  and  Administrative:  General and administrative (G&A) expenses for the
three  months  ended September 30, 2003, increased $766,000 to $6.2 million from
$5.4  million  for  the comparable period in 2002, or 14.2%.  As a percentage of
total  operating  revenues, G&A expenses decreased to 12.3% for the three months
ended September 30, 2003, compared to 14.9% for the three months ended September
30,  2002.  G&A  expenses  increased primarily due to increases in the number of
employees  and  normal  increases  in  employee  salaries.  An increase in total
communities  managed or leased through additional contracts for the three months
ended September 30, 2003, compared to the three months ended September 30, 2002,
and an expansion of program offerings, has led to some added employees.  Since a
significant  number  of the communities we operate are managed rather than owned
or  leased,  G&A  expense  as  a  percentage  of  operating  revenues  for  all
communities,  including  managed  communities,  may  be  more  meaningful  for
industry-wide  comparisons.  G&A  as  a percentage of operating revenues for all
communities increased to 6.6% from 6.2% for the three months ended September 30,
2003  and 2002, respectively, due in part to not replacing the lost revenue from
the  termination  of  Regent  contracts  with new agreements during the quarter.

                                       26
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Depreciation  and  Amortization:  Depreciation  and  amortization  for the three
months  ended  September 30, 2003, was $1.8 million compared to $1.7 million for
the  comparable  period  in  2002.  In  2003,  depreciation  and  amortization
represents 3.6% of total operating revenues, compared to 4.6% for the comparable
period  in  2002.  This  decrease as a percentage of revenue is primarily due to
increased  revenue.

Facility  Lease  Expense:  Facility  lease  expense  for  the three months ended
September 30, 2003, was $9.8 million compared to $7.3 million for the comparable
period  of  2002,  representing  an  increase  of  $2.5 million, or 34.1%.  This
increase  is  primarily  due  to the 24 building lease acquisition in the fourth
quarter  of  2002  and  an 8 building lease acquisition in the second quarter of
2003.  We  leased  100  communities  as  of  September  30,  2003  (including 21
community  leases  entered  into  on  September 30, 2003), compared to 43 leased
communities  as  of  September  30, 2002.  The additional facility lease expense
related  to  the acquired communities approximates $2.3 million.  Facility lease
expense  as  a  percentage  of  revenues  was  19.4%  for the three months ended
September  30,  2003,  and  20.2% for the three months ended September 30, 2002.

Interest Income:  Interest income for the three months ended September 30, 2003,
was $172,000 versus $46,000 for the comparable period of 2002.  This increase is
primarily attributable to a higher return on certain restricted deposits related
to  a  sale-leaseback  transaction  in  the  fourth  quarter  of  2002.

Interest  Expense:  Interest  expense  for  the three months ended September 30,
2003,  was  $3.3  million  compared to $2.8 million for the comparable period of
2002.  This  increase  of  $473,000,  or 16.7%, is primarily attributable to the
additional  secured  mortgage financing related to the 21 Properties acquisition
discussed above in "21 Building Lease Acquisition and Debt Consolidation".  As a
percentage  of total operating revenues, interest expense decreased to 6.6% from
7.9%  for  the  three  months  ended  September 30, 2003 and 2002, respectively.

Other,  net:  Other,  net  for  the  three  months ended September 30, 2003, was
income  of  approximately  $97,000  compared  to  expense  of  $153,000  for the
comparable period in 2002.  The net change of $250,000 is due to amortization of
deferred  gains  related  to  three  communities.

Income taxes.  Income taxes are due primarily because of gains on sale-leaseback
transactions  involving  several communities in the third quarter of 2003, which
have been deferred for accounting purposes.  We believe that we will be required
to  pay  an  alternative  minimum  income tax for 2003 on our federal income tax
return  and  in  certain  states  that  have  alternative  minimum  income  tax
provisions.  Net  operating  loss  carry-forwards  will be used to offset 90% of
projected 2003 taxable income, but an alternative minimum tax liability is still
expected  on  the  remaining  income.

Preferred dividends: For the three months ended September 30, 2003 and 2002, the
preferred  dividends  were  approximately  $1.5  million  and  $1.8  million,
respectively.  The  primary  reason  for  the  decrease is the repurchase of the
Series  A  preferred  shares  in  July  and August 2003 as discussed above under
"Series  A  Preferred  Stock".  Since  we  have  not paid the Series B preferred
dividends  for  six  consecutive  quarters,  under the Designation of Rights and
Preferences  of  the  Series B preferred stock in our Articles of Incorporation,
the  Series  B  preferred shareholders may designate one director in addition to
the  other directors that they are entitled to designate under the shareholders'
agreement.  As  of  January  1, 2002, the Series B preferred shareholders became
entitled  to  designate  an additional director under the Articles, but thus far
have  chosen  not  to  do  so.


               [The rest of this page is intentionally left blank]

                                       27
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Comparison  of  the  nine  months  ended  September  30,  2003  and  2002
-------------------------------------------------------------------------

Total  Operating  Revenues:  Total  operating revenues for the nine months ended
September  30,  2003,  increased  by $40.6 million to $146.8 million from $106.2
million  for  the  comparable  period  in  2002,  or  38.2%.

Community  revenue  increased  by approximately $40.3 million in the nine months
ended  September 30, 2003, compared to the nine months ended September 30, 2002.
This  increase  is  primarily due to additional revenue related to a 24 building
lease  acquisition  in  the  fourth  quarter  of  2002  and  an 8 building lease
acquisition  in  the  second quarter of 2003.  These acquired communities, which
represent  revenue  of  approximately  $33.3  million,  were  included  in  our
consolidated  portfolio  in  the  first  three  quarters  of  2003, but were not
included  in the comparable quarters of 2002.  The remaining increase in revenue
is  attributed  to  the net effect of an increase in average monthly revenue per
unit,  a  decrease  in  the  occupancy  rate,  and a reduction in management fee
income.  Average  monthly  revenue  per  unit (excluding the acquisition impact,
which  was  favorable  by  $62)  was $2,703 for the first three quarters of 2003
compared  to  $2,535  for  the  comparable  quarters  of  2002,  an  increase of
approximately  6.6%.  The occupancy rate for the nine months ended September 30,
2003,  decreased 4.7% to 77.1%from 81.8% primarily from the repositioning of the
above  mentioned  acquired  communities.  The  occupancy  rate  excluding  the
acquisition  impact,  which  was unfavorable by 4.3 percentage points, decreased
0.4  percentage  points  from  the  first  three  quarters  of  the  prior year.

Management  fee  income increased by approximately $358,000 to $8.7 million from
$8.3  million  for  the  nine  months  ended  September  30,  2003,  and  2002,
respectively.  This  increase  is  primarily  due  to  the  Horizon  Bay managed
portfolio,  which was initiated in May of 2002. Consequently, we recognized five
months  of revenue in the nine months ended September 30, 2002, of approximately
$339,000  compared to $569,000 for the nine months ended September 30, 2003. The
remaining  increase  is  attributable  to  the  net effect of improved operating
performance  of  other  managed  communities  and  the  termination of 13 Regent
managed  communities  in  July  and  August  of  2003  as  discussed  in  "Other
Transactions".  Regent  related  management  fee  income recognized for the nine
months  ended  September  30,  2003, was approximately $664,000 compared to $1.1
million  for  the  nine  months  ended  September  30,  2002.

Community  Operations:  Community  operating  expenses for the nine months ended
September  30,  2003,  increased  by  $27.4  million to $90.5 million from $63.1
million in the first three quarters of 2003, or 43.4%.  The change was primarily
due  to  a  24 building lease acquisition in the fourth quarter of 2002 and an 8
building  lease  acquisition  in  the  second  quarter  of 2003.  These acquired
communities,  which  approximates $26.8 million of expense, were included in our
consolidated  portfolio  in  the  first  three  quarters  of  2003, but were not
included  in  the comparable quarters of 2002.  Additionally, in August 2003, we
recognized  an  impairment  loss  on  one  community  in Scottsdale, Arizona, of
$950,000.  Community  operating  expenses  as  a  percentage  of total operating
revenue increased to 61.6% in the first three quarters of 2003 from 59.4% in the
first  three quarters of 2002, inclusive of the impairment loss that occurred in
August  2003.

General  and  Administrative:  General and administrative (G&A) expenses for the
nine  months  ended  September 30, 2003, increased $2.2 million to $17.4 million
from $15.2 million for the comparable period in 2002, or 14.4%.  As a percentage
of total operating revenues, G&A expenses decreased to 11.8% for the nine months
ended  September 30, 2003, compared to 14.3% for the nine months ended September
30,  2002.  G&A  expenses  increased primarily due to increases in the number of
employees and normal increases in employee salaries, as well as, insurance costs
related  to directors and officers.  An increase in total communities managed or
leased  through  additional  contracts  for  the nine months ended September 30,
2003,  compared to the nine months ended September 30, 2002, and an expansion of
program  offerings, has led to some added employees.  Since a significant number
of  the  communities  we  operate  are  managed rather than owned or leased, G&A
expense  as  a  percentage  of operating revenues for all communities, including
managed  communities, may be more meaningful for industry-wide comparisons.  G&A
as  a percentage of operating revenues for all communities was 6.0% for both the
nine-month  periods  ended  September  30,  2003  and  2002.

                                       28
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Depreciation  and  Amortization:  Depreciation  and  amortization  for  the nine
months  ended  September 30, 2003, was $5.5 million compared to $5.2 million for
the  comparable  period  in  2002.  In  2003,  depreciation  and  amortization
represents 3.7% of total operating revenues, compared to 4.9% for the comparable
period  in  2002.  This  decrease as a percentage of revenue is primarily due to
increased  revenue.

Facility  Lease  Expense:  Facility  lease  expense  for  the  nine months ended
September  30,  2003,  was  $27.7  million  compared  to  $21.4  million for the
comparable  period  of 2002, representing an increase of $6.3 million, or 29.3%.
This  increase  is  primarily  due  to  the 24 building lease acquisition in the
fourth  quarter  of  2002  and  the  8  building lease acquisition in the second
quarter  of 2003.  We leased 100 communities as of September 30, 2003 (including
21  community  leases entered into on September 30, 2003), compared to 43 leased
communities  as  of  September  30, 2002.  The additional facility lease expense
related  to  the  acquired  communities  approximates $5.8 million for the first
three  quarters  of  2003.  The  balance  of  the  increase  was attributable to
variable  rent escalation provisions in existing leases.  Facility lease expense
as  a  percentage  of revenues was 18.9% for the nine months ended September 30,
2003,  and  20.2%  for  the  nine  months  ended  September  30,  2002.

Interest  Income:  Interest income for the nine months ended September 30, 2003,
was  $500,000  versus $268,000 for the comparable period of 2002.  This increase
is  primarily  attributable  to  a  higher return on certain restricted deposits
related  to  a  sale-leaseback  transaction  in  the  fourth  quarter  of  2002.

Interest  Expense:  Interest  expense  for  the  nine months ended September 30,
2003,  was  $9.8  million  compared to $8.6 million for the comparable period of
2002.  This increase of $1.2 million, or 13.9%, is primarily attributable to the
repurchase  of  a  previously  leased  community in the third quarter of 2002, a
refinance  transaction  related  to 11 communities in December 2002, a refinance
transaction  in  January  of  2003,  additional  debt  related  to  the Series A
preferred  stock repurchase, and 21 building acquisition in the third quarter of
2003,  all of which constitutes an increase of approximately $1.4 million.  This
increase  is  partially  offset  by  a  sale-leaseback transaction in the second
quarter  of  2002,  which  replaced  interest  expense  with  lease  expense  of
approximately  $206,000.  As  a percentage of total operating revenues, interest
expense decreased to 6.7% from 8.2% for the nine months ended September 30, 2003
and  2002,  respectively.

Other, net:  Other, net for the nine months ended September 30, 2003, was income
of  $1.5  million  compared  to expense of $894,000 for the comparable period in
2002.  The  net  change  of $2.4 million is primarily comprised of the following
items:  In  April  2003,  we recognized a gain on the acceptance of ARV's tender
offer  on  our  investment  in ARV Assisted Living common stock of approximately
$1.4 million.  During the first three quarters of 2002, we repurchased a related
party's  economic  interest  in  a 172-unit community resulting in an expense of
$158,000  and we completed the sale-leaseback of two communities and re-lease of
two  additional  communities resulting in an expense of $372,000, for a combined
impact  of  $530,000.  The  remaining  difference  is  primarily attributable to
amortization  of  deferred  gains  related  to  six  communities.

Income taxes.  Income taxes are due primarily because of gains on sale-leaseback
transactions  involving  several communities in the third quarter of 2003, which
have been deferred for accounting purposes.  We believe that we will be required
to  pay  an  alternative  minimum  income tax for 2003 on our federal income tax
return  and  in  certain  states  that  have  alternative  minimum  income  tax
provisions.  Net  operating  loss  carry-forwards  will be used to offset 90% of
projected 2003 taxable income, but an alternative minimum tax liability is still
expected  on  the  remaining  income.

Preferred  dividends: For the nine months ended September 30, 2003 and 2002, the
preferred  dividends  were  approximately  $5.2  million  and  $5.5  million,
respectively.  The  primary  reason  for  the  decrease is the repurchase of the
Series  A  preferred  shares  in  July  and August 2003 as discussed above under
"Series  A  Preferred  Stock".  Since  we  have  not paid the Series B preferred
dividends  for  six  consecutive  quarters,  under the Designation of Rights and
Preferences  of  the  Series B preferred stock in our Articles of Incorporation,
the  Series  B  preferred shareholders may designate one director in addition to
the  other directors that they are entitled to designate under the shareholders'
agreement.  As  of  January  1, 2002, the Series B preferred shareholders became
entitled  to  designate  an additional director under the Articles, but thus far
have  chosen  not  to  do  so.

                                       29
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED
Same  Community  Comparison

We  operated  59  communities on a comparable basis during both the three months
ended  September 30, 2003 and 2002.  The following table sets forth a comparison
of  same  community  results of operations, excluding general and administrative
expenses,  for  the  three  months  ended  September  30,  2003  and  2002.

<TABLE>
<CAPTION>

                                                        Three Months ended September 30,
                                                                (In thousands)
                                             ----------------------------------------------------
                                                                          Dollar      % Change
                                                 2003          2002       Change     Fav/(Unfav)
                                             ------------  ------------  ---------  -------------
<S>                                          <C>           <C>           <C>        <C>
Revenue . . . . . . . . . . . . . . . . . .  $    34,369   $    32,918   $ 1,451            4.4%
Community operating expenses. . . . . . . .      (20,674)      (21,214)      540            2.5
                                             ------------  ------------  --------  -------------
    Community operating income. . . . . . .       13,695        11,704     1,991           17.0
Depreciation & amortization . . . . . . . .       (1,527)       (1,462)      (65)          (4.4)
Facility lease expense. . . . . . . . . . .       (6,998)       (7,029)       31            0.4
                                             ------------  ------------  --------  -------------
    Operating income. . . . . . . . . . . .        5,170         3,213     1,957           60.9
Interest expense, net . . . . . . . . . . .       (2,574)       (2,260)     (314)         (13.9)
                                             ------------  ------------  --------  -------------
    Operating income after interest expense  $     2,596   $       953   $ 1,643          172.4%
                                             ============  ============  ========  =============
</TABLE>

The  same communities represented $34.4 million or 68.5% of our total revenue of
$50.2  million for the third quarter of 2003.  Same community revenues increased
by  $1.5  million  or  4.4%  for  the quarter ended September 30, 2003, from the
comparable  period  in 2002.  This increase is due to higher average revenue per
unit while the occupancy percentage remained flat.  Average revenue per occupied
unit  increased  by  $149 per month or 5.8% for the three months ended September
30,  2003  as  compared  to  the three months ended September 30, 2002.  Average
occupancy  remained  relatively  unchanged  at  approximately 82.6% in the third
quarter  of  2003  and  82.5%  in  the  third  quarter  of  2002.

Community  operating  expenses  decreased  approximately  $540,000  due  to  a
combination of factors:  the decrease in operating expenses was primarily due to
reduced  personnel  expenses and other employee costs of $195,000, combined with
decreases  in  liability  insurance  of  $168,000,  and  other operating expense
categories  of  approximately  $177,000.  Occupancy  expenses,  consisting  of
facility  lease  expense,  depreciation  and  amortization, and interest expense
combined,  increased  approximately  $348,000 as a result of the net effect of a
refinancing  transaction  related  to  11  buildings  in  December  of 2002, and
variable rent escalation related to other communities, partially offset by lower
interest  rates.  For the quarter ended September 30, 2003, net income increased
to  $2.6  million  from  $953,000  for  the  comparable  period  of  2002.

LIQUIDITY  AND  CAPITAL  RESOURCES

For  the  nine  months  ended September 30, 2003, net cash provided by operating
activities  was  $912,000  compared to $1.1 million used in operating activities
for  the  comparable  period  in  the  prior  year.  The  primary  components of
operating  cash  provided  by  operating  activities  were  depreciation  and
amortization  of  $5.5  million  and an adjustment for an impairment loss on one
community  of  $950,000,  partially  offset by the net loss of $2.6 million, the
adjustment  of  $1.4  million for the gain on the sale of investment securities,
amortization  of  deferred  gain  of  $387,000,  and  the  net increase in other
operating  assets  and  liabilities  of $1.3 million.  The primary components of
operating  cash used in operating activities for the nine months ended September
30,  2002,  were  the net loss of $7.9 million, partially offset by depreciation
and  amortization of $5.2 million, loss on sale of properties of $515,000, write
off of deferred gain of $243,000, and the net decrease in other operating assets
and  liabilities  of  $850,000.

Net cash provided by investing activities amounted to $30.5 million for the nine
months  ended  September  30, 2003, and was comprised primarily of proceeds from
the  sale  of property and equipment of approximately $44.8 million and proceeds
from  the sale of investment securities of approximately $2.9 million, partially
offset  by  an  increase  in  management  and  lease  acquisition costs of $12.1
million,  purchases  of  approximately  $2.0  million  of  various  property and
equipment,  purchase  of  minority  partner

                                       30
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

interest  of  $2.5  million, and distributions to minority partners of $250,000.
Net  cash provided by investing activities amounted to $8.1 million for the nine
months  ended  September  30,  2002,  and was comprised primarily of proceeds of
approximately  $25.0 million related to the sale of two buildings, proceeds from
sales of interest in affiliates of $750,000, partially offset by the purchase of
property  and  equipment of $11.8 million, the purchase of minority interests in
two buildings for approximately $3.1 million, additional lease acquisition costs
of  $1.6  million,  advances  to  third  parties and affiliates of $603,000, and
distributions  to  minority  partners  of  $500,000.

For  the  nine  months  ended  September  30,  2003,  net cash used in financing
activities  was  $27.6  million,  primarily  from  the  repurchase  of  Series A
preferred  stock  for  $20.5  million,  of  which  approximately  $516,000  was
transaction  related  expenses,  long-term debt repayments of $24.4 million, and
short-term  debt  repayments  of  $2.0  million,  which  include debt repayments
related  to  a  January  2003  refinancing  transaction.  Also  related  to that
refinancing  transaction,  approximately  $283,000  relates to debt issuance and
other  financing  costs.  These  uses  of cash were partially offset by proceeds
from  long-term  borrowings of approximately $19.6 million.  For the nine months
ended  September  30,  2002,  net  cash  used  in  financing activities was $9.4
million,  primarily  from the repayment of long-term borrowings of $53.1 million
related  to the sale, minority interest purchase, and lease transactions related
to  two  communities  in  the  second  quarter  of 2002, repayment of short-term
borrowings of $1.7 million, and other financing costs of $1.4 million, partially
offset  by  the  proceeds  of  long-term  borrowings  of  $46.8  million.

We  have  incurred  significant  operating losses since our inception and have a
working  capital  deficit  of  $19.9  million,  although $5.8 million represents
deferred  revenues  and  $7.6 million of preferred cash dividends is only due if
declared  by  our  board  of  directors.  At  times  in  the  past, we have been
dependent  upon  third  party  financing  or  disposition  of  assets  to  fund
operations.  If  such  transactions  are  necessary  in  the  future,  we cannot
guarantee  that they will be available on a timely basis, on terms attractive to
us,  or  at  all.

Throughout  2002  and  continuing  in  the  first quarter of 2003, we refinanced
substantially  all  of  our  debt  obligations, extending the maturities of such
financings  to  dates  in  2005  or  thereafter,  at  which time we will need to
refinance  or otherwise repay the obligations.  Many of our debt instruments and
leases  contain "cross-default" provisions pursuant to which a default under one
obligation  can  cause a default under one or more other obligations to the same
lender or lessor.  Such cross-default provisions affect 12 owned assisted living
properties  and  97  operated  under  leases.  Accordingly, any event of default
could cause a material adverse effect on our financial condition if such debt or
leases  are  cross-defaulted.  At  September 30, 2003, we complied with all such
covenants.

Management believes that we will be able to sustain positive operating cash flow
at  least  through  September  30,  2004,  and  will  have adequate cash for all
necessary investing and financing activities including required debt service and
capital  expenditures.

The following table summarizes our contractual obligations at September 30, 2003
(In  thousands):

<TABLE>
<CAPTION>
                                       Payments Due by Period
                         -----------------------------------------------------
                                    Less than                         After 5
Contractual Obligations    Total     1 year    1-3 years  4-5 years    years
                         ---------  ---------  ---------  ---------  ---------
<S>                      <C>        <C>        <C>        <C>        <C>
Long-Term Debt. . . . .  $ 117,809  $     745  $  23,041  $  93,405  $     618
Operating Leases. . . .  $ 639,770  $  39,099  $ 102,940  $ 102,567  $ 395,164
</TABLE>

IMPACT  OF  INFLATION

To  date,  inflation  has  not  had  a significant impact on Emeritus.  However,
inflation  could  affect  our  future  revenues  and operating income due to our
dependence  on  the  senior resident population, most of whom rely on relatively
fixed  incomes  to  pay  for our services.  The monthly charges for a resident's
unit  and  assisted  living  services  are  influenced  by  the  location of the
community and local competition.  Our ability to increase revenues in proportion
to  increased  operating expenses may be limited.  We typically do not rely to a
significant  extent  on  governmental  reimbursement  programs.  In  pricing our
services,  we  attempt  to  anticipate  inflation  levels,  but  there can be no
assurance  that  we  will  be  able  to respond to inflationary pressures in the
future.

                                       31
<PAGE>
          MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

FORWARD-LOOKING  STATEMENTS

"Safe  Harbor"  Statement  under the Private Securities Litigation Reform Act of
1995:  A  number  of the matters and subject areas discussed in this report that
are  not  historical  or current facts deal with potential future circumstances,
operations,  and prospects.  The discussion of such matters and subject areas is
qualified  by  the  inherent  risks  and  uncertainties  surrounding  future
expectations  generally,  and  also may materially differ from our actual future
experience  as  a  result  of  such  factors  as: the effects of competition and
economic  conditions  on  the  occupancy  levels in our communities; our ability
under current market conditions to maintain and increase our resident charges in
accordance  with rate enhancement programs without adversely affecting occupancy
levels;  increases  in  interest  rates that would increase costs as a result of
variable  rate  debt;  our  ability  to  control  community  operation expenses,
including  insurance and utility costs, without adversely affecting the level of
occupancy  and  the level of resident charges; our ability to generate cash flow
sufficient to service our debt and other fixed payment requirements; 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
continued  management  of  the  Emeritrust I communities beyond January 2, 2004,
when  our  management  agreements  for  those communities could be terminated on
short-term  notice.  While  we believe that these arrangements will be extended,
we  cannot  guarantee  that  these  discussions  will  be  successful or, if the
arrangements  are  extended, what the terms will be.  If we are unsuccessful, we
could lose the management fee revenue from these communities.  We have attempted
to  identify,  in  context, certain of the factors that we currently believe may
cause  actual  future  experience  and  results  to  differ  from  our  current
expectations  regarding  the  relevant  matter or subject area.  These and other
risks  and  uncertainties  are detailed in our reports filed with the Securities
and  Exchange  Commission  (SEC),  including our Annual Reports on Form 10-K and
Quarterly  Reports  on  Form  10-Q.


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<PAGE>

ITEM  3.   QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

Our  earnings  are  affected  by  changes  in  interest rates as a result of our
short-term  and  long-term  borrowings.  We  manage this risk by obtaining fixed
rate  borrowings  when  possible.  At  September  30,  2003,  our  variable rate
borrowings  totaled  approximately  $64.0  million.  Currently, all our variable
rate borrowings are based upon LIBOR, subject to a LIBOR floor ranging from 2.0%
to  2.5%.  As  of  September 30, 2003, the LIBOR rates were below the floor.  If
LIBOR  interest  rates  were to average 2% more, our annual interest expense and
net loss would increase approximately $485,000 with respect to our variable rate
borrowings.  This amount is determined by considering the impact of hypothetical
interest  rates  on our outstanding variable rate borrowings as of September 30,
2003,  and  does not consider changes in the actual level of borrowings that may
occur  subsequent  to  September 30, 2003.  If LIBOR rates should increase above
the  floor,  we will be exposed to higher interest expense costs.  This analysis
also  does  not  consider  the  effects of the reduced level of overall economic
activity  that  could exist in such an environment, nor does it consider actions
that management might be able to take with respect to our financial structure to
mitigate  the  exposure  to  such  a  change.

ITEM  4.  CONTROLS  AND  PROCEDURES

We  maintain  a  set of disclosure controls and procedures and internal controls
designed  to  ensure  that  information  required to be disclosed in our filings
under  the  Securities  Exchange Act of 1934 is recorded, processed, summarized,
and  reported  within  the time periods specified in the Securities and Exchange
Commission's  rules  and  forms.  Our principal executive and financial officers
have  evaluated  our  disclosure controls and procedures (as defined in Exchange
Act  Rules  13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Quarterly  Report on Form 10-Q and have determined that such disclosure controls
and  procedures  are  effective.

No  change  was made to our internal control over financial reporting during the
quarter  that  has  materially  affected,  or is reasonably likely to materially
affect,  our  internal  control  over  financial  reporting.



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<PAGE>
                           PART II. OTHER INFORMATION


ITEMS  1  THROUGH  4  ARE  NOT  APPLICABLE.

ITEM  5     OTHER  INFORMATION

Effective  August  28,  2003,  and  as  a result of the Series A preferred stock
repurchase,  David  T.  Hamamoto resigned from the Emeritus Corporation Board of
Directors.

ITEM  6     EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  Exhibits



<TABLE>
<CAPTION>
                                                                                                                       Footnote
   Number                                                 Description                                                   Number
---------  ----------------------------------------------------------------------------------------------------      -----------
<S>        <C>                                                                                                       <C>
10.29 . .  Development Properties in Auburn, Massachusetts, Louisville, Kentucky and Rocky Hill, Connecticut. The
           following agreements are representative of those executed in connection with these properties:

10.29.10.  Leasehold Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture
           Filing between the registrant ("Mortgagor"), in favor of Health Care REIT, Inc. ("Mortgagee") with
           respect to the Auburn, Massachusetts, Facility dated August 28, 2003.                                               (1)
10.29.11.  Leasehold Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture
           Filing between the registrant ("Mortgagor"), in favor of Health Care REIT, Inc. ("Mortgagee") with
           respect to the Louisville, Kentucky, Facility dated August 28, 2003.                                                (1)
10.29.12.  Leasehold Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture
           Filing between the registrant ("Mortgagor"), in favor of Health Care REIT, Inc. ("Mortgagee") with
           respect to the Rocky Hill, Connecticut, Facility dated August 28, 2003.                                             (1)
10.29.13.  Second Amendment to Lease Agreement between HCRI Eddy Pond Properties Trust ("Landlord") and the
           Registrant ("Tenant") with respect to the Auburn, Massachusetts, Facility dated June 30, 2003.                      (1)
10.29.14.  Second Amendment to Lease Agreement between HCRI Stone Creek Properties, LLC ("Landlord") and the
           Registrant ("Tenant") with respect to the Louisville, Kentucky, Facility dated June 30, 2003.                       (1)
10.29.15.  Second Amendment to Lease Agreement between HCRI Cold Spring Properties, LLC ("Landlord") and the
           Registrant ("Tenant") with respect to the Rocky Hill, Connecticut, Facility dated June 30, 2003.                    (1)
10.29.16.  Promissory Note in the amount of $3,100,000 dated August 28, 2003, between the registrant ("Borrower") and
           Health Care REIT, Inc. ("Lender") secured by the mortgage on the Ridgeland, Mississippi property.                   (1)

10.34 . .  Ridgeland Court in Ridgeland, Mississippi

10.34.6 .  Purchase and Sale Agreement by and between Mississippi Baptist Medical Enterprises, Inc. ("Seller"), ESC-
           RIDGELAND, LLC ("Purchaser"), Emeritus Properties XI, LLC ("Emeritus XI"), and Ridgeland Assisted
           Living LLC ("Company") dated September 29, 2003.                                                                    (1)
10.34.7 .  Lease Agreement between HCRI Ridgeland Pointe Properties, LLC ("Landlord") and Ridgeland Assisted Living,
           LLC ("Tenant") dated September 29, 2003.                                                                            (1)

10.52 . .  Emeritrust communities

10.52.12.  Third Amendment to Management Agreement with Option to Purchase by and among Emeritus Management
           LLC ("Emeritus Management"), Emeritus Management I LP ("Texas Management"), Emeritus Corporation
           ("Emeritus"), and AL Investors LLC ("AL Investors"), effective June 30, 2003.                                       (4)
10.52.13.  Fourth Amendment to Management Agreement with Option to Purchase by and among Emeritus Management
           LLC ("Emeritus Management"), Emeritus Management I LP ("Texas Management"), Emeritus Corporation
           ("Emeritus"), and AL Investors LLC ("AL Investors"), dated September 30, 2003,  effective January 2, 2004.          (4)
10.52.14.  Side Letter to Management Agreement with Option to Purchase by and among Emeritus Management LLC
           ("Emeritus Management"), Emeritus Management I LP ("Texas Manager"), Emeritus Corporation
           ("Emeritus"), and AL Investors LLC ("AL Investors"), effective June 30, 2003.                                       (4)

10.53 . .  Emeritrust II Communities

10.53.13.  Amended and Restated Master Lease Agreement between Health Care REIT, Inc., HCRI Mississippi
           Properties, Inc., HCRI Massachusetts Properties Trust II, HCRI Texas Properties, LTD. (collectively
           "Landlord") and the registrant ("Tenant") dated September 30, 2003.                                                 (4)
10.53.14.  Amended and Restated Loan Agreement between Health Care REIT, Inc. ("Lender") and the registrant
           ("Borrower") dated September 30, 2003.                                                                              (4)
10.53.15.  Amended and Restated Note for $25.8 million between Health Care REIT, Inc. ("Lender") and the
           registrant ("Borrower") dated September 30, 2003.                                                                   (4)

</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                       Footnote
   Number                                                 Description                                                   Number
---------  ----------------------------------------------------------------------------------------------------      -----------
<S>        <C>                                                                                                       <C>
10.53.16.  Amended and Restated Leasehold Mortgage/Deed of Trust, Security Agreement, Assignment of Leases and
           Rents, Financing Statement and Fixture Filing by the registrant ("Trustor") and Commonwealth Land Title
           Insurance Company, Mid South Title Co., Lawyers Title of Arizona, Inc., Transnation Title & Escrow, Inc.,
           Carson Mills, AmeriTitle, William Fairbanks, Lawyers Title Realty Services, Inc., Transnation Title Insurance
           Company (collectively "Trustee") in favor of Health Care REIT, Inc. ("Beneficiary") dated September 30, 2003.       (4)
10.53.17.  Warrant for the Purchase of Shares of Common Stock by Emeritus Corporation ("Issuer"), for Senior Housing
           Partners I, LP ("Holder") for an aggregate of 400,000 shares, dated September 30, 2003.                             (4)
10.53.18.  Master Agreement between Owners and Emeritus Corporation Regarding Sale of AL II Assisted Living
           Portfolio, dated September 30, 2003.                                                                                (4)

10.55 . .  Meadow Lodge at Drum Hill in Chelmsford, Massachusetts, Cobblestones at Fairmont in Manassas,
           Virginia, Kirkland Lodge in Kirkland, Washington and Ridgeland Pointe in Ridgeland, Mississippi. The
           following agreements are representative of those executed in conjunction with these properties.

10.55.3 .  Unsecured Promissory Note in the amount of $4,400,000 dated August 28, 2003, between the registrant
           ("Borrower") and Health Care REIT, Inc. ("Lender")                                                                  (1)
10.55.4 .  Lease Agreement between HCRI Drum Hill Properties, LLC ("Landlord") and Emeritus Properties IX, LLC
           ("Tenant") dated September 29, 2003.                                                                                (1)
10.55.5 .  Lease Agreement between HCRI Fairmont Properties, LLC ("Landlord") and Emeritus Properties XII, LLC
           ("Tenant") dated September 29, 2003.                                                                                (1)
10.55.6 .  Lease Agreement between HCRI Kirkland Properties, LLC ("Landlord") and Emeritus Properties X, LLC
           ("Tenant") dated September 29, 2003.                                                                                (1)

10.68 . .  Kingsley Place at Alexandria, Louisiana, Kingsley Place at Lake Charles,  Louisiana, Kingsley Place at
           Lafayette, Louisiana, Kingsley Place of Shreveport, Louisiana, Kingsley Place of Henderson, Texas, Kingsley
           Place at Oakwell Farms, Texas, Kingsley Place at the Medical Center, Texas, Kingsley Place at Stonebridge,
           Texas. The following agreements are representative of those executed in connection with these properties:

10.68.17.  Termination of Amended and Restated Funding Agreement by and between Emeritus Corporation ("Emeritus")
           and HB-ESC I, LLC, HB-ESC II, LLC, and HB-ESC V, LP (collectively "HB Entities") effective June 30, 2003.           (4)
10.68.18.  Global Amendment to Management Agreements by and between Emeritus Corporation ("Emeritus") and HB-
           ESC I, LLC, HB-ESC II, LLC, HB-ESC IV, LP, and HB-ESC V, LP (collectively "HB Licenses") effective June
           June 30, 2003.                                                                                                      (4)

31.1. . .  Certification of Periodic Reports

31.1.1. .  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
           Act of 2002 for Daniel R. Baty dated November 7, 2003.                                                              (1)
31.1.2. .  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
           Act of 2002 for Raymond R. Brandstrom dated November 7, 2003.                                                       (1)

32.1. . .  Certification of Periodic Reports

32.1.1. .  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
           Act of 2002 for Daniel R. Baty dated November 7, 2003.                                                          (2) (3)
32.1.2. .  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
           Act of 2002 for Raymond R. Brandstrom dated November 7, 2003.                                                   (2) (3)

99.1. . .  Press Releases

99.1.1. .  Press Release dated June 10, 2003, Emeritus Announces Intent to Retire Preferred Stock and Termination
           of Regent Management Agreement.                                                                                     (5)
99.1.2. .  Press Release dated July 2, 2003, Emeritus Announces Finance Transaction for Three Communities.                     (5)
99.1.3. .  Press Release dated July 18, 2003, Emeritus is the Winning Bidder in the Auction to Acquire Alterra
           Healthcare.                                                                                                         (5)
99.1.4. .  Press Release dated July 24, 2003, US Bankruptcy Court Approves Emeritus Bid to Acquire Alterra.                    (5)
99.1.5. .  Press Release dated July 31, 2003, Emeritus Announces Repurchase of Half its Series A Preferred Stock.              (5)
99.1.6. .  Press Release dated September 2, 2003, Emeritus Announces Repurchase of its Remaining Series A Preferred
           Stock.                                                                                                              (1)
99.1.7. .  Press Release dated October 1, 2003, Emeritus Announces Sale-Leaseback of Four Facilities.                          (4)
99.1.8. .  Press Release dated October 6, 2003, Emeritus Announces Lease of Emeritrust II Facilities.                          (4)
99.1.9. .  Press Release dated October 15, 2003, Emeritus Announces Update to Alterra Transaction.                             (6)
99.1.10 .  Press Release dated November 6, 2003, reports on third quarter 2003 results.                                    (1) (7)
</TABLE>


(1)     Filed  herewith
(2)     Furnished  herewith
(3)     A  signed original of this written statement required by Section 906 has
        been  provided  to Emeritus Corporation and will be retained by Emeritus
        Corporation  and  furnished to the Securities and Exchange Commission or
        its  staff  upon  request.
(4)     Filed  as  an  exhibit  to  a  Form  8-K  filed on October 14, 2003, and
        incorporated  herein  by  reference.
(5)     Incorporated  by  reference  to  the  indicated  exhibit  filed with the
        Company's  Second  Quarter  Report  on  Form  10-Q (File No. 1-14012) on
        August  8,  2003.
(6)     Filed  as  an  exhibit  to  a  Form  8-K  filed on October 16, 2003, and
        incorporated  herein  by  reference.
(7)     Filed  as  an  exhibit  to  a  Form  8-K  filed on November 7, 2003, and
        incorporated  herein  by  reference.

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<PAGE>

(b)  Reports on Form 8-K.

1.     A  report  on  Form  8-K  dated  May 1, 2003, was filed on July 15, 2003,
       related  to  the  financial statements and pro forma financial statements
       required  to  be filed in conjunction with an eight community acquisition
       from  Balanced  Care  Corporation.

2.     A  report  on Form 8-K dated August 7, 2003, was filed on August 8, 2003,
       related  to  a press release announcing the results of operations for the
       second  quarter  of  2003.

3.     A  report  on  Form  8-K dated October 13, 2003, was filed on October 14,
       2003,  related to the acquisition of 21 communities. This filing includes
       item  2.

4.     A  report  on  Form  8-K dated October 15, 2003, was filed on October 16,
       2003,  related  to  a  press  release  about  an  update  to  the Alterra
       transaction.

5.     A  report  on  Form  8-K dated November 6, 2003, was filed on November 7,
       2003, related to a press release announcing the results of operations for
       the  third  quarter  of  2003.



                                       36
<PAGE>


                                    SIGNATURE

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.

Dated:  November  7,  2003

                                                 EMERITUS  CORPORATION
                                                    (Registrant)


                                       /s/  Raymond  R.  Brandstrom
                                       -----------------------------------------
                                       Raymond  R.  Brandstrom, Vice President
                                       of Finance, Chief Financial Officer, and
                                       Secretary

                                       37

<PAGE>