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, 2002.

[  ]  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


As  of October 31, 2002, there were 10,214,934 shares of the Registrant's Common
Stock,  par  value  $.0001,  outstanding.

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<CAPTION>

                                      EMERITUS CORPORATION

                                              INDEX


                                 Part I.  Financial Information


<S>                                                                                     <C>

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

         Condensed Consolidated Balance Sheets as of September 30, 2002, and
         December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .         1

         Condensed Consolidated Statements of Operations for the
         Three Months and Nine Months ended September 30, 2002 and 2001 . . . . . . . .        2

         Condensed Consolidated Statements of Cash Flows for the Nine
         Months ended September 30, 2002 and 2001 . . . . . . . . . . . . . . . . . .          3

         Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . .        4

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations . . . .. . . . . . . . . . . . .. . . . .. .  . . . . . . . .  .       10


Item 3.  Quantitative  and  Qualitative  Disclosures  About  Market  Risk . . . .  . . .      22


Item 4.  Controls  and  Procedures  . . . . . . . . . . . .. . . . .. .  . . . . . . . .      22



                                 Part II.  Other Information

Note:     Items 1 through 3, and Item 5 of Part II are omitted because they are not applicable.

Item  4.  Submission  of  Matters to a Vote of Security Holders  . . . . . . . . . . . . . .  23


Item  6.  Exhibits  and  Reports  on  Form  8-K  . . . . . .  . . . .  . . . .  . . . .  . .  23


          Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    26

          Certifications . . . . . . . . . . . . . . . . . . . . . . . . . .. . .  . . . .    26

</TABLE>




<TABLE>
<CAPTION>

                                                 EMERITUS CORPORATION
                                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                                     (unaudited)
                                          (In thousands, except share data)
                                                        ASSETS


                                                                                       September 30,    December 31,
                                                                                           2002             2001
                                                                                      ---------------  --------------
<S>                                                                                   <C>              <C>
Current Assets:
 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $        7,461   $       9,811
 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,396           1,376
 Trade accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . .           1,484           1,172
 Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,272           2,859
 Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .           4,208           2,463
 Property held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,028           2,242
                                                                                      ---------------  --------------
 Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          19,849          19,923
                                                                                      ---------------  --------------
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . .         118,459         131,200
Property held for development. . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,040           1,040
Notes receivable from and investments in affiliates. . . . . . . . . . . . . . . . .           3,828           3,675
Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5,555           5,520
Lease acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5,737           4,864
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,476           2,206
                                                                                      ---------------  --------------
 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $      156,944   $     168,428
                                                                                      ===============  ==============

                                         LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
 Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .  $       50,394   $       4,523
 Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,871           2,105
 Accrued employee compensation and benefits. . . . . . . . . . . . . . . . . . . . .           3,914           3,301
 Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,255           2,861
 Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,808           1,415
 Accrued dividends on preferred stock . . . . . . . . . . . .  . . . . . . . . . . .          11,955           7,429
 Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           7,221           8,690
 Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,453               -
 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,335           1,699
                                                                                      ---------------  --------------
 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          84,206          32,023
                                                                                      ---------------  --------------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . .          77,409         131,070
Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          32,000          32,000
Deferred gain on sale of communities . . . . . . . . . . . . . . . . . . . . . . . .          20,392          18,671
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,498           2,404
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .             454             256
                                                                                      ---------------  --------------
 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         216,959         216,424
                                                                                      ---------------  --------------
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             512           1,145
Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          25,000          25,000
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 70,000 shares; issued and outstanding
    33,142 and 30,609 at September 30, 2002, and December 31, 2001, respectively . .               -               -
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and
    outstanding 10,214,934 and 10,196,030 shares at September 30, 2002, and
    December 31, 2001, respectively. . . . . . . . . . . . . . . . . . . . . . . . .               1               1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          68,724          67,686
Accumulated other comprehensive gain (loss). . . . . . . . . . . . . . . . . . . . .             884            (136)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (155,136)       (141,692)
                                                                                      ---------------  --------------
 Total shareholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (85,527)        (74,141)
                                                                                      ---------------  --------------
 Total liabilities and shareholders' deficit . . . . . . . . . . . . . . . . . . . .  $      156,944   $     168,428
                                                                                      ===============  ==============


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

                                                         1
<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,
                                           ----------------------------  ----------------------------
                                               2002           2001           2002           2001
                                           -------------  -------------  -------------  -------------
<S>                                        <C>            <C>            <C>            <C>
Revenues:
  Community revenue . . . . . . . . . . .  $     32,226   $     32,211   $     94,640   $     97,558
  Other service fees. . . . . . . . . . .         1,149            474          3,244          1,621
  Management fees . . . . . . . . . . . .         2,662          2,279          8,313          5,743
                                           -------------  -------------  -------------  -------------
          Total operating revenues. . . .        36,037         34,964        106,197        104,922

Expenses:
  Community operations. . . . . . . . . .        21,474         20,327         63,120         60,874
  General and administrative. . . . . . .         5,385          5,068         15,175         13,905
  Depreciation and amortization . . . . .         1,653          1,861          5,179          5,533
  Facility lease expense. . . . . . . . .         7,282          6,681         21,420         20,361
                                           -------------  -------------  -------------  -------------
          Total operating expenses. . . .        35,794         33,937        104,894        100,673
                                           -------------  -------------  -------------  -------------
          Income from operations. . . . .           243          1,027          1,303          4,249

Other income (expense):
  Interest income . . . . . . . . . . . .            46            221            268            779
  Interest expense. . . . . . . . . . . .        (2,838)        (3,306)        (8,616)       (10,374)
  Other, net. . . . . . . . . . . . . . .          (153)         1,212           (894)           960
                                           -------------  -------------  -------------  -------------
          Net other expense . . . . . . .        (2,945)        (1,873)        (9,242)        (8,635)
                                           -------------  -------------  -------------  -------------

          Net loss. . . . . . . . . . . .        (2,702)          (846)        (7,939)        (4,386)

Preferred stock dividends . . . . . . . .         1,777          1,565          5,506          4,796
                                           -------------  -------------  -------------  -------------
          Net loss to common shareholders  $     (4,479)  $     (2,411)  $    (13,445)  $     (9,182)
                                           =============  =============  =============  =============

Loss per common share - basic and diluted  $      (0.44)  $      (0.24)  $      (1.32)  $      (0.90)
                                           =============  =============  =============  =============

Weighted average number of common shares
    outstanding - basic and diluted . . .        10,215         10,181         10,204         10,151
                                           =============  =============  =============  =============


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

                                                  2
<PAGE>

<TABLE>
<CAPTION>

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

                                                                                              Nine Months ended September 30,
                                                                                           ------------------------------------
                                                                                                 2002               2001
                                                                                           -----------------  -----------------
<S>                                                                                        <C>                <C>
Cash flows from operating activities:
  Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $         (7,939)  $         (4,386)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
    Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               141                 74
    Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .             5,179              5,533
    Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . .              (244)              (521)
    Loss (gain) on sale of properties . . . . . . . . . . . . . . . . . . . . . . . . . .               515               (983)
    Write down of lease acquisition costs . . . . . . . . . . . . . . . . . . . . . . . .               191                169
    Write off of deferred gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               243                  -
    Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . .               850              2,294
                                                                                           -----------------  -----------------
          Net cash provided by (used in) operating activities . . . . . . . . . . . . . .            (1,064)             2,180
                                                                                           -----------------  -----------------

Cash flows from investing activities:
  Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .           (11,763)            (1,456)
  Purchase of minority partner interest . . . . . . . . . . . . . . . . . . . . . . . . .            (3,070)                 -
  Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . . . . . . .            25,010              2,350
  Management and lease acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . .            (1,602)                 -
  Repayments from (advances to) affiliates and other managed communities. . . . . . . . .              (603)             2,798
  Proceeds from sales of interest in affiliates . . . . . . . . . . . . . . . . . . . . .               750                  -
  Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               (94)               (30)
  Distributions to minority partners. . . . . . . . . . . . . . . . . . . . . . . . . . .              (500)                 -
                                                                                           -----------------  -----------------
          Net cash provided by investing activities . . . . . . . . . . . . . . . . . . .             8,128              3,662
                                                                                           -----------------  -----------------

Cash flows from financing activities:
  Proceeds from sale of stock under employee stock purchase plan. . . . . . . . . . . . .                57                  -
  Decrease in restricted deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .               (35)               177
  Repayment of short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . .            (1,733)            (1,650)
  Debt issue and other financing costs. . . . . . . . . . . . . . . . . . . . . . . . . .            (1,424)                 -
  Proceeds from long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . .            46,818                155
  Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .           (53,097)            (2,406)
                                                                                           -----------------  -----------------
          Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . .            (9,414)            (3,724)
                                                                                           -----------------  -----------------

          Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . .            (2,350)             2,118

Cash and cash equivalents at the beginning of the period. . . . . . . . . . . . . . . . .             9,811              7,496
                                                                                           -----------------  -----------------

Cash and cash equivalents at the end of the period. . . . . . . . . . . . . . . . . . . .  $          7,461   $          9,614
                                                                                           =================  =================

Supplemental disclosure of cash flow information cash paid during the period
    for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $         10,220   $         10,986

Noncash investing and financing activities:
  Transfer of property held for development from property held for sale . . . . . . . . .  $              -   $            730
  Notes receivable from buyer in sale/leaseback . . . . . . . . . . . . . . . . . . . . .  $              -   $            625
  Assumption of debt by buyer in sale/leaseback . . . . . . . . . . . . . . . . . . . . .  $              -   $          3,162
  Unrealized holding gains in investment securities . . . . . . . . . . . . . . . . . . .  $          1,020   $            746
  Accrued and in-kind preferred stock dividends . . . . . . . . . . . . . . . . . . . . .  $          5,506   $          4,796

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

                                                      3
<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,  financing  operations,
restructuring,  long-term  service  contracts,  contingencies,  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.  Emeritus utilizes third-party insurance for losses and
liabilities  associated with general and professional liability insurance claims
subject  to established self-insured retention levels on a per occurrence basis.
Losses  up  to  these  self-insured  retention  levels  are  accrued  based upon
actuarially determined 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.  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 holds shares in ARV
Assisted  Living, Inc. amounting to less than 5% of its shares.  ARV is publicly
traded  and  has  a  volatile  share  price.  Emeritus  records  an  investment
impairment  charge when it believes this investment has experienced a decline in
value that is other than temporary.  Future adverse changes in market conditions
or  poor  operating results underlying this investment could result in losses or
an  inability  to  recover  the carrying value of the investment that may not be
reflected  in  this  investment's  current  carrying  value,  thereby  possibly
requiring  an  impairment  charge  in  the future.  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.
While  Emeritus  has  considered  future  taxable income and ongoing prudent and
feasible  tax  planning  strategies  in  assessing  the  need  for the valuation
allowance,  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.

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,  2002,  and for the three and nine months ended
September  30,  2002  and  2001.  The  Company  presumes that those reading this
interim  financial  information  have  read  or  have access to its 2001 audited
consolidated  financial  statements  and Management's Discussion and Analysis of
Financial  Condition  and  Results  of Operations that are contained in the 2001
Form  10-K  filed March 29, 2002, and amended on April 30, 2002.  Therefore, the
Company  has omitted footnotes and other disclosures herein, which are disclosed
in  the  Form  10-K.

                                        4
<PAGE>
                              EMERITUS CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                   (unaudited)
DEFERRED  REVENUE

At September 30, 2002, deferred revenue of $2.5 million consists of the unearned
portion  of  the  insurance  surcharge  and  move-in  fees  as  discussed below.

Due to dramatic increases in liability insurance premiums for the year 2002, the
Company  decided  to  institute  an insurance surcharge and billed approximately
$1.4  million  to the residents of its communities in the first quarter of 2002.
The  associated  revenue  is  being recognized on a straight-line basis over the
life  of  the  insurance  policy.

In  2001  and  prior years, the Company recognized nonrefundable move-in fees at
the time the resident occupied the unit and the related services were performed.
This  treatment  was not materially different than recognition of such fees over
the  average  period  of occupancy. However, in 2002, the Company began charging
significantly  higher fees for move-ins than were previously charged. Therefore,
the  Company  has  instituted  a  policy  consistent  with  SEC Staff Accounting
Bulletin  101  "Revenue Recognition", to defer such fees and recognize them over
the  average  period  of  occupancy,  approximately  16 months. This resulted in
deferring  approximately $2.1 million of revenue at September 30, 2002, of which
$1.7  million  and  $771,000  relate  to  fees  charged  in  the  nine-month and
three-month  periods ended September 30, 2002, respectively. The Company has not
deferred  any  of  the  costs  related  to  move-ins.

EMERITRUST  TRANSACTIONS

The  Company  holds  interest  in  46  communities referred to as the Emeritrust
communities,  including  25 Emeritrust I communities, 16 Emeritrust II Operating
communities,  and  5  Emeritrust  II  Development  communities, under management
agreements  described  in  the Company's Annual Report on Form 10-K for the year
ended  December 31, 2001.  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.

For  the  three months ended September 30, 2002 and 2001, total gross management
fees  earned  for  the  Emeritrust I communities were approximately $511,000 and
$1.4  million,  respectively, of which $349,000 and $739,000, respectively, were
recognized  as  revenue.  Approximately  $450,000  of  the  decrease  in  gross
management fees is associated with changes in the computation of management fees
effective with the extension of the management agreement on January 1, 2002.  In
addition,  gross  management  fees for the third quarter of 2002 were reduced by
financing  extension  fees  paid by the communities during the quarter and gross
management fees for the third quarter of 2001, including recognition of $576,000
in  contingent  management  fees  earned  in  prior  periods. Fees recognized as
revenue  for the third quarter of 2001 reflected a funding obligation consisting
of  $647,000  on  the underlying financing of Emeritrust I properties, a feature
that  is not present in 2002.  For the three months ended September 30, 2002 and
2001, total management fees earned for the Emeritrust II Development communities
were  $183,000,  and  $160,000,  respectively,  of  which $170,000 and $142,000,
respectively, were recognized as revenue after reflecting funding obligations of
$13,000  and  $18,000,  respectively.  For  the three months ended September 30,
2002  and  2001,  management  fees  earned  and recognized for the Emeritrust II
Operating  communities,  for which there is no funding obligation, were $486,000
and $500,000, respectively.  Thus, the management fees recognized for all of the
Emeritrust communities decreased $376,000 for the third quarter of 2002 compared
to  the  comparable  period  in  2001.

                                        5
<PAGE>

For  the  nine  months  ended September 30, 2002 and 2001, total management fees
earned for the Emeritrust I communities were approximately $1.6 million and $2.5
million,  respectively,  of  which  $1.4 million and $1.6 million, respectively,
were  recognized  as  revenue.  These  results were affected by the same factors
discussed  for  the  third  quarters  of  2002  and  2001 and additional funding
obligations  of  $253,000 for the first six months of 2001.  For the nine months
ended  September  30,  2002  and  2001,  total  management  fees  earned for the
Emeritrust  II Development communities were $579,000 and $400,000, respectively,
of  which  $529,000 and $326,000, respectively, were recognized as revenue after
reflecting  funding  obligations  of $50,000 and $74,000, respectively.  For the
nine  months  ended  September  30,  2002  and  2001, management fees earned and
recognized  for  the  Emeritrust II Operating communities, for which there is no
funding obligation, were $1.5 million and $1.4 million, respectively.  Thus, the
management  fees  recognized  for  all  of  the Emeritrust communities increased
$69,000  for  the first three quarters of 2002 compared to the comparable period
in  2001.

PROPERTY  HELD  FOR  SALE

Emeritus  currently has one property being held for sale.  Assets to be disposed
of  are reported at the lower of their carrying amount or fair market value less
costs  to  sell.

PROPERTY  AND  EQUIPMENT

In  July  of  2002,  the  Company  terminated  the operating lease on an 88-unit
building  in Bedford, Virginia, and entered into a management agreement for that
facility  for  a  period  equal  to  the  remainder  of  the  lease  term.

In August of 2002, the Company terminated the management agreement with Columbia
Pacific  Management,  an  entity  controlled by Daniel R. Baty, Emeritus's chief
executive  officer,  for  a  214-unit facility in Cincinnati, Ohio.  In the same
month,  the Company exercised the purchase option to acquire a 108-unit facility
in  Auburn, Massachusetts, from Hanseatic Corporation.  The cost to exercise the
option  was  approximately $10.4 million, which consisted of the option price of
$10.2  million  and  approximately  $200,000  in transaction costs.  The Company
financed  the  transaction  using  $8.3 million in debt financing provided by GE
Healthcare  Financial Services and approximately $2.1 million in cash.  The debt
financing  bears  interest  at  LIBOR  plus  3.85%, with a floor of 6.5%, and is
secured  by  the  mortgage  and  the  assignment  of  leases.

In September of 2002, the Company purchased the leasehold interest in a 111-unit
facility  located  in  San  Antonio, Texas, from Regent Assisted Living ("RAL").
RAL  had  a  cash  security  deposit on this property of approximately $742,000,
which  was  replaced with a letter of credit from the Company.  The Company also
paid  $408,000 in additional consideration to purchase RAL's leasehold interest.
Total  cash  paid  was  approximately  $1.2  million  after  transaction  costs.
Healthcare  Property  Investors  provided  debt  financing  of  $800,000 and the
Company  paid  cash  of approximately $425,000.  The note requires interest-only
payments  and  bears  an  effective  rate  of  15%  per  annum.

In October of 2002, the Company purchased $2.9 million of mezzanine debt secured
by  interests in three communities leased by the Company; interest receivable on
the  debt  will  partially offset lease payments as the Company's lease payments
are  used  to  pay  interest  on  the  debt.  Also in October of 2002, an entity
controlled  by  Daniel  R.  Baty acquired a 72-unit assisted living and dementia
care  community  in  Austin,  Texas,  which Emeritus is managing. The management
agreement  is  effective  until  terminated  by either party with written notice
according  to  a specified notice period. The management agreement consists of a
fee  of  5%  of  revenue  or  $5,000  per  month,  whichever  is  greater.

                                        6
<PAGE>

TWENTY-FOUR  BUILDING  ACQUISITION

On  October  1,  2002,  the  Company  entered into a lease agreement with Fretus
Investors  LLC  ("Fretus"),  for  twenty-four  assisted  living communities (the
"Properties")  in  six  states  containing  an  aggregate of approximately 1,650
units.  Fretus  acquired  the Properties from Marriott Senior Living Services, a
subsidiary of Marriott International (NYSE: MAR). Fretus is a private investment
joint  venture  between  Fremont  Realty  Capital ("Fremont"), which holds a 65%
stake,  and  Columbia  Pacific  2002 Pool LLC ("Baty entity"), which holds a 35%
minority  stake.  Daniel  R.  Baty,  the  Company's chairman and chief executive
officer,  controls  the  Baty  entity and owns, directly and indirectly, through
limited  liability  companies approximately 36% of the Baty entity.  Mr. Baty is
guarantor  of  a  portion  of  the debt and the administrative member of Fretus.
Fretus,  in  turn,  leased  the  Properties  to the Company.  The Company has no
obligation  with respect to the properties other than its responsibilities under
the lease, which includes the option to purchase solely at the discretion of the
Company.

The  lease  is  for  an  initial  10-year  period with two 5-year extensions and
includes  an  opportunity  for  the Company to acquire the Properties during the
third,  fourth, or fifth year and the right under certain circumstances for  the
lease  to  be  cancelled  as  to  one  or  more properties upon the payment of a
termination  fee  to Emeritus.  The lease is a net lease, with base rental equal
to  (i)  the  debt service on the outstanding senior mortgage granted by Fretus,
and (ii) an amount necessary to provide a 12% annual return on equity to Fretus.
The initial senior mortgage debt is for $45.0 million and interest is accrued at
LIBOR  plus  3.5%,  subject  to  a  floor  of  6.25%.  The  Fretus  equity  is
approximately  $26.7  million but may increase as a result of additional capital
contributions  for  specified  purposes  and  will  decrease as a result of cash
distributions  to  investors.  Based  on  the  initial senior mortgage terms and
Fretus  equity,  current  rental  would be approximately $500,000 per month.  In
addition to the base rental, the lease also provides for percentage rental equal
to  a  percentage  (ranging  from  7%  to 8.5%) of gross revenues in excess of a
specified  threshold.  The  Properties in this acquisition are all purpose-built
assisted  living  communities  in which the Company plans to offer both assisted
and  memory  loss  services  in  selected  communities.

                                        7
<PAGE>

ACCRUED  DIVIDENDS  ON  PREFERRED  STOCK

Since  the  third quarter of 2000, the Company has accrued its obligation to pay
cash  dividends  to both the Series A and Series B preferred shareholders, which
amounted  to  approximately  $12.0  million at September 30, 2002, including all
penalties for non-payment.  Since dividends on the Series A shares were not paid
for  six  consecutive  quarters,  the  Series  A  dividends were calculated on a
compounded  cumulative  basis, retroactively in the first quarter of 2002.  This
caused the preferred stock dividends to be approximately $710,000 higher for the
first  three  quarters  of 2002 as compared to the first three quarters of 2001.
In  addition,  since  the Company had not paid these dividends for more than six
consecutive  quarters,  both  the  Series  A  and  Series  B shareholders became
entitled  to  appoint  one  additional  director  each to the Company's board of
directors.  The  holder  of the Series A shares has requested that an additional
director of their choosing be appointed to the board; the holder of the Series B
shares  has  not  made  a  request.

Series  B dividends were to be paid in cash and in additional shares of Series B
preferred  shares.  For the paid-in-kind dividends for the first two quarters of
2000,  609  shares  of  Series  B  preferred shares were issued.  Since then, no
additional  shares  had  been  issued  until  after  the second quarter of 2002.
Effective  July  1,  2002,  2,533  additional shares were issued as paid-in-kind
dividends  to  cover  the  period  from  July  1,  2000,  through June 30, 2002.
Effective  October  1,  2002,  331 additional shares were issued as paid-in-kind
dividends  to  cover  the  period from July 1, 2002, through September 30, 2002.

                                        8
<PAGE>

LONG-TERM  DEBT

The  current  portion  of  long-term  debt  at September 30, 2002, has increased
approximately  $45.9  million  since December 31, 2001, primarily due to certain
debt  instruments  having  maturity  dates  prior  to September 30,  2003.  Most
significantly,  these debt instruments are a $6.8 million note to GMAC, which is
due  February  1,  2003,  and  notes totaling $39.8 million to Deutsche Bank AG,
which are due May 31, 2003.  Long-term debt is further discussed in the notes to
condensed  consolidated  financial  statements  under  the category "Liquidity".

LOSS  PER  SHARE

Basic  net  loss  per  share  is  computed  based  on  weighted  average  shares
outstanding  and excludes any potential dilution.  Diluted net loss per share is
computed  on the basis of the weighted average number of shares outstanding plus
dilutive  potential  common shares using the treasury stock method.  The capital
structure  of  Emeritus  includes  convertible  debentures,  redeemable  and
non-redeemable  convertible  preferred  stock,  common stock warrants, and stock
options.  The  assumed  conversion  and  exercise  of these securities have been
excluded  from  the calculation of diluted net loss per share since their effect
is  anti-dilutive.  The loss per common share was calculated on a dilutive basis
without consideration of 10,182,901 and 8,086,357 common shares at September 30,
2002  and  2001,  respectively,  related  to  outstanding  options,  warrants,
convertible  debentures,  and  convertible  preferred  stock.

UNREALIZED  HOLDING  GAINS  ON  INVESTMENT  SECURITIES

The  change  in  unrealized  holding  gains  on  investment  securities  for the
nine-month  period  ended  September 30, 2002, represents the change in value of
the  Company's  investment  in  ARV  Assisted  Living,  Inc.

OTHER  COMPREHENSIVE  LOSS

Other comprehensive loss includes the following transactions for the three-month
and  nine-month  periods  ended  September  30,  2002  and  2001,  respectively:

<TABLE>
<CAPTION>

                                          Three Months ended September 30,       Nine Months ended September 30,
                                        ------------------------------------  ------------------------------------
                                              2002               2001               2002               2001
                                        -----------------  -----------------  -----------------  -----------------
                                                                      (In thousands)
<S>                                     <C>                <C>                <C>                <C>
Net loss to common shareholders. . . .  $         (4,479)  $         (2,411)  $        (13,445)  $         (9,182)
Other comprehensive income:
     Unrealized holding gains (losses)
          on investment securities . .               771               (218)             1,020                747
                                        -----------------  -----------------  -----------------  -----------------
Comprehensive loss . . . . . . . . . .  $         (3,708)  $         (2,629)  $        (12,425)  $         (8,435)
                                        =================  =================  =================  =================
</TABLE>

LIQUIDITY

The  Company  has  incurred significant operating losses since its inception and
has a working capital deficit of $64.4 million, although $2.5 million represents
deferred  revenues  and $12.0 million of preferred cash dividends is only due if
declared  by  the  Company's  board  of directors. To date, the Company has been
dependent  upon  third  party  financing  or  disposition  of  assets  to  fund
operations.  Management  intends to continue to refinance or restructure debt as
necessary.  The Company cannot, however, guaranty that third party financing and
refinancing  or  dispositions  of  assets  will  be available timely or on terms
acceptable  to

                                        9
<PAGE>

Emeritus.  With  respect  to  both  the $6.8 million that matures on February 1,
2003,  and  the $39.8 million of mortgage debt that matures on May 31, 2003, the
Company  is  currently  in  discussions  with  the  lenders and others regarding
restructuring  or  refinancing  the  debt and currently the Company believes the
issue  will  be  resolved  prior  to the maturity of the debt. If the Company is
unable  to  restructure  or  refinance  the  debt, the lenders could declare the
entire  amount  immediately  due  and  payable  at  maturity  and  could  begin
foreclosure  proceedings  with  respect  to the eight assisted living properties
that  secure  this  debt. In addition, this would result in defaults under other
leases  and  loan  agreements.  If  the  Company  is  able  to  refinance  the
aforementioned  mortgage debt, management believes Emeritus has sufficient funds
to  sustain  operations  at  least  through  September  30,  2003.

RECLASSIFICATIONS

Certain  reclassifications of 2001 amounts have been made to conform to the 2002
presentation.

                                       10
<PAGE>

           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 7 and
developing 20 communities in 1997, and developing 5 communities in 1998.  During
1999  and  continuing  through  2001,  we  substantially  reduced  our  pace  of
acquisition and development activities. During 2002 we have resumed pursuing, on
a  selective  basis, management contract and acquisition opportunities, which we
believe  will  be  beneficial  to  the  Company.

In  our consolidated portfolio, exclusive of insurance surcharges, but including
deferred move-in fees, our rate enhancement program brought about an increase in
average monthly revenue per occupied unit to $2,542 for the first three quarters
of  2002  from  $2,387 for the first three quarters of 2001.  This represents an
average  revenue  increase  of  $155  per month per occupied unit, or 6.5%.  The
average  occupancy  rate decreased to 81.8% for the first three quarters of 2002
from  84.4%  for  the  first  three  quarters  of  2001.

In  our  total operated portfolio, which includes managed communities, exclusive
of  insurance  surcharges,  but  including  deferred  move-in  fees,  our  rate
enhancement  program  brought  about  an increase in average monthly revenue per
occupied unit to $2,542 for the first three quarters of 2002 from $2,277 for the
first  three  quarters  of 2001.  This represents an average revenue increase of
$265  per  month  per  occupied  unit, or 11.6%.  The larger increase in average
monthly  revenue per occupied unit in our total portfolio as compared to that in
our  consolidated  portfolio  is partially due to the addition of 16 communities
previously  managed  by  Regent  Assisted Living, Inc.  A majority of the Regent
communities  have  Special  Care (Alzheimer's) units, which have a significantly
higher  rental  rate  than  non-Special  Care units.  The average occupancy rate
decreased to 81.0% for the first three quarters of 2002 from 81.7% for the first
three  quarters  of  2001.

We intend to continue a selective growth strategy through acquiring and managing
new  communities  with  operating  characteristics  consistent  with our current
emphasis  on stabilizing occupancy and enhancing our operating model and service
offerings.  This  change  in  emphasis  is  epitomized  by  the  lease  of  the
twenty-four  Marriott  communities  as  discussed  in  the  Notes  to  Condensed
Consolidated Financial Statements and in Management's Discussion and Analysis of
Financial  Condition  and  Results  of  Operations  in the "Twenty-Four Building
Acquisition"  category.

               [The rest of this page is intentionally left blank]


                                       11
<PAGE>

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


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,
                                                  2002                    2001                    2001
                                         ----------------------  ----------------------  ----------------------
                                         Buildings     Units     Buildings     Units     Buildings     Units
                                         ----------  ----------  ----------  ----------  ----------  ----------
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
Owned (1) . . . . . . . . . . . . . . .         17       1,687           16       1,579         16       1,579
Leased (1). . . . . . . . . . . . . . .         43       3,628           42       3,444         43       3,527
Managed/Admin Services. . . . . . . . .         93       8,505           70       6,620         71       6,710
Joint Venture/Partnership . . . . . . .          3         333            5         605          5         605
                                         ----------  ----------  ----------  ----------  ----------  ----------
     Operated Portfolio . . . . . . . .        156      14,153          133      12,248        135      12,421

     Percentage increase (decrease) (2)       17.3%       15.6%      (1.5%)      (1.4%)          0%          0%

New Developments. . . . . . . . . . . .          -           -            -           -          -           -
                                         ----------  ----------  ----------  ----------  ----------  ----------
     Total. . . . . . . . . . . . . . .        156      14,153          133      12,248        135      12,421
                                         ----------  ----------  ----------  ----------  ----------  ----------

                                              17.3%       15.6%      (1.5%)      (1.4%)      (1.5%)      (1.6%)
</TABLE>

--------
(1)  Included  in  our  consolidated  portfolio  of  communities.
(2)  The  percentage  increase  (decrease)  indicates  the change from the prior
period  reported,  or,  in  the  case of September 30, 2001, from the end of the
prior  year  in  which  there  were  2  additional  buildings  in  development
representing  200  units.

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.  Inflation or other circumstances that
adversely  affect  seniors'  ability  to  pay for assisted living services could
therefore  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 operating losses since our inception, and as of September
30,  2002, we had an accumulated deficit of approximately $155.1 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 and have declined in the last two years
     consistent with industry patterns;

*    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 has enabled us to use
our  resources  more  efficiently  and increase our focus on enhancing community
operations.

EMERITRUST  TRANSACTIONS

We  hold  interests in 46 communities referred to as the Emeritrust communities,
including  25  Emeritrust I communities, 16 Emeritrust II Operating communities,
and  5  Emeritrust  II  Development  communities,  under  management  agreements
described  in  our  Annual  Report  on Form 10-K for the year ended December 31,
2001.  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.

For  the  three months ended September 30, 2002 and 2001, total gross management
fees  earned  for  the  Emeritrust I communities were approximately $511,000 and
$1.4  million,  respectively, of which $349,000 and $739,000, respectively, were
recognized  as  revenue.  Approximately  $450,000  of  the  decrease  in  gross
management fees is associated with changes in the computation of management fees
effective with the extension of the management agreement on January 1, 2002.  In
addition,  gross  management  fees for the third quarter of 2002 were reduced by
financing  extension  fees  paid by the communities during the quarter and gross
management fees for the third quarter of 2001, including recognition of $576,000
in  contingent  management  fees  earned  in  prior periods.  Fees recognized as
revenue  for the third quarter of 2001 reflected a funding obligation consisting
of  $647,000  on  the underlying financing of Emeritrust I properties, a feature
that  is not present in 2002.  For the three months ended September 30, 2002 and
2001, total management fees earned for the Emeritrust II Development communities
were  $183,000,  and  $160,000,  respectively,  of  which $170,000 and $142,000,
respectively, were recognized as revenue after reflecting funding obligations of
$13,000  and  $18,000,  respectively.  For  the three months ended September 30,
2002  and  2001,  management  fees  earned  and recognized for the Emeritrust II
Operating  communities,  for which there is no funding obligation, were $486,000
and $500,000, respectively.  Thus, the management fees recognized for all of the
Emeritrust communities decreased $376,000 for the third quarter of 2002 compared
to  the  comparable  period  in  2001.

For  the  nine  months  ended September 30, 2002 and 2001, total management fees
earned for the Emeritrust I communities were approximately $1.6 million and $2.5
million,  respectively,  of  which  $1.4 million and $1.6 million, respectively,
were  recognized  as  revenue.  These  results were affected by the same factors
discussed  for  the  third  quarters  of  2002  and  2001 and additional funding
obligations  of  $253,000 for the first six months of 2001.  For the nine months
ended  September  30,  2002  and  2001,  total  management  fees  earned for the
Emeritrust  II Development communities were $579,000 and $400,000, respectively,
of  which  $529,000 and $326,000, respectively, were recognized as revenue after
reflecting  funding  obligations  of $50,000 and $74,000, respectively.  For the
nine  months  ended  September  30,  2002  and  2001, management fees earned and
recognized  for  the  Emeritrust II Operating communities, for which there is no
funding obligation, were $1.5 million and $1.4 million, respectively.  Thus, the
management  fees  recognized  for  all  of  the Emeritrust communities increased
$69,000  for  the first three quarters of 2002 compared to the comparable period
in  2001.

                                       12
<PAGE>

OTHER  TRANSACTIONS

In  July  of  2002,  we terminated the operating lease on an 88-unit building in
Bedford,  Virginia,  and  entered into a management agreement for that facility.

In  August of 2002, we terminated the management agreement with Columbia Pacific
Management, an entity controlled by Daniel R. Baty, our chief executive officer,
for  a  214-unit  facility in Cincinnati, Ohio.  In the same month, we exercised
our  purchase  option  to  acquire a 108-unit facility in Auburn, Massachusetts,
from  Hanseatic  Corporation.  The cost to exercise the option was approximately
$10.4  million,  which  consists  of  the  option  price  of  $10.2  million and
approximately  $200,000 in transaction costs.  We financed the transaction using
$8.3  million in debt financing provided by GE Healthcare Financial Services and
approximately  $2.1 million in cash.  The debt financing bears interest at LIBOR
plus  3.85%,  with  a  floor  of  6.5%,  and  is secured by the mortgage and the
assignment  of  leases.

In September of 2002, we purchased the leasehold interest in a 111-unit facility
located  in  San Antonio, Texas, from Regent Assisted Living ("RAL").  RAL had a
cash  security  deposit  on  this  property of approximately $742,000, which was
replaced  with  a letter of credit from us.  We also paid $408,000 in additional
consideration  to  purchase  RAL's  leasehold  interest.  Total  cash  paid  was
approximately  $1.2  million  after  transaction  costs.  Healthcare  Property
Investors  provided debt financing of $800,000 and we paid cash of approximately
$425,000.  The  note requires interest-only payments and bears an effective rate
of  15%  per  annum.

In  October  of  2002,  we  purchased  $2.9 million of mezzanine debt secured by
interests  in  three  communities  leased by us; interest receivable on the debt
will  partially  offset  lease  payments  as  our lease payments are used to pay
interest on the debt. Also in October of 2002, an entity controlled by Daniel R.
Baty  acquired  a 72-unit assisted living and dementia care community in Austin,
Texas,  which  Emeritus is managing. The management agreement is effective until
terminated  by  either party with written notice according to a specified notice
period.  The  management  agreement consists of a fee of 5% of revenue or $5,000
per  month,  whichever  is  greater.

TWENTY-FOUR  BUILDING  ACQUISITION

On  October 1, 2002, we entered into a lease agreement with Fretus Investors LLC
("Fretus"),  for  twenty-four  assisted living communities (the "Properties") in
six  states  containing  an  aggregate  of  approximately  1,650  units.  Fretus
acquired  the  Properties  from Marriott Senior Living Services, a subsidiary of
Marriott International (NYSE: MAR). Fretus is a private investment joint venture
between  Fremont  Realty  Capital  ("Fremont"),  which  holds  a  65% stake, and
Columbia  Pacific  2002  Pool  LLC  ("Baty  entity"), which holds a 35% minority
stake.   Daniel  R. Baty, our chairman and chief executive officer, controls the
Baty  entity  and  owns,  directly  and  indirectly,  through  limited liability
companies,  approximately  36%  of  the Baty entity.  Mr. Baty is guarantor of a
portion  of  the debt and the administrative member of Fretus.  Fretus, in turn,
leased  the  Properties  to  us.  We  have  no  obligation  with  respect to the
properties  other  than our responsibilities under the lease, which includes the
option  to  purchase  solely  at  our  discretion.

The  lease  is  for  an  initial  10-year  period with two 5-year extensions and
includes  an  opportunity  for  us  to  acquire the Properties during the third,
fourth, or fifth year and the right under certain circumstances for the lease to
be cancelled as to one or more properties upon the payment of a termination fee.
The  lease is a net lease, with base rental equal to (i) the debt service on the
outstanding  senior  mortgage granted by Fretus, and (ii) an amount necessary to
provide  a  12%  annual return on equity to Fretus.  The initial senior mortgage
debt is for $45.0 million and interest is accrued at LIBOR plus 3.5%, subject to
a  floor  of  6.25%.  The  Fretus  equity is approximately $26.7 million but may
increase  as a result of additional capital contributions for specified purposes
and  will decrease as a result of cash distributions to investors.  Based on the
initial  senior  mortgage  terms  and  Fretus  equity,  current  rental would be
approximately  $500,000  per  month.  In  addition to the base rental, the lease
also  provides  for  percentage

                                       13
<PAGE>

rental  equal  to  a  percentage  (ranging from 7% to 8.5%) of gross revenues in
excess  of  a  specified  threshold.  The Properties in this acquisition are all
purpose-built  assisted  living  communities  in  which  we  plan  to offer both
assisted  and  memory  loss  services  in  selected  communities.

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 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, financing operations, restructuring, long-term
service  contracts,  contingencies, 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 more 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.  We  utilize  third-party insurance for losses and liabilities associated
with  general and professional liability insurance claims subject to established
self-insured  retention  levels  on  a per occurrence basis.  Losses up to these
self-insured  retention  levels  are  accrued  based upon actuarially determined
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.  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 hold shares in ARV Assisted Living, Inc. amounting to less than 5%
of  its  shares.  ARV  is  publicly  traded  and has a volatile share price.  We
record  an  investment  impairment  charge  when  we believe this investment has
experienced  a  decline  in  value that is other than temporary.  Future adverse
changes  in  market  conditions  or  poor  operating  results  underlying  this
investment  could result in losses or an inability to recover the carrying value
of  the  investment  that  may  not  be  reflected  in this investment's current
carrying  value,  thereby possibly requiring an impairment charge in the future.
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.  While  we have considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for a
valuation  allowance, 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

                                       14
<PAGE>

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
                                                       Percentage  of  Revenues                          (Decrease)
                                     ----------------------------------------------------------  ----------------------------
                                            Three Months                    Nine Months          Three Months   Nine Months
                                                ended                         ended                  ended         ended
                                            September 30,                  September 30,         September 30,  September 30,
                                     ----------------------------  ----------------------------
                                         2002           2001           2002           2001         2001-2002      2001-2002
                                     -------------  -------------  -------------  -------------  -------------  -------------
<S>                                  <C>            <C>            <C>            <C>            <C>            <C>

Revenues. . . . . . . . . . . . . .         100.0%         100.0%         100.0%         100.0%           2.9%           1.2%
Expenses:
     Community operations . . . . .          59.6           58.1           59.4           58.0            5.6            3.7
     General and administrative . .          14.9           14.5           14.3           13.3            6.3            9.1
     Depreciation and amortization.           4.6            5.3            4.9            5.3          (11.2)          (6.4)
     Facility lease expense . . . .          20.2           19.1           20.2           19.4            9.0            5.2
                                     -------------  -------------  -------------  -------------  -------------  -------------
         Total operating expenses .          99.3           97.0           98.8           96.0            5.5            4.2
                                     -------------  -------------  -------------  -------------  -------------  -------------
Income from operations. . . . . . .           0.7            3.0            1.2            4.0          (76.3)         (69.3)
Other income (expense)
     Interest income. . . . . . . .           0.1            0.6            0.3            0.7          (79.2)         (65.6)
     Interest expense . . . . . . .          (7.9)          (9.5)          (8.2)          (9.8)         (14.2)         (16.9)
     Other, net . . . . . . . . . .          (0.4)           3.5           (0.8)           0.9         (112.6)        (193.1)
                                     -------------  -------------  -------------  -------------  -------------  -------------
         Net other expense. . . . .          (8.2)          (5.4)          (8.7)          (8.2)          57.2            7.0
                                     -------------  -------------  -------------  -------------  -------------  -------------

         Net loss . . . . . . . . .         (7.5%)         (2.4%)         (7.5%)         (4.2%)         219.4%          81.0%
                                     =============  =============  =============  =============  =============  =============
</TABLE>



The following discussion for the three and nine months ended September 30, 2002,
is  exclusive  of  insurance  surcharges  and  the  move-in  fee deferral unless
otherwise  noted.

Comparison  of  the  three  months  ended  September  30,  2002  and  2001
--------------------------------------------------------------------------

Total  Operating  Revenues:  Total operating revenues for the three months ended
September  30,  2002,  increased  by  $1.0  million  to $36.0 million from $35.0
million  for  the  comparable  period  in  2001,  or  2.9%.

Community  revenue  increased by approximately $15,000 in the three months ended
September  30,  2002, compared to the three months ended September 30, 2001.  We
disposed  of  two  communities in the three months ended September 30, 2001, and
transferred  one  community  from  leased  to  managed  in  July of 2002.  These
communities,  which  represented revenue of approximately $1.2 million, were not
included  in  our  consolidated portfolio in the third quarter of 2002, but were
included  in the comparable quarter of 2001.  The decrease in revenue attributed
to  these  changes  was  partially  offset  by  the net effect of an increase in
average  monthly revenue per unit and a decrease in the occupancy rate.  Average
monthly  revenue  per  unit was $2,577 for the third quarter of 2002 compared to
$2,414  for  the  comparable quarter of 2001, an increase of approximately 6.8%.
The  occupancy  rate  decreased  1.3  percentage  points  to 82.3% for the third
quarter  of  2002  from  83.6%  for  the  third  quarter  of  2001.

Community  revenue  was  enhanced  by  an  increase in management fee revenue of
$383,000  and  other service fees of $675,000.  Management fee revenue increased
primarily  due  to  the  increased  number  of  communities  under  management
agreements,  accounting for $710,000 of the increase, for the three months ended
September  30,  2002.   The  increase  in  management  fee revenue was partially
offset  by  a  decrease  of  $390,000 related to Emeritrust I communities in the
three  months  ended September 30, 2002, as compared to

                                       15
<PAGE>

the  same  period  in 2001. The majority of this decrease was due to a change in
the  method  of  computing  management  fees effective with the extension of the
management  agreement  on  January  1, 2002. Management fees and related funding
obligations  are discussed in more detail above under "Emeritrust Transactions".
Other  service  fees  increased  primarily  from  additional  ancillary programs
introduced  during  the  past  year  and  insurance  surcharges  of  $342,000.

Community  Operations:  Community  operating expenses for the three months ended
September  30,  2002,  increased  by  $1.2  million  to $21.5 million from $20.3
million  in  the  third quarter of 2001, or 5.6%.  The change was comprised of a
net  decrease of approximately $690,000 from the disposition of two communities,
the conversion of one community from leased to managed, and an increase in total
operating  expenses  of  approximately  $1.9 million.  The increase in operating
expenses  was  primarily  due  to increases in liability, workers' compensation,
health  insurance,  and  benefits  of  $1.0 million and added personnel expenses
associated  with  our  increasing  emphasis  on  dementia  care  (Alzheimer's).
Community  operating  expenses  as  a  percentage  of  total  operating  revenue
increased  to 59.6% in the third quarter of 2002 from 58.1% in the third quarter
of  2001.

General  and  Administrative:  General and administrative (G&A) expenses for the
three  months  ended September 30, 2002, increased $317,000 to $5.4 million from
$5.1  million  for  the  comparable period in 2001, or 6.3%.  As a percentage of
total  operating  revenues, G&A expenses increased to 14.9% for the three months
ended September 30, 2002, compared to 14.5% for the three months ended September
30,  2001.  G&A  expenses  rose  primarily  due  to  increases  in the number of
employees  and  normal  increases  in employee salaries.  Recent growth in total
communities  managed  through  additional  contracts  has  led  to  some  added
operational  and  administrative  employees.  Since  more  than  half  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.  These
percentages were 6.2% and 7.4% for the three months ended September 30, 2002 and
2001,  respectively.

Depreciation  and  Amortization:  Depreciation  and  amortization  for the three
months  ended  September 30, 2002, was $1.7 million compared to $1.9 million for
the  comparable  period  in  2001.  This  decrease is primarily due to decreased
depreciable  assets  because  of  sales/leaseback  arrangements.  In  2002,
depreciation  and  amortization  represents  4.6%  of  total operating revenues,
compared  to  5.3%  for  the  comparable  period  in  2001.

Facility  Lease  Expense:  Facility  lease  expense  for  the three months ended
September 30, 2002, was $7.3 million compared to $6.7 million for the comparable
period  of 2001, representing an increase of $601,000, or 9.0%.  While we leased
43 communities as of both September 30, 2002 and 2001, there were changes in the
composition  of  the  leased  communities  during the periods by refinancing two
previously  mortgaged  communities  with  leases.  Of  the  total  increase  in
operating  lease  expense,  approximately  three-fourths  resulted  from  the
refinancing  and  the  balance was attributable to rent escalation provisions in
existing  leases.  Facility  lease expense as a percentage of revenues was 20.2%
for  the  three  months ended September 30, 2002, and 19.1% for the three months
ended  September  30,  2001.

Interest Income:  Interest income for the three months ended September 30, 2002,
was $46,000 versus $221,000 for the comparable period of 2001.  This decrease is
primarily  attributable  to  declining  interest  rates.

Interest  Expense:  Interest  expense  for  the three months ended September 30,
2002,  was  $2.8  million  compared to $3.3 million for the comparable period of
2001.  This  decrease  of $468,000, or 14.2%, is primarily attributable to lower
interest  rates  on  our  variable  rate  debt  and to the sale/leaseback of two
communities  in  the  second  quarter  which replaced mortgage interest with new
operating lease payments.  As a percentage of total operating revenues, interest
expense  decreased  to  7.9%  from 9.5% for the three

                                       16
<PAGE>

months  ended  September  30,  2002  and  2001,  respectively,  reflecting lower
interest  rates  and  the  two  community  sale/leaseback  transactions.

Other, net:  Other, net (expense) for the three months ended September 30, 2002,
was an expense of $153,000 compared to income of $1.2 million for the comparable
period  in  2001.  The change of $1.4 million is predominately the result of two
community transactions in the third quarter of 2001, one consisting of a gain of
$989,000  on  the sale of a community, and the other consisting of an adjustment
related  to  a  joint venture note receivable of $489,000 in connection with the
acquisition  of  the  joint  venture.

Preferred  dividends:  For  the three months ended September 30, 2002 and 2001,
the  preferred  dividends  were  approximately  $1.8  million  and $1.6 million,
respectively.  Since  dividends  on  the  Series  A shares were not paid for six
consecutive  quarters,  the  Series  A dividends were calculated on a compounded
cumulative  basis,  retroactively to the first quarter of 2002.  This caused the
preferred  dividends to be approximately $212,000 higher in the third quarter of
2002  as  compared to the third quarter of 2001.  In addition, since we have not
paid  these dividends for six consecutive quarters, both our Series A and Series
B  shareholders  became  entitled  to  elect one additional director each to our
board  of  directors  at each annual shareholders' meeting until such time as we
have  paid  the  accrued  dividends.

 Comparison  of  the  nine  months  ended  September  30,  2002  and  2001
 -------------------------------------------------------------------------

Total  Operating  Revenues:  Total  operating revenues for the nine months ended
September  30,  2002,  increased  by  $1.3 million to $106.2 million from $104.9
million  for  the  comparable  period  in  2001,  or  1.2%.

A  significant  component of the change in revenue is comprised of a decrease in
community revenue of approximately $2.9 million and an increase in other service
fees  of $1.6 million for the nine months ended September 30, 2002.  We disposed
of  three  communities in the first three quarters of 2001, and  transferred one
community  from  leased  to  managed  in July of 2002.  These communities, which
represented  revenue  of  approximately  $3.3  million, were not included in our
consolidated portfolio in the first three quarters of 2002, but were included in
the comparable quarters of 2001.   In addition, we made a one-time adjustment to
defer  recognition  of  move-in fees of approximately $1.8 million in the second
quarter  of 2002.  These decreases were partially offset by the net effect of an
increase  in  average  monthly  revenue per unit and a decrease in the occupancy
rate  resulting  in  a $3.9 million increase in revenue from ongoing operations,
including  the  amortization  of  the  insurance  surcharge  of approximately $1
million.  Average  monthly  revenue  per  unit  was  $2,542  for the first three
quarters  of  2002,  compared  to $2,387 for the comparable quarters of 2001, an
increase  of  approximately  6.5%.  The  occupancy rate decreased 2.6 percentage
points  to  81.8%  for  the  first  three  quarters  of 2002, from 84.4% for the
comparable  period  in  2001.

Community  revenue was enhanced by an increase in management fee revenue of $2.6
million  for the first three quarters of 2002, as compared to the same period of
2001.  Management fee revenue increased primarily due to the increased number of
communities  under  management  agreements,  accounting  for  approximately $1.7
million  of  the  increase. In addition, contingent management fees increased by
$378,000,  and  management  fees  recognized  from  the  Emeritrust  communities
increased  by  $69,000.  The  remainder  of  the  increase  was a combination of
one-time performance-based revenue, and improved performance from communities we
have  managed  for  more  than  nine  months.

Community  Operations:  Community  operating  expenses for the nine months ended
September  30,  2002,  increased  by  $2.2  million  to $63.1 million from $60.9
million in the first three quarters of 2001, or 3.7%.  The increase is primarily
the  result  of increases in liability, workers' compensation, health insurance,
and  benefits  of  $2.7  million and added personnel expense associated with our
increasing emphasis on dementia care (Alzheimer's).  These increases were offset
by  a  decrease of $2.1 million in operating expenses from the disposal of three
communities in 2001 and transfer of one community from leased to managed in July

                                       17
<PAGE>

of  2002.  Community  operating  expenses  as  a  percentage  of total operating
revenue increased to 59.4% in the third quarter of 2002, from 58.0% in the third
quarter  of  2001.

General  and  Administrative:  General and administrative (G&A) expenses for the
nine  months  ended  September 30, 2002, increased $1.3 million to $15.2 million
from  $13.9 million for the comparable period in 2001, or 9.1%.  As a percentage
of total operating revenues, G&A expenses increased to 14.3% for the nine months
ended  September 30, 2002, compared to 13.3% for the nine months ended September
30,  2001.  G&A  expenses  rose  primarily  due  to  increases  in the number of
employees,  normal  increases in employee salaries, and costs related to various
employee  benefit  programs.  Recent growth in total communities managed through
additional  contracts has led to added operational and administrative employees.
Since more than half of the communities we operate are managed, G&A expense as a
percentage  of  operating  revenues  for  all  communities,  including  managed
communities,  may  be  more  meaningful  for  industry-wide  comparisons.  These
percentages  were 5.9% and 6.8% for the nine months ended September 30, 2002 and
2001,  respectively.

Depreciation  and  Amortization:  Depreciation  and  amortization  for  the nine
months  ended  September  30,  2002, were approximately $5.2 million compared to
$5.5  million  for  the  nine months ended September 30, 2001.  This decrease is
primarily  due  to  decreased  depreciable  assets  because  of  sales/leaseback
arrangements.  In  2002,  depreciation and amortization represents 4.9% of total
operating  revenues,  compared  to  5.3% for the comparable period in 2001.  The
decrease  as a percentage of revenues is due to decreased depreciable assets and
increased  revenues.

Facility  Lease  Expense:  Facility  lease  expense  for  the  nine months ended
September  30,  2002,  was  $21.4  million  compared  to  $20.4  million for the
comparable  period  of  2001, representing an increase of $1.1 million, or 5.2%.
While  we  leased  43  communities as of both September 30, 2002 and 2001, there
were  changes  in  the composition of the leased communities during the periods.
The  increase  in  expense  was  primarily  due to lease escalator provisions in
existing  leases  and  a sale/leaseback of two communities in the second quarter
which  replaced  mortgage  interest with new operating lease payments.  Facility
lease  expense  increases  associated  with the transaction discussed above were
offset  through  reduced  costs  from  the  disposal of three communities in the
first,  third,  and  fourth  quarters of 2001, and the transfer of one community
from  leased to managed in the third quarter of 2002.  Facility lease expense as
a percentage of revenues was 20.2% and 19.4% for the nine months ended September
30,  2002  and  2001.

Interest  Income:  Interest income for the nine months ended September 30, 2002,
was  $268,000  versus $779,000 for the comparable period of 2001.  This decrease
is  primarily attributable to declining interest rates, and an adjustment in the
second  quarter  of  2001  of  $122,000  increasing  interest  income.

Interest  Expense:  Interest  expense  for  the  nine months ended September 30,
2002,  was  $8.6  million compared to $10.4 million for the comparable period of
2001.  This  decrease  of  $1.8  million, or 16.9%, is primarily attributable to
lower  interest rates on our variable rate debt and to the sale/leaseback of two
communities  in  the  second  quarter, which replaced mortgage interest with new
operating lease payments.  As a percentage of total operating revenues, interest
expense decreased to 8.1% from 9.9% for the nine months ended September 30, 2002
and  2001, respectively, reflecting increased revenues in conjunction with lower
interest  rates  in  the  first  three  quarters  of  2002.

Other,  net:  Other, net (expense) for the nine months ended September 30, 2002,
was  an  expense  of  $894,000 compared to income of $960,000 for the comparable
period  of  2001.  The  net change of $1.9 million is predominately comprised of
the  following  items:  during  the  first  nine  months of 2002, we purchased a
minority  partner  interest  in  two communities and subsequently entered into a
sale/leaseback  transaction with two additional leased communities, resulting in
net  transaction  costs of $530,000.  In July 2002, we transferred one community
from leased to managed, resulting in $171,000 in write-offs.  In August 2001, we
finalized  the sale of a single community, resulting in $1.4 million in gain, of
which  $378,000  was amortized in the first two quarters of 2001.  Additionally,
we recorded $432,000 of

                                       18
<PAGE>

additional  income  related  to  a  previously  fully  reserved  receivable on a
related-party  joint venture. Our Emeritrust net funding obligation decreased by
$232,000  to  $72,000 for the nine months ending September 30, 2002. Finally, we
recognized  income  related  to  our  joint venture partnership in a pharmacy of
$59,000 compared to a net expense of $312,000 for the first nine months of 2001.

Preferred dividends:  For the nine months ended September 30, 2002 and 2001, the
preferred  dividends  were  approximately  $5.5  million  and  $4.8  million,
respectively.  Since  dividends  on  the  Series  A shares were not paid for six
consecutive  quarters,  the  Series  A dividends were calculated on a compounded
cumulative  basis,  retroactively to the first quarter of 2002.  This caused the
preferred  dividends  to  be  approximately  $710,000  higher in the first three
quarters  of 2002 as compared to the first three quarters of 2001.  In addition,
since  we  have  not paid these dividends for six consecutive quarters, both our
Series  A  and  Series  B  shareholders  became entitled to elect one additional
director  each  to  our  board of directors at each annual shareholders' meeting
until  such  time  as  we  have  paid  the  accrued  dividends.

Same  Community  Comparison

We  operated  59  communities on a comparable basis during both the three months
ended  September 30, 2002 and 2001.  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,  2002  and  2001.


<TABLE>
<CAPTION>

                                      Three Months ended September 30,
                                              (In thousands)

                                                            Dollar   Percentage
                                   2002          2001       Change     Change
                               ------------  ------------  --------  -----------
<S>                            <C>           <C>           <C>       <C>
Revenue . . . . . . . . . . .  $    32,917   $    31,441   $ 1,476          4.7%
Community operating expenses.      (21,214)      (19,289)   (1,925)       (10.0)
                               ------------  ------------  --------  -----------
  Community operating income.       11,703        12,152      (449)        (3.7)
Depreciation & amortization .       (1,462)       (1,611)      149          9.2
Facility lease expense. . . .       (7,028)       (6,146)     (882)       (14.4)
                               ------------  ------------  --------  -----------
    Operating income. . . . .        3,213         4,395    (1,182)       (26.9)
Interest expense, net . . . .       (2,260)       (2,869)      609         21.2
Other income (expense). . . .           47            62       (15)       (24.2)
                               ------------  ------------  --------  -----------
    Net income. . . . . . . .  $     1,000   $     1,588   $  (588)      (37.0%)
                               ============  ============  ========  ===========
</TABLE>

The  same communities represented $32.9 million or 91.3% of our total revenue of
$36.0  million for the third quarter of 2002.  Same community revenues increased
by  $1.5  million  or  4.7%  for  the quarter ended September 30, 2002, from the
comparable  period  in  2001.  This  increase  is due to insurance surcharges to
residents  of  approximately  $332,000 recognized in the period and the combined
effects  of  declines  in  occupancy,  and  rate  increases.  Average  occupancy
decreased  to 82.5% in the third quarter of 2002 from 83.7% in the third quarter
of 2001.  Average revenue per occupied unit increased by $131 per month or 5.4%.

Community  operating  expenses  increased  approximately  $1.9  million due to a
combination of factors:  the increase in operating expenses was primarily due to
increases in liability, workers' compensation, health insurance, and benefits of
$950,000 and added personnel expenses associated with our increasing emphasis on
dementia  care (Alzheimer's), normal salary increases, and other employee costs,
as  well  as  normal increases in other operating expense categories.  Occupancy
expenses,  consisting  of  facility lease expense, depreciation and amortization
and  interest  expense rose approximately $124,000 as a result of the net effect
of  sale/leaseback  transactions  relating  to  two communities, rent escalation
related  to  other  communities  and  new subordinated debt financing, partially
offset  by  lower interest rates.  For the quarter ended September 30, 2002, net
income  decreased to $1.0 million from $1.6 million for the comparable period of
2001.

                                       19
<PAGE>

LIQUIDITY  AND  CAPITAL  RESOURCES

For  the  nine  months  ended  September  30,  2002,  net cash used in operating
activities  was  $1.1  million  compared  to  $2.2 million provided by operating
activities  for the comparable period in the prior year.  The primary components
of  operating  cash  used were the net loss of $7.9 million, partially offset by
depreciation  and  amortization  of  $5.2  million and the net decrease in other
operating  assets  and  liabilities  of  $850,000.  The  primary  components  of
operating  cash  provided for the nine months ended September 30, 2001, were the
depreciation  and  amortization  of  $5.5  million and the net decrease in other
operating  assets  and  liabilities of $2.3 million, partially offset by the net
loss  of  $4.4  million  and  amortization  of  deferred  gain  of  $521,000.

Net  cash provided by investing activities amounted to $8.1 million for the nine
months  ended  September 30, 2002, and was comprised primarily of funds from the
sale/leaseback  transaction  of  two  communities in the second quarter of 2002,
partially  offset  by  the acquisition of one community in the third quarter and
investment  in  lease  acquisition  costs.  Net  cash  provided  by  investing
activities  amounted  to  $3.7  million  for the nine months ended September 30,
2001,  and was comprised primarily of repayment of advances by third parties and
affiliates  of  $2.8  million  and  proceeds  from  the  sale/leaseback  of  one
community,  which  was  partially  offset  by  the  acquisition of  property and
equipment.

For  the  nine  months  ended  September  30,  2002,  net cash used in financing
activities  was  $9.4  million  primarily  from long-term debt repayments, which
include  debt  repayments  related  to  the  sale/leaseback  transaction  of two
communities  in  the second quarter of 2002, partially offset by the proceeds of
long-term  borrowings.  For  the  nine months ended September 30, 2001, net cash
used  in  financing  activities was $3.7 million primarily from the repayment of
short-term  and  long-term  borrowings.

The  current  portion  of  long-term  debt  at September 30, 2002, has increased
approximately  $45.9  million  since December 31, 2001, primarily due to certain
debt  instruments  having  maturity  dates  prior  to  September 30, 2003.  Most
significantly,  these debt instruments are a $6.8 million note to GMAC, which is
due  February  1,  2003,  and  notes totaling $39.8 million to Deutsche Bank AG,
which  are  due  May  31,  2003.

We  have  incurred  significant  operating losses since our inception and have a
working  capital  deficit  of  $64.4  million,  although $2.5 million represents
deferred  revenues  and $12.0 million of preferred cash dividends is only due if
declared  by our board of directors.  To date, we have been dependent upon third
party financing or disposition of assets to fund operations.  Management intends
to continue to refinance or restructure debt as necessary with our current third
party  lenders.  We  cannot,  however,  guaranty  that third party financing and
refinancing  or  dispositions  of  assets  will  be available timely or on terms
acceptable  to  us.  With  respect  to  both  the  $6.8  million that matures on
February 1, 2003, and the $39.8 million of mortgage debt that matures on May 31,
2003,  we  are  currently  in  discussions with the lenders and others regarding
restructuring or refinancing of the debt and currently we believe the issue will
be  resolved prior to the maturity of the debt.  If we are unable to restructure
or  refinance  the debt, the lenders could declare the entire amount immediately
due and payable at maturity and could begin foreclosure proceedings with respect
to the eight assisted living properties that secure the debt.  In addition, this
default  would result in defaults under other leases and loan agreements. Except
for  the  potential  financial  impact  of  being  unable  to  refinance  the
aforementioned  mortgage  debt,  we  believe we have sufficient funds to sustain
operations  at  least  through  September  30,  2003.

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 lease and loan obligations.  Such cross-default provisions affect
14  owned assisted living properties and 36 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, 2002, we
are  in  compliance  with  our  debt  and  lease  covenants.

                                       20
<PAGE>

IMPACT  OF  INFLATION

To  date,  inflation  has  not  had a significant impact on Emeritus.  Inflation
could,  however,  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.

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 press release
that  are  not  historical  or  current  facts  deal  with  the 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 Emeritus's
actual  future  experience  as  a  result  of  such  factors  as: the effects of
competition  and  economic  conditions  on  the  occupancy  levels in Emeritus's
communities;  Emeritus's ability under current market conditions to maintain and
increase  its  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; ability of Emeritus to
control  community  operation  expenses,  including insurance and utility costs,
without  adversely  affecting  the  level of occupancy and the level of resident
charges; the ability of Emeritus to generate cash flow sufficient to service its
debt  and  other fixed payment requirements; Emeritus's  ability to find sources
of  financing and capital on satisfactory terms to meet its cash requirements to
the  extent  that  they  are  not  met  by  operations;  and making satisfactory
arrangements  for  the  continued operation of the Emeritrust communities beyond
June  30,  2003,  when  our management agreements for those communities expires.
Emeritus has attempted to identify, in context, certain of the factors that they
currently  believe may cause actual future experience and results to differ from
Emeritus's  current  expectations regarding the relevant matter or subject area.
These  and  other  risks and uncertainties are detailed in the Company's reports
filed  with  the  Securities and Exchange Commission (SEC), including Emeritus's
Annual  Reports  on  Form  10-K  and  Quarterly  Reports  on  Form  10-Q.
                                       21
<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,  2002,  our  variable rate
borrowings  totaled  approximately $85.3 million.  If market interest rates were
to  average  2%  more,  our  annual interest expense and net loss would increase
approximately $1.7 million.  This amount is determined by considering the impact
of hypothetical interest rates on our outstanding variable rate borrowings as of
September  30,  2002,  and  does  not  consider  changes  in the actual level of
borrowings  that may occur subsequent to September 30, 2002.  This analysis also
does  not consider the effects of the reduced level of overall economic activity
that could exist in such an environment, or our current funding requirements for
the  Emeritrust  communities, 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 within 90 days prior to
the  filing  of this Quarterly Report on Form 10-Q and have determined that such
disclosure  controls  and  procedures  are  effective.

Subsequent  to  our  evaluation,  there  were no significant changes in internal
controls  or  other  factors  that could significantly affect internal controls,
including  any  corrective  actions  with regard to significant deficiencies and
material  weaknesses.

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                                       22
<PAGE>


                           PART II. OTHER INFORMATION


ITEMS  1  THROUGH  3,  AND  ITEM  5  ARE  NOT  APPLICABLE.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

(a)     The  Annual  Meeting  of  Shareholders  was  held on September 17, 2002.

(b)     All  director nominees listed in the proxy statement were elected at the
meeting.

(c)      The  following matters voted upon at the meeting received the number of
votes  set  forth  below:

Election  of  Directors:
------------------------
                                                                  Abstain or
     Name                      For           Against            Broker Non-vote
-----------------            ---------        -------           ---------------
Daniel  R.  Baty             10,736,704        57,079
Charles  P.  Durkin, Jr.     10,777,580        16,203


Ratification  of  Independent  Public  Auditors:
------------------------------------------------

                  For         Against     Abstain     Other Non-vote
               ----------    --------    --------    --------------

               10,774,667      14,024      5,092

(d)     Not  applicable.

ITEM  6     EXHIBITS  AND  REPORTS  ON  FORM  8-K

(A)  EXHIBITS

<TABLE>
<CAPTION>

                                                                                             Footnote
          Number                              Description                                     Number
     ----------------   ------------------------------------------------------------------  -------------

<S>                                                                                              <C>
           10.9.3   Amended and Restated Master Lease Agreement dated September 18,
                    2002, between Health Care Property Investors, Inc., HCPI Trust,
                    Texas HCP Holding, L.P. ("Lessor") and Emeritus Corporation,
                    ESC III, L.P. ("Lessee"). . . . . . . . . . . . . . . . . . . . . . . . . .  (2)
           10.9.4  Promissory Note between Emeritus Corporation ("Maker")
                      Health Care Property Investors, Inc. ("Lender"),
                      dated September 18, 2002. . . . . . . . . . . . . . . . . . . . . . . . .  (2)
           10.29.8  Real Estate Purchase and Sale Agreement under the purchase
                     option on the lease dated January 1, 2000, between Auburn
                     Land L.L.C. ("Seller") and Emeritus Properties XIV, L.L.C. ("Buyer")
                     dated August 26, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . .  (2)
           10.29.9  Sublease Termination and Release Agreement between
                     Sage Assisted Living L.L.C. ("Landlord") and Emeritus
                     Properties XIV, L.L.C. ("Tenant") dated August 26, 2002. . . . . . . . . .  (2)
           10.69.8  Agreement and Consent of Assignment of Lease between
                      Texas HCP Holding, Inc. ("Lessor"), Regent Assisted Living ("Assignor"),
                      ESC III, L.P. ("Assignee") dated September 18, 2002.. . . . . . . . . . .  (2)
           10.69.9  Lease Assignment and Operations Transfer Agreement between
                      Regent Assisted Living ("Tenant") and ESC III, L.P. ("Assignee")
                      dated September 18, 2002. . . . . . . . . . . . . . . . . . . . . . . . .  (2)
 10.71  Lodge  at  Eddy  Pond,  Massachusetts.  The  following  agreements  are
                                       23
<PAGE>

                     representative of those executed in connection with the property:
           10.71.1  Loan Agreement between Heller Healthcare Finance, Inc. ("Lender")
                      and Emeritus Properties XIV, L.L.C. ("Borrower") dated August 26, 2002. .  (2)
           10.71.2  Promissory Note A between Heller Healthcare Finance, Inc. ("Holder")
                      and Emeritus Properties XIV, L.L.C. ("Maker") dated August 26, 2002.. . .  (2)
           10.71.3  Subordinate Promissory Note B between Heller Healthcare
                      Finance, Inc. ("Holder") and Emeritus Properties XIV, L.L.C.
                      ("Maker") dated August 26, 2002.. . . . . . . . . . . . . . . . . . . . .  (2)
           10.71.4  Real Property Mortgage with Power of Sale and Security
                      Agreement (Massachusetts) dated August 21, 2002.. . . . . . . . . . . . .  (2)
           10.71.5  Collateral Assignment of Management Agreement and
                     Waiver of Property Management and Broker Liens
                     dated August 26, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . .  (2)
           10.71.6  Guaranty by registrant ("Guarantor") to Heller Healthcare Finance,
                     Inc. ("Lender") dated August 26, 2002. . . . . . . . . . . . . . . . . . .  (2)
           10.71.7  Lease and Rent Assignment Agreement between Emeritus
                     Properties XIV, L.L.C. ("Assignor") to Heller Healthcare Finance,
                     Inc. ("Assignee") dated August 21, 2002. . . . . . . . . . . . . . . . . .  (2)
           10.71.8  Side Letter regarding Deutsche Bank Refinancing and the registrants
                     intent on refinancing with Heller Healthcare Finance, Inc. ("Lender")
                     dated August 26, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . .  (2)
           10.71.9  Senior Housing Rider between Emeritus Properties XIV, L.L.C. ("Borrower"),
                     Emeritus Corporation ("Manager") and Heller Healthcare Finance,
                      Inc. ("Lender") dated August 26, 2002.. . . . . . . . . . . . . . . . . .  (2)
           10.71.10  Hazardous Materials Indemnity Agreement between Emeritus
                     Properties XIV, L.L.C. ("Borrower"), Emeritus Corporation ("Guarantor")
                      and Heller Healthcare Finance, Inc. ("Lender") dated August 26, 2002. . .  (2)
           10.72.1  Master Lease Agreement between various subsidiaries and
                     affiliates of Fretus Investors L.L.C. ("Landlord") and
                     Emeritus Properties-NGH, L.L.C. and ESC-NGH, L.P. ("Tenant")
                     dated October 1, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . .  (1)
 99.1      Certification of Periodic Reports
           99.1.3  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 8, 2002. . . . . . . . . . . . . . . . .. . . .  . . . . . . . ..  (2)
           99.1.4  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 8, 2002. . . . . . . . . . . . . . . . . . . . . . . . . ..  (2)
 99.2      Press Releases
           99.2.1  Press Release dated October 1, 2002, announcing the 24
                     Marriott community acquisition.. . . . . . . . . . . . . . . . . . . . . .  (1)
</TABLE>


(1)     Incorporated  by  reference  to  the  indicated  exhibit  filed with the
Company's  Form  8-K  (File  No.  1-14012)  on  October  15,  2002.
(2)     Filed  herewith

                                       24
<PAGE>

(B)  REPORTS  ON  FORM  8-K.

A  report  on  Form  8-K  dated  October 1, 2002, was filed on October 15, 2002,
related  to  a  lease  agreement  for  twenty-four  assisted  living communities
previously  owned  by  Marriott Senior Living Services, a subsidiary of Marriott
International  (NYSE:  MAR),  more  fully  discussed  in  "Twenty-four  Building
Acquisition"  in the Notes to Condensed Financial Statements and in Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of Operations.
Financial  statements  and  pro  forma  financial statements will be filed as an
amendment  to  the  Form  8-K  within  60  days  of  the  original  filing.




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                                       25
<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 8, 2002

                                                EMERITUS  CORPORATION
                                                    (Registrant)

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

                                 CERTIFICATIONS


I,  Daniel  R.  Baty,  Chief  Executive  Officer,  certify  that:

1.  I  have reviewed this quarterly report on Form 10-Q of Emeritus Corporation;

2.  Based  on  my  knowledge,  this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to  make  the  statements  made,  in light of the circumstances under which such
statements  were made, not misleading with respect to the period covered by this
quarterly  report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this quarterly report, fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

a)  designed  such  disclosure  controls  and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is  made  known  to  us by others within those entities, particularly during the
period  in  which  the  quarterly  report  is  being  prepared;

b)  evaluated  the  effectiveness  of  the  issuer's  disclosure  controls  and
procedures  as  of  a  date  within  90  days  prior  to the filing date of this
quarterly  report  (the  "Evaluation  Date");  and

c)  presented  in  this Quarterly report our conclusions about the effectiveness
of  the  disclosure  controls  and  procedures based on our evaluation as of the
Evaluation  Date;

5.  The  registrant's  other  certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of  registrant's  board  of  directors  (or  persons  performing  the equivalent
function):

a)  all significant deficiencies in the design or operation of internal controls
(a  pre-existing  term  relating  to  internal  controls  regarding  financial
reporting) which could adversely affect the issuer's ability to record, process,
summarize  and  report  financial  data  and  have  identified  for the issuer's
auditors  any  material  weaknesses  in  internal  controls;  and

                                       26
<PAGE>

b)  any  fraud,  whether  or  not  material,  that  involves management or other
employees  who  have  a  significant role in the issuer's internal controls; and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
quarterly  report  whether  or  not  there  were significant changes in internal
controls  or  in other factors that could significantly affect internal controls
subsequent  to  the  date  of their evaluation, including any corrective actions
with  regard  to  significant  deficiencies  and  material  weaknesses.


                                            /S/    Daniel  R.  Baty
                                            --------------------------------
                                            Daniel  R.  Baty
                                            Chief  Executive  Officer
                                            November  8,  2002




I,  Raymond  R.  Brandstrom,  Chief  Financial  Officer,  certify  that:

1.  I  have reviewed this quarterly report on Form 10-Q of Emeritus Corporation;

2.  Based  on  my  knowledge,  this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to  make  the  statements  made,  in light of the circumstances under which such
statements  were made, not misleading with respect to the period covered by this
quarterly  report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this quarterly report, fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

a)  designed  such  disclosure  controls  and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is  made  known  to  us by others within those entities, particularly during the
period  in  which  the  quarterly  report  is  being  prepared;

b)  evaluated  the  effectiveness  of  the  issuer's  disclosure  controls  and
procedures  as  of  a  date  within  90  days  prior  to the filing date of this
quarterly  report  (the  "Evaluation  Date");  and

c)  presented  in  this Quarterly report our conclusions about the effectiveness
of  the  disclosure  controls  and  procedures based on our evaluation as of the
Evaluation  Date;

5.  The  registrant's  other  certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of  registrant's  board  of  directors  (or  persons  performing  the equivalent
function):

a)  all significant deficiencies in the design or operation of internal controls
(a  pre-existing  term  relating  to  internal  controls  regarding  financial
reporting) which could adversely affect the issuer's ability to record, process,
summarize  and  report  financial  data  and  have  identified  for the issuer's
auditors  any  material  weaknesses  in  internal  controls;  and

b)  any  fraud,  whether  or  not  material,  that  involves management or other
employees  who  have  a  significant role in the issuer's internal controls; and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
quarterly  report  whether  or  not  there  were significant changes in internal
controls  or  in other factors that could significantly

                                       27
<PAGE>

affect  internal  controls subsequent to the date of their evaluation, including
any  corrective  actions  with  regard  to significant deficiencies and material
weaknesses.


                                            /S/    Raymond  R.  Brandstrom
                                            --------------------------------
                                            Raymond  R.  Brandstrom
                                            Chief  Financial  Officer
                                            November  8,  2002


                                       28
<PAGE>