Emeritus 8-K/A Other Events

Unaudited Pro Forma Consolidated

Financial Information

Introduction

The following tables present unaudited pro forma condensed consolidated financial information of Emeritus Corporation as of and for the six months ended June 30, 2007, and the year ended December 31, 2006.

The following unaudited pro forma condensed consolidated financial statements are adjusted, as described below, to give pro forma effect to the following transactions, collectively the pro forma adjustments:

1.   The merger with Summerville Senior Living, Inc. (“Summerville”) completed on September 1, 2007, referred to as the “Summerville Acquisition.”

2.   The issuance of 11,300,800 shares of common stock in a public offering completed in July and August 2007, referred to as the “Public Offering.”

3.   Summerville’s acquisition of 36 communities with 3,449 units consisting of (a) the acquisition of the leasehold interests of Summerville Investors, LLC, which controlled 17 communities with 1,991 units that Summerville had previously managed, and (b) the acquisition of leasehold interests for an additional 19 communities with 1,458 units at various dates during 2006 and the first quarter of 2007.  All of these transactions are collectively referred to as the “Summerville Transactions.”

4.   Emeritus transactions consisting of (a) the acquisition of the 101-unit Arbor Place community in July 2006 formerly managed by Emeritus; (b) the acquisition of the 24 Fretus communities in February 2007 formerly operated by Emeritus under long-term leases; (c) the acquisition of the 12 HRT communities in March 2007 formerly operated by Emeritus under long-term leases; (d) the acquisition of the 7 HCPI communities in March 2007 formerly operated by Emeritus under long-term leases; (e) the accelerated conversion of $16.12 million of 6.25% Convertible Subordinated Debentures into 732,725 shares of common stock in March 2007; and (f) the December 2006 investment in a joint venture with Blackstone Real Estate Advisors and the related management contracts for 24 communities.  All of these transactions are collectively referred to as the “Emeritus Transactions.”

5.   Emeritus transactions consisting of (a) the acquisition of the 41 HCPI communities in August 2007, of which 33 were formerly operated by Emeritus and 8 were formerly operated by Summerville under long-term leases; (b)  the acquisition of 3 HC REIT communities in August 2007 formerly operated by Emeritus under long-term leases; (c) the acquisition of 9 Wegman communities in August 2007 formerly operated by Emeritus under long-term leases.  All of these transactions are collectively referred to as the “Emeritus Q3 2007 Transactions.”

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007, gives effect to the Summerville Acquisition using the purchase method of accounting, the Public Offering, and the Emeritus Q3 2007 Transactions as if they had occurred on June 30, 2007.  The unaudited pro forma condensed consolidated statements of operations for six months ended June 30, 2007, and the year ended December 31, 2006, give effect to the Summerville Acquisition, the Public Offering, the Summerville Transactions, the Emeritus Transactions and the Emeritus Q3 2007 Transactions, as if they had occurred at the beginning of the respective periods.

The unaudited pro forma merger transaction adjustments and the resulting impact on the unaudited pro forma condensed consolidated financial statements were prepared based on available information and certain assumptions and estimates described in the notes to the unaudited pro forma condensed consolidated financial information.  The estimated acquisition costs related to Summerville have been allocated to the assets acquired and liabilities assumed based on management's preliminary estimate of their respective fair values as of September 1, 2007, the date of acquisition.  Any differences between the fair value of the consideration paid and the fair value of the assets acquired and liabilities assumed is recorded as goodwill.  The amounts allocated to the acquired assets and assumed liabilities in the unaudited pro forma condensed consolidated balance sheet are based on these preliminary estimates.  Accordingly, the pro forma purchase price allocation is preliminary and is subject to revision based on a final determination of fair value.  The preliminary allocation has been made solely for the purpose of providing unaudited pro forma condensed consolidated financial information.

The unaudited pro forma condensed consolidated financial statements do not purport to represent what our financial position or results of operations would have been had the Summerville Acquisition, the Public

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Offering, the Summerville Transactions, the Emeritus Transactions, and the Emeritus Q3 2007 Transactions occurred on the date indicated, or to project our financial position or results of operations for any future period.  Furthermore, the unaudited pro forma condensed consolidated financial statements do not reflect changes which may occur as a result of activities after the Summerville Acquisition closes.  The unaudited pro forma condensed consolidated financial statements should be read in conjunction with Summerville’s consolidated financial statements and related notes  as of December 31, 2006, and for each of the years in the three year period ended December 31, 2006, filed as exhibits to our current report on Form 8-K on June 12, 2007, and our consolidated financial statements filed with the SEC in our annual report on Form 10-K for the year ended December 31, 2006, and our quarterly report on Form 10Q for the six months ended June 30, 2007.

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Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2007
(In thousands)
				Summerville						Emeritus						Emeritus and
				Acquisition			Merger				Q3 2007		Public			Summerville
	Emeritus			As Reported			Transaction			Acquisitions			Offering			Pro Forma
	As Reported			(Reclassified)			Adjustments			Adjustments			Adjustments			Consolidated
	(Condensed)			Note 7			Note 6			Note 5			Note 3			(Condensed)
ASSETS
Current Assets:
Cash and cash equivalents	$	26,524		$	8,081		$	-		$	(233,597	)	$	266,282		$	67,290
Accounts receivable, net		5,099			1,291			-			-			-			6,390
Prepaid expenses and other current assets		32,188			8,850			-			715			-			41,753
Total current assets		63,811			18,222			-			(232,882	)		266,282			115,433
Property and equipment, net		835,450			340,236			(252,704	)		510,412			-			1,433,394
Lease and contract intangibles, net		22,370			19,691			44,160			(2,518	)		-			83,703
Goodwill		-			14,770			55,490			-			-			70,260
Other intangibles		-			-			151,495			911			-			152,406
Other assets		28,833			23,859			(7,069	)		4,130			-			49,753
Total Assets	$	950,464		$	416,778		$	(8,628	)	$	280,053		$	266,282		$	1,904,949
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	3,869		$	5,539		$	-		$	-		$	-		$	9,408
Current portion of long-term debt		57,922			5,235			(2,369	)					(13,479	)		47,309
Accrued employee compensation and benefits		22,366			10,484			-						-			32,850
Other accrued expenses and liabilities		41,451			18,541			3,658						-			63,650
Total current liabilities		125,608			39,799			1,289			-			(13,479	)		153,217
Long-term debt, net		333,568			21,891			-			390,180			(48,621	)		697,018
Financing and lease obligations, net		556,097			356,032			(301,025	)		(105,747	)		-			505,357
Convertible debentures		10,455			-			-						-			10,455
Long-term debt and interest payable to Apollo		-			149,070			(149,070	)					-			-
Other long-term liabilities		36,220			12,614			4,201			(4,380	)		(206	)		48,449
Total Liabilities		1,061,948			579,406			(444,605	)		280,053			(62,306	)		1,414,496
Stockholders' equity (deficit):
Common stock		2			-			1						1			4
Convertible preferred stock		-			28			(28	)					-			-
Additional paid-in capital		106,852			83,419			189,929						328,587			708,787
Accumulated earnings (deficit)		(218,338	)		(246,075	)		246,075						-			(218,338	)
Total Stockholders' Equity (Deficit)		(111,484	)		(162,628	)		435,977			-			328,588			490,453
Total Liabilities and Stockholders' Equity (Deficit)	$	950,464		$	416,778		$	(8,628	)	$	280,053		$	266,282		$	1,904,949

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

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Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2006
(In thousands)
							Summerville											Emeritus and
				Emeritus			Acquisition			Summerville			Merger			Public		Summerville
	Emeritus			Pro Forma			As Reported			Pro Forma			Transaction			Offering		Pro Forma
	As Reported			Transactions			(Reclassified)			Transactions			Adjustments			Adjustments		Consolidated
	(Condensed)			Note 5			Note 7			Note 4			Note 6			Note 3		(Condensed)
REVENUES:
Community revenues	$	419,978		$	1,453		$	220,859		$	52,151		$	-		$	-	$	694,441
Management fees		1,887			2,540			899			(899	)		-			-		4,427
Total revenues		421,865			3,993			221,758			51,252			-			-		698,868
OPERATING EXPENSES:
Community operations		272,812			938			144,140			37,271			96			-		455,257
Texas lawsuit settlement		(12,207	)		-			-			-			-			-		(12,207	)
General and administrative		38,078			450			22,745			-			-			-		61,273
Depreciation and amortization		50,478			19,267			9,833			-			36,511			-		116,089
Facility lease expense		44,545			(31,132	)		37,135			13,793			35,002			-		99,343
Total operating expenses		393,706			(10,477	)		213,853			51,064			71,609			-		719,755
Operating income (loss) from continuing
operations		28,159			14,470			7,905			188			(71,609	)		-		(20,887	)
OTHER INCOME (EXPENSE):
Interest income		2,893			-			487			-			-			-		3,380
Interest expense, debt and other		(7,995	)		(46,171	)		(18,714	)		-			17,513			5,426		(49,941	)
Interest expense, capital leases		(41,257	)		14,227			(21,400	)		-			18,578			-		(29,852	)
Other, net		588			(2,474	)		907			-			-			-		(979	)
Total other income (expense)		(45,771	)		(34,418	)		(38,720	)		-			36,091			5,426		(77,392	)
Income (loss) from continuing operations
before taxes		(17,612	)		(19,948	)		(30,815	)		188			(35,518	)		5,426		(98,279	)
Income tax (expense) benefit		3,044			-			(661	)		-			-			-		2,383
Income (loss) from continuing operations	$	(14,568	)	$	(19,948	)	$	(31,476	)	$	188		$	(35,518	)	$	5,426	$	(95,896	)
Basic and diluted earnings per share	$	(0.82	)															$	(2.51	)
Basic and diluted weighted common
shares outstanding		17,774			733									8,393			11,301		38,201

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 See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2007
(In thousands)
							Summerville										Emeritus and
				Emeritus			Acquisition			Summerville		Merger			Public		Summerville
	Emeritus			Pro Forma			As Reported			Pro Forma		Transaction			Offering		Pro Forma
	As Reported			Transactions			(Reclassified)			Transactions		Adjustments			Adjustments		Consolidated
	(Condensed)			Note 5			Note 7			Note 4		Note 6			Note 3		(Condensed)
REVENUES:
Community revenues	$	219,345		$	-		$	139,808		$	1,689	$	-		$	-	$	360,842
Management fees		1,807			-			-			-		-			-		1,807
Total revenues		221,152			-			139,808			1,689		-			-		362,649
OPERATING EXPENSES:
Community operations		140,011			-			90,889			1,094		48			-		232,042
General and administrative		21,336			-			9,163			-		-			-		30,499
Depreciation and amortization		29,195			5,969			6,543			-		16,629			-		58,336
Facility lease expense		17,852			(11,048	)		21,368			224		21,021			-		49,417
Total operating expenses		208,394			(5,079	)		127,963			1,318		37,698			-		370,294
Operating income (loss) from continuing
operations		12,758			5,079			11,845			371		(37,698	)		-		(7,645	)
OTHER INCOME (EXPENSE):
Interest income		1,192			-			376			-		-			-		1,568
Interest expense, debt and other		(10,911	)		(17,018	)		(10,912	)		-		9,619			2,698		(26,524	)
Interest expense, capital leases		(19,649	)		6,653			(13,965	)		-		12,551			-		(14,410	)
Other, net		6,606			1,242			723			-		-			-		8,571
Total other income (expense)		(22,762	)		(9,123	)		(23,778	)		-		22,170			2,698		(30,795	)
Income (loss) from continuing
operations before taxes		(10,004	)		(4,044	)		(11,933	)		371		(15,528	)		2,698		(38,440	)
Income tax (expense) benefit		(1,320	)		-			(11	)		-		-			-		(1,331	)
Income (loss) from continuing operations	$	(11,324	)	$	(4,044	)	$	(11,944	)	$	371	$	(15,528	)	$	2,698	$	(39,771	)
Basic and diluted earnings per share	$	(0.61	)														$	(1.02	)
Basic and diluted weighted common
shares outstanding		18,674			537								8,393			11,301		38,905

 See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Pro Forma Presentation

On March 29, 2007, Emeritus Corporation (the “Company”) announced that it entered into a definitive agreement whereby the Company will acquire all of the outstanding stock of Summerville Senior Living, Inc. (“Summerville”).  The transaction was completed effective September 1, 2007.  The Company issued 8,392,656 shares of the Company’s unregistered common stock in the transaction, a portion of which was issued in satisfaction of certain indebtedness to Summerville’s controlling shareholders, a portion to satisfy certain obligations under incentive compensation arrangements to senior management of Summerville who will be joining the Company as a result of the merger, and the balance to the shareholders of Summerville (the “Summerville Acquisition”).  After the merger, the former Summerville shareholders will hold approximately 20.2% of the Company’s common stock on a fully diluted basis.

2.   Preliminary Summerville Purchase Price

The estimated purchase price of the Summerville Acquisition as of September 1, 2007, the date of the closing, is as follows (in thousands).  The 8,392,656 shares of common stock issued in the transaction is valued at an estimated price of $32.57 per share based on the average trading price over a five-day period, including two days before and two days after the public announcement of the merger on March 29, 2007.

Common stock	$	273,349
Cash, including transaction costs		4,471
Total	$	277,820

Under the purchase method of accounting, the total estimated purchase price as shown in the table above will be allocated to Summerville’s net tangible and intangible assets based on their estimated fair values as of the closing date of the proposed transaction.  Any excess of the purchase price over the estimated fair value of the net tangible and intangible assets is recorded as goodwill.

Based upon the estimated purchase price and assumptions regarding valuation of acquired assets and assumed liabilities, the preliminary purchase price allocation, is as follows (in thousands):

Net working capital deficit	$	(16,342	)
Property and equipment		17,058
Assets under capital leases		70,474
Total property and equipment		87,532
Below market rents		100,573
Above market rents		(15,886	)
In-place resident contracts		63,851
Lease purchase options		45,022
Trademarks and licenses		5,900
Goodwill		70,260
Total net intangibles		269,720
Other long-term assets		17,603
Long-term debt		(24,757	)
Capital lease obligations		(55,007	)
Total long-term debt		(79,764	)
Other long-term liabilities		(929	)
Total	$	277,820

The depreciation and amortization related to the fair value allocations are reflected as pro forma adjustments to the unaudited pro forma condensed consolidated financial statements.

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The preliminary purchase price allocation for the Summerville Acquisition is subject to revision as a more detailed analysis is completed, including the finalization of the valuation report prepared by a valuation firm, and as additional information on the fair values of Summerville’s assets and liabilities becomes available.  Goodwill will not be amortized and will be tested for impairment on an annual basis, or whenever events or circumstances occur indicating that the goodwill may be impaired.  Any change in the fair value of the assets or liabilities of Summerville will change the amount of the purchase price allocation.  The final purchase price allocation may differ from the allocation presented here.

3.   Public Offering

On July 3, 2007, the Company closed the public offering of 11,000,000 shares of common stock, of which 10,500,000 shares were sold by the Company and 500,000 shares were sold by certain selling shareholders.  The Company received net proceeds of $305.4 million after issuance costs.

On July 27, 2007, the Company received notice from the underwriters of the public offering discussed in the previous paragraph that they had elected to exercise, in part, the over-allotment option specified in the Underwriting Agreement.  As a result, the Company sold an additional 800,800 shares of common stock in the offering.  The exercise of the over-allotment options closed on August 2, 2007, and the Company received net proceeds of $23.2 million after issuance costs, for a total net proceeds of $328.6 million from the Public Offering.

The unaudited pro forma condensed consolidated balance sheet is adjusted to give pro forma effect of the Public Offering and the use of proceeds as if it had occurred as of June 30, 2007.  The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2006, and for the six months ended June 30, 2007, are adjusted to give pro forma effect of the Public Offering and use of proceeds as if it had occurred at the beginning of the respective periods.  The use of proceeds as presented herein is as follows (in thousands):

Total net proceeds	$	328,588
Pay off long-term debt, including prepayment fees		(62,306	)
Funding of Emeritus Q3 2007 Transactions		(233,597	)
Balance of net proceeds	$	32,685

The $32.7 million remaining balance of net proceeds from the Public offering will be used to retire long-term debt due in March 2008 in the amount of $21.4 million, with the balance available for general corporate purposes.  The retirement of the long-term debt due in March 2008 is not reflected in these unaudited pro forma condensed consolidated financial statements.

A portion of the proceeds were used to retire long-term debt in the amount of $62.1 million at a weighted average interest rate of approximately 9.39%, resulting in a pro forma reduction in interest expense of $5.4 million in 2006, and $2.7 million for the six months ended June 30, 2007.

4.   Summerville Transactions

The unaudited pro forma Summerville Transactions include historical results and related pro forma adjustments for the year ended December 31, 2006, and the six months ended June 30, 2007, to include communities acquired by Summerville as if the acquisitions had occurred as of the beginning of the respective periods:

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Summerville Transactions

Unaudited Pro Forma Statement of Operations

For the Year Ended December 31, 2006

(In thousands)

			Summerville
	Acquisitions		Investors			Acquisitions			Acquisitions			Acquisitions		Acquisitions		Summerville
	1st Qtr 2006		2nd Qtr 2006			2nd Qtr 2006			3rd Qtr 2006			4th Qtr 2006		1st Qtr 2007		Total 2006
	(a)		(b)			(c)			(d)			(e)		(f)		Pro Forma
REVENUES:
Community revenues	$	255	$	15,612		$	2,128		$	3,195		$	13,868	$	17,093	$	52,151
Management fees		–		(899	)		–			–			–		–		(899	)
Total revenues		255		14,713			2,128			3,195			13,868		17,093		51,252
OPERATING EXPENSES:
Community operations		187		10,585			2,196			2,553			9,386		12,364		37,271
Facility lease expense		65		4,455			442			994			4,319		3,518		13,793
Total operating expenses		252		15,040			2,638			3,547			13,705		15,882		51,064
Operating income from continuing operations	$	3	$	(327	)	$	(510	)	$	(352	)	$	163	$	1,211	$	188

Summerville Transactions

Unaudited Pro Forma Statement of Operations

For the Six Months Ended June 30, 2007

(In thousands)

	Summerville
	Total 2007
	Pro Forma
	(g)
REVENUES:
Community revenues	$	1,689
Total revenues		1,689
OPERATING EXPENSES:
Community operations		1,094
Facility lease expense		224
Total operating expenses		1,318
Operating income from continuing operations	$	371

The pro forma adjustments for the periods presented were derived from the pre-acquisition unaudited financial statements of these communities, adjusted for revised property-related costs based on underlying lease agreements assumed by or entered into by Summerville as part of the transactions.  These pro forma adjustments do not reflect depreciation or amortization expenses, or the impact of lease accounting treatments.  Those adjustments were incorporated into the Merger Transaction Adjustments described in Note 6 to these Unaudited Pro Forma Condensed Consolidated Financial Information.

(a)   The first quarter 2006 acquisition consists of one community with 114 units that was acquired through a leasehold interest in February 2006.  These adjustments to the unaudited pro forma statement of operations reflect the unaudited pre-acquisition historical results of operations of this community for the one month period ended January 31, 2006.

(b)   In April 2006, Summerville acquired 100% of the membership interests in Summerville Investors, LLC.  Summerville Investors, which became a wholly-owned subsidiary of Summerville, controls 17 communities with 1,991 units through leasehold interests.  Summerville had managed these properties before the acquisition.  For the three month period ended March 31, 2006, Summerville recorded $899,000 of management fee revenues associated with the 17 properties.  These adjustments reflect the unaudited pre-acquisition historical results of operations of Summerville Investors for the three

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month period ended March 31, 2006, and the elimination of the management fees earned by Summerville from these communities for that same period.

(c)   The second quarter 2006 acquisitions consist of four communities with 168 units acquired through leasehold interests.  Three of the communities were acquired effective April 1, 2006, and one effective April 20, 2006.  The adjustments to the unaudited pro forma statement of operations reflect the unaudited pre-acquisition historical results of operations of these four communities as if they had been acquired on January 1, 2006.

(d)   The third quarter acquisitions consist of two communities with 186 units that were acquired through leasehold interest in August 2006.  The adjustments to the unaudited pro forma statement of operations reflect the unaudited pre-acquisition historical results of operations of these two communities for seven month period ended July 31, 2006.

(e)   The fourth quarter acquisitions consist of seven communities with 587 units, six acquired in October 2006 and one in December 2006.  The adjustments to the unaudited pro forma statement of operations reflect the unaudited pre-acquisition historical results of operations of these seven communities as if they had been acquired on January 1, 2006.

(f)   In the first quarter of 2007, Summerville acquired four communities with 403 units, two in January 2007 and two in March 2007, under long-term leases.  The adjustments to the unaudited pro forma statement of operations reflect the unaudited pre-acquisition historical results of operations of these four communities for the 12-month period ended December 31, 2006.

(g)   The pro forma adjustments for the six months ended June 30, 2007, reflect the two communities acquired by Summerville on March 1, 2007, as discussed in item (f) above.  The adjustments to the unaudited pro forma statement of operations reflect the unaudited pre-acquisition historical results of operations of these two communities for the two-month period ended February 28, 2007.

5.   Emeritus Transactions

The unaudited pro forma Emeritus Transactions include historical results and related pro forma adjustments for the year ended December 31, 2006, and the six months ended June 30, 2007, to include acquired communities, our investment in Blackstone and the conversion of debt by Emeritus as if the transactions had occurred as of the beginning of the respective periods:

Emeritus Transactions

Unaudited Pro Forma Statement of Operations

For the Year Ended December 31, 2006

(In thousands)

				Blackstone
	Arbor Place			Joint Venture			Debenture		Q1 2007			Q3 2007			Emeritus
	Acquisition			Investment			Conversion		Acquisitions			Acquisitions			Total 2006
	(a)			(b)			(c)		(d)			(e)			Pro Forma
REVENUES:
Community revenues	$	1,453		$	–		$	–	$	–		$	–		$	1,453
Management fees		(97	)		2,637			–		–			–			2,540
Total revenues		1,356			2,637			–		–			–			3,993
OPERATING EXPENSES:
Community operations		938			–			–		–			–			938
General and administrative		–			450			–		–			–			450
Depreciation and amortization		429			–			–		5,196			13,642			19,267
Facility lease expense		–			–			–		(15,056	)		(16,076	)		(31,132	)
Total operating expenses		1,367			450			–		(9,860	)		(2,434	)		(10,477	)
Operating income (loss) from continuing
operations		(11	)		2,187			–		9,860			2,434			14,470
OTHER INCOME (EXPENSE):
Interest expense, debt and other		(305	)					1,008		(20,823	)		(26,051	)		(46,171	)
Interest expense, capital and financing leases		–			–			–		2,050			12,177			14,227
Other, net		–			(2,360	)		–					(114	)		(2,474	)
Total other income (expense)		(305	)		(2,360	)		1,008		(18,773	)		(13,988	)		(34,418	)
Income (loss) from continuing operations
before taxes	$	(316	)	$	(173	)	$	1,008	$	(8,913	)	$	(11,554	)	$	(19,948	)

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Emeritus Transactions

Unaudited Pro Forma Statement of Operations

For the Six Months Ended June 30, 2007

(In thousands)

	Debenture		Q1 2007			Q3 2007			Emeritus
	Conversion		Acquisitions			Acquisitions			Total 2007
	(c)		(d)			(e)			Pro Forma
OPERATING EXPENSES:
Depreciation and amortization	$	–	$	(869	)	$	6,838		$	5,969
Facility lease expense		–		(2,936	)		(8,112	)		(11,048	)
Total operating expenses		–		(3,805	)		(1,274	)		(5,079	)
Operating income (loss) from continuing
operations		–		3,805			1,274			5,079
OTHER INCOME (EXPENSE):
Interest expense, debt and other		182		(4,175	)		(13,025	)		(17,018	)
Interest expense, capital and financing leases		–		459			6,194			6,653
Other, net		1,329					(87	)		1,242
Total other income (expense)		1,511		(3,716	)		(6,918	)		(9,123	)
Income (loss) from continuing operations
before taxes	$	1,511	$	89		$	(5,644	)	$	(4,044	)

The acquisition and investment pro forma adjustments for the periods presented were derived from pre-acquisition unaudited financial statements for these communities, adjusted for revised property-related costs based on the various underlying agreements entered into by Emeritus as part of the transactions, or in the case of the debenture conversion, from the terms of the debenture conversion agreement.

(a)   The Arbor Place community was managed by Emeritus prior to the acquisition in July 2006.  These adjustments reflect the unaudited pre-acquisition historical results of operations for the six-month period ended June 30, 2006, and the elimination of management fees earned by Emeritus from this community for the same period, as if the Company had owned Arbor Place as of January 1, 2006.

(b)   The Company entered into a joint venture agreement with Blackstone Real Estate Advisors in December 2006.  Emeritus owns a 19% interest in the joint venture and manages 24 of the 25 communities owned and operated by the Blackstone joint venture.  The Company accounts for this investment using the equity method of accounting.  These adjustments reflect unaudited management fees, equity losses of the joint venture, and general and administrative expenses for the 11 months ended November 30, 2006, as if the joint venture was effective on January 1, 2006.

(c)   $16.12 million face amount of the Company’s convertible debentures were converted into 732,725 shares of common stock effective March 8, 2007.  Interest was paid on these debentures through the maturity date of July 1, 2008, as an incentive for early conversion.  The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the incentive payment and the conversion as if it happened at the beginning of the respective periods.  The weighed average shares outstanding was adjusted for year ended December 31, 2006, and the six months ended June 30, 2007, to reflect the issuance of these shares as if they were outstanding from the beginning of the respective periods.

(d)   The first quarter 2007 acquisitions include the following:

·   The Fretus communities were operated by Emeritus under long-term leases prior to the acquisition on February 22, 2007. The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the unaudited results of the 24 Fretus communities as if the Company had owned them since the beginning of the respective periods.

·   The HRT communities were operated by Emeritus under long-term leases prior to the acquisition on March 15, 2007.  The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the unaudited results of the 12 HRT communities as if the Company had owned them since the beginning of the respective periods.

·   The HCPI communities were operated by Emeritus under long-term leases prior to the acquisition on March 26, 2007. The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the unaudited results of the seven HCPI communities as if the Company had owned them since the beginning of the respective periods.

10

(e)   The third quarter 2007 acquisitions include the following:

·   The HC REIT communities were operated by Emeritus under long-term leases prior to the acquisition on August 6, 2007. The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the unaudited results of the three HC REIT communities as if the Company had owned them since the beginning of the respective periods.

·   The HCPI communities were operated by Emeritus under long-term leases prior to the acquisition on August 15, 2007. The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the unaudited results of the 41 HCPI communities as if the Company had owned them since the beginning of the respective periods.

·   The Wegman communities were operated by Emeritus under long-term leases prior to the acquisition on August 31, 2007. The adjustment to the unaudited pro forma statement of operations for the year ended December 31, 2006, and the six months ended June 30, 2007, reflect the unaudited results of the seven HCPI communities as if the Company had owned them since the beginning of the respective periods.

The Emeritus Q3 2007 acquisitions included 53 communities formerly operated by the Company under long-term leases.  The total gross purchase price, including transaction costs, was approximately $618.9 million, of which $618.0 million was allocated to property and equipment and $911,000 to intangible assets.  Several of these leased communities were formerly accounted for as capital or financing leases with a net book value of approximately $75.0 million as of the acquisition date.  In addition, upon termination of the leases, approximately $32.6 was offset against the purchase price relating to gains from termination of the capital and financing leases, deferred rents from straight-line lease expense on operating leases, and lease acquisitions costs associated with the terminated leases, resulting in a net change in property and equipment of $510.4 million.

The acquisitions were financed with long-term debt of  $390.2 million.  In addition, capital and financing lease obligations of $105.7 million related to the acquired leases were removed.  Financing costs of $4.1 million were incurred and capitalized as loan fees and included in other assets on the balance sheet.

Cash proceeds of  $232.5 million from the Public Offering were used to partially fund the Emeritus Q3 2007 acquisitions, including the purchase price of $618.9 million, loan fees of $4.1 million, offset by funding of long-term debt of $390.2 million and a net refund of $300,000 from cash escrows held by our landlords.

6.   Merger Transaction Adjustments

Pro forma merger adjustments are necessary to reflect the allocation of the estimated purchase price to Summerville’s assets and liabilities based on a preliminary estimate of their fair market values, to record the effect of lease accounting treatments as of the merger date, and to reflect any other transaction adjustments directly related to the proposed transaction.

The accompanying unaudited pro forma transaction adjustments reflected in the unaudited pro forma condensed consolidated financial statements are as follows:

11

Merger Transaction Adjustments

Unaudited Pro Forma Consolidated Balance Sheet

As of June 30, 2007

(In thousands)

	Summerville			Transaction					Lease			Purchase			Total
	Reclassified			Adjustments					Accounting			Accounting			Transaction			Summerville
	Note 7			(a)					(b)			(c)			Adjustments			Pro Forma
ASSETS
Current Assets:
Cash and cash equivalents	$	8,081		$	–				$	–		$	–		$	–		$	8,081
Accounts receivable, net		1,291			–					–			–			–			1,291
Prepaid expenses and other current assets		8,850			–					–			–			–			8,850
Total current assets		18,222			–					–			–			–			18,222
Property and equipment, net		340,236			(340,236	)	(1	)(2)		70,474			17,058			(252,704	)		87,532
Net asset/liability assumed		–			20,444					(15,467	)		(4,977	)		–			–
Lease and contract intangibles, net		19,691			(19,691	)				–			63,851			44,160			63,851
Goodwill		14,770			(14,770	)	(3	)		–			70,260			55,490			70,260
Other intangibles		–			–								151,495			151,495			151,495
Other assets		23,859			(3,067	)	(1	)		–			(4,002	)		(7,069	)		16,790
Total Assets	$	416,778		$	(357,320	)			$	55,007		$	293,685		$	(8,628	)	$	408,150
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	5,539		$	–				$	–		$	–		$	–		$	5,539
Current portion of long-term debt and lease obligations		5,235			(2,369	)	(2	)		–			–			(2,369	)		2,866
Accrued employee compensation and benefits		10,484			–					–			–			–			10,484
Other accrued expenses and liabilities		18,541			–					–			3,658			3,658			22,199
Total current liabilities		39,799			(2,369	)				–			3,658			1,289			41,088
Long-term debt, net		21,891			–								–			–			21,891
Financing and lease obligations, net		356,032			(356,032	)	(1	)(2)		55,007			–			(301,025	)		55,007
Long-term debt and interest payable to Apollo		149,070			(149,070	)	(4	)		–			–			(149,070	)		–
Other long-term liabilities		12,614			(12,477	)	(2	)		–			16,678			4,201			16,815
Total Liabilities		579,406			(519,948	)				55,007			20,336			(444,605	)		134,801
Stockholders' equity (deficit):
Common stock		–			–					–			1			1			1
Convertible preferred stock		28			(28	)	(5	)		–			–			(28	)		–
Additional paid-in capital		83,419			(83,419	)	(5	)		–			273,348			189,929			273,348
Accumulated earnings (deficit)		(246,075	)		246,075		(5	)		–			–			246,075			–
Total Stockholders' Equity (Deficit)		(162,628	)		162,628					–			273,349			435,977			273,349
Total Liabilities and Stockholders' Equity (Deficit)	$	416,778		$	(357,320	)			$	55,007		$	293,685		$	(8,628	)	$	408,150

12

Merger Transaction Adjustments

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2006

(In thousands)

	Summerville			Transaction					Lease			Purchase			Total
	Reclassified			Adjustments					Accounting			Accounting			Transaction			Summerville
	Note 7			(a)					(b)			(c)			Adjustments			Pro Forma
REVENUES:
Community revenue	$	220,859		$	–				$	–		$	–		$	–		$	220,859
Management fees		899			–					–			–			–			899
Total revenues		221,758			–					–			–			–			221,758
OPERATING EXPENSES:
Community operations		144,140			–					–			96			96			144,236
General and administrative		22,745			–					–			–			–			22,745
Depreciation and amortization		9,833			(9,833	)	(1	)(2)		3,648			42,696			36,511			46,344
Facility lease expense		37,135			17,156		(1	)(2)		7,526			10,320			35,002			72,137
Total operating expenses		213,853			7,323					11,174			53,112			71,609			285,462
Operating income (loss) from continuing operations		7,905			(7,323	)				(11,174	)		(53,112	)		(71,609	)		(63,704	)
OTHER INCOME (EXPENSE):
Interest income		487			–					–			–			–			487
Interest expense, debt and other		(18,714	)		17,729		(4	)		–			(216	)		17,513			(1,201	)
Interest expense, capital and financing lease obligations		(21,400	)		21,400		(1	)(2)		(2,822	)		–			18,578			(2,822	)
Other, net		907			–					–			–			–			907
Total other income (expense), net		(38,720	)		39,129					(2,822	)		(216	)		36,091			(2,629	)
Income (loss) from continuing operations before taxes		(30,815	)		31,806					(13,996	)		(53,328	)		(35,518	)		(66,333	)
Income tax (expense) benefit		(661	)		–					–			–			–			(661	)
Income (loss) from continuing operations	$	(31,476	)	$	31,806				$	(13,996	)	$	(53,328	)	$	(35,518	)	$	(66,994	)

Merger Transaction Adjustments

Unaudited Pro Forma Consolidated Statement of Operations

For the Six Months Ended June 30, 2007

(In thousands)

	Summerville			Transaction					Lease			Purchase			Total
	Reclassified			Adjustments					Accounting			Accounting			Transaction			Summerville
	Note 7			(a)					(b)			(c)			Adjustments			Pro Forma
REVENUES:
Community revenues	$	139,808		$	–				$	–		$	–		$	–		$	139,808
Management fees		–			–					–			–			–			–
Total revenues		139,808			–					–			–			–			139,808
OPERATING EXPENSES:
Community operations		90,889			–					–			48			48			90,937
General and administrative		9,163			–					–			–			–			9,163
Depreciation and amortization		6,543			(6,543	)	(1	)(2)		1,824			21,348			16,629			23,172
Facility lease expense		21,368			12,778		(1	)(2)		3,083			5,160			21,021			42,389
Total operating expenses		127,963			6,235					4,907			26,556			37,698			165,661
Operating income (loss) from continuing operations		11,845			(6,235	)				(4,907	)		(26,556	)		(37,698	)		(25,853	)
OTHER INCOME (EXPENSE):
Interest income		376			–					–			–			–			376
Interest expense, debt and other		(10,912	)		9,727		(4	)		–			(108	)		9,619			(1,293	)
Interest expense, capital and financing lease obligations		(13,965	)		13,965		(1	)(2)		(1,414	)		–			12,551			(1,414	)
Other, net		723			–					–			–			–			723
Total other income (expense), net		(23,778	)		23,692					(1,414	)		(108	)		22,170			(1,608	)
Income (loss) from continuing operations before taxes		(11,933	)		17,457					(6,321	)		(26,664	)		(15,528	)		(27,461	)
Income tax (expense) benefit		–			–					–			–			–			–
Income (loss) from continuing operations	$	(11,933	)	$	17,457				$	(6,321	)	$	(26,664	)	$	(15,528	)	$	(27,461	)

13

(a)  These pro forma adjustments eliminate those assets and liabilities that will not be carried forward into the combined

       organization, or that will be restated at fair market value as of the date of merger, and the related impact to the statements

       of operations for the periods presented, as follows:

(1)  The assets and liabilities related to sale-leaseback transactions entered into by Summerville prior to the merger, which

       were accounted for as refinancing transactions by Summerville, and property and equipment are eliminated.

(2)  The assets and liabilities related to leases accounted for as capital leases by Summerville, as well as deferred rent on

       operating leases recorded as the result of straight-line rent accounting, are eliminated.

(3)   Goodwill recorded by Summerville from business acquisitions completed prior to the merger is eliminated.

(4)   Long-term debt and interest payable to certain funds affiliated with Apollo Real Estate Advisors, which owned a significant majority of Summerville’s capital stock, were satisfied through the issuance of Emeritus common stock in the merger transaction and is eliminated.

(5)   The equity accounts of Summerville as of the merger date are eliminated.

(b) These pro forma adjustments estimate the fair market value of capital lease assets acquired and liabilities assumed as of the

      merger date, and the related adjustments for facility lease expense, depreciation and amortization expense, and interest expense

      for the periods presented.

(c) These pro forma adjustments reflect the issuance of 8,392,656 shares of Emeritus common stock ($273,349), cash payments

      of ($2,902) and related transaction costs ($1,569) incurred in the merger transaction, the preliminary allocation of the purchase

      price to the identifiable tangible and intangible net assets (exclusive of capital leases allocated in (b) above), and the related

      unaudited impact on the statements of operations for the periods presented.  See Note 2 for detail of the preliminary purchase

      price allocation.

      Depreciation and amortization on the purchase price allocation to record the Summerville assets at fair market value is

      calculated using the straight-line method over estimated useful lives and is summarized as follows (in thousands):

					Year Ended			Six Months
	Summerville		Estimated		December 31,			June 30,
	Fair Value		Life		2006			2007
Leasehold improvements	$	11,354	9.7 years	(y)	$	1,176		$	588
Capital lease assets		70,474	19.3 years	(y)		3,648			1,824
Furniture, fixtures & equipment		3,814	4.8 years	(y)		792			396
Goodwill		70,260	N/A			-			-
Lease intangibles (z)		63,851	19 months	(z)		40,332			20,166
Purchase options (v)		45,022	N/A			-			-
Above/below market rents, net (w)		84,687	8.2 years	(y)		10,320			5,160
Trademarks and licenses (x)		5,900	11.9 years	(y)		396			198
	$	355,362			$	56,664	(u)	$	28,332	(u)

(u)  Comprised of $46.4 million of depreciation and amortization and $10.3 million in facility lease expense adjustments for the

       year ended December 31, 2006, and $23.2 million of depreciation and amortization and $5.1 million in facility lease expense

       adjustments for the six months ended June 30, 2007.

(v)  Represents the estimated fair market value of purchase options contained in the Summerville leases

(w) Represents the net estimated fair market value of favorable lease rates of $100.6 million, offset by estimated unfavorable lease

       rates of $15.9 million contained in the Summerville leases, amortized over the remaining term of the respective leases.

(x)  Reflects estimated fair market value of Summerville trademarks of $4.7 million and operating licenses of $1.2 million.  The

      operating licenses are amortized over the 12 years as a component of operating expenses.

(y)  Represents the weighted average remaining useful life or lease term for each asset category.

(z)  The lease intangibles represent the estimated fair value of in-place tenant leases with an estimated life of 19 months based on

       Summerville’s average resident length of stay.

14

7.           Reclassifications

The Summerville consolidated financial statements (“As Reported Summerville”) were reclassified to conform to Emeritus financial statement presentations.  Those reclassifications are presented in the table below (in thousands):

Summerville Senior Living, Inc. and Subsidiaries

Consolidated Statement of Operations

For the Year Ended December 31, 2006

(In thousands)

	Summerville						Summerville
	As Reported			Reclassifications			Reclassified
REVENUES:
Community revenue	$	-		$	220,859		$	220,859
Management fees		899			-			899
Rental and other resident service revenue		221,684			(221,684	)		-
Other		540			(540	)		-
Total revenues		223,123			(1,365	)		221,758
OPERATING EXPENSES:
Community operations		-			144,140			144,140
General and administrative		54,276			(31,531	)		22,745
Depreciation and amortization		-			9,833			9,833
Facility lease expense		37,135			-			37,135
Salary and benefits		105,368			(105,368	)		-
Consultants and professional fees		7,691			(7,691	)		-
Loss on disposal of property and equipment		8			(8	)		-
Total operating expenses		204,478			9,375			213,853
Operating income from continuing operations		18,645			(10,740	)		7,905
OTHER INCOME (EXPENSE):
Interest income		487			-			487
Interest expense, debt and other		(18,470	)		(244	)		(18,714	)
Interest expense, capital and financing lease obligations		(21,400	)		-			(21,400	)
Other, net		-			907			907
Depreciation and amortization		(10,077	)		10,077			-
Total other expense, net		(49,460	)		10,740			(38,720	)
Loss from continuing operations before taxes		(30,815	)		-			(30,815	)
Income tax (expense) benefit		(661	)		-			(661	)
Loss from continuing operations	$	(31,476	)	$	-		$	(31,476	)

15

Summerville Senior Living, Inc. and Subsidiaries

Unaudited Consolidated Statement of Operations

For the Six Months Ended June 30, 2007

(In thousands)

	Summerville						Summerville
	As Reported			Reclassifications			Reclassified
REVENUES:
Community revenue	$	-		$	139,808		$	139,808
Management fees		-			-			-
Rental and other resident service revenue		140,467			(140,467	)		-
Other		64			(64	)		-
Total revenues		140,531			(723	)		139,808
OPERATING EXPENSES:
Community operations		-			90,889			90,889
General and administrative		32,119			(22,956	)		9,163
Depreciation and amortization		-			6,543			6,543
Facility lease expense		21,368			-			21,368
Salary and benefits		64,966			(64,966	)		-
Consultants and professional fees		2,967			(2,967	)		-
Loss on disposal of property and equipment		-			-			-
Total operating expenses		121,420			6,543			127,963
Operating income from continuing operations		19,111			(7,266	)		11,845
OTHER INCOME (EXPENSE):
Interest income		376			-			376
Interest expense, debt and other		(10,774	)		(138	)		(10,912	)
Interest expense, capital and financing lease obligations		(13,965	)		-			(13,965	)
Other, net		-			723			723
Depreciation and amortization		(6,681	)		6,681			-
Total other expense, net		(31,044	)		7,266			(23,778	)
Loss from continuing operations before taxes		(11,933	)		-			(11,933	)
Income tax (expense) benefit		(11	)		-			(11	)
Loss from continuing operations	$	(11,944	)	$	-		$	(11,944	)

(1) Reclassification of miscellaneous non-operating revenues to other income (expense).

(2) Reclassification of general and administrative expenses at local communities to community operations expenses.  The

      balance in general and administrative expenses represents corporate and regional overhead expenses.

(3) Reclassification of depreciation and amortization from non-operating to operating expenses, with loan fee amortization

      included as a component of interest expense.

(4) Reclassification of salary and benefits, and consultants and professional fees to community operations expenses or general and

      administrative expenses, as appropriate.

16

Summerville Senior Living, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheet

As of June 30, 2007

(In thousands)

	Summerville						Summerville
	As Reported			Reclassifications			Reclassified
ASSETS
Current Assets:
Cash and cash equivalents	$	8,081		$	-		$	8,081
Trade accounts receivable, net		1,291			-			1,291
Prepaid expenses and other current assets		8,850			-			8,850
Total current assets		18,222			-			18,222
Restricted cash		8,689			(8,689	)		-
Notes receivable		1,251			(1,251	)		-
Property and equipment, net		340,236						340,236
Deferred financing costs, net		2,964			(2,964	)		-
Leasehold acquisition costs, net		19,691						19,691
Goodwill		14,770						14,770
Deposits and other assets		10,955			12,904			23,859
Total Assets	$	416,778		$	-		$	416,778
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable and other accrued expenses	$	34,564			(29,025	)	$	5,539
Current portion of long-term debt		5,235						5,235
Accrued employee compensation		-			10,484			10,484
Other accrued expenses and liabilities		-			18,541			18,541
Total current liabilities		39,799			-			39,799
Long-term debt, net		101,431			(79,540	)		21,891
Financing obligations, net		308,878			47,154			356,032
Long-term debt payable to Apollo		69,530			79,540			149,070
Capital lease obligations, net		47,154			(47,154	)		-
Deferred rent		12,477			(12,477	)		-
Other long-term liabilities		137			12,477			12,614
Total Liabilities		579,406			-			579,406
Stockholders' deficit:
Common stock		-			-			-
Convertible preferred stock		28			-			28
Additional paid-in capital		83,419			-			83,419
Accumulated deficit		(246,075	)		-			(246,075	)
Total Stockholders' Deficit		(162,628	)		-			(162,628	)
Total Liabilities and Stockholders' Deficit	$	416,778		$	-		$	416,778

17