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 March 31, 2003.

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

Commission file number 1-14012

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

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

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

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

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

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

As of April 30, 2003, there were 10,247,226 shares of the Registrant's Common
Stock, par value $.0001, outstanding.

EMERITUS CORPORATION

INDEX

Part I. Financial Information

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

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

Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 2003 and 2002 . . . . . . . .. .. . . . . . . . 3

Condensed Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . 4

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

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . .. . . . . . . . . . . . .. . . . .. . . . . . . . . . . 12

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

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

Part II. Other Information

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

Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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

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

Certifications . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 27

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

[The rest of this page is intentionally left blank]

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

March 31, December 31,
2003 2002
-------------- --------------

Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,954 $ 6,960
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,903 2,759
Trade accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,612 1,662
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,189 3,645
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . 5,195 5,217
-------------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,853 20,243
-------------- --------------
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,173 119,583
Property held for development. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,254 1,254
Notes receivable from and investments in affiliates. . . . . . . . . . . . . . . . . 6,453 6,358
Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,555 5,555
Lease acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,082 6,081
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,030 3,759
-------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 161,400 $ 162,833
============== ==============

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,404 $ 3,604
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,145 3,108
Accrued employee compensation and benefits. . . . . . . . . . . . . . . . . . . . . 5,526 5,355
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320 1,737
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387 2,463
Accrued dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . 14,989 13,457
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,501 9,080
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,915 2,884
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,580 5,040
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,767 46,728
-------------- --------------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . 119,825 119,887
Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 32,000
Deferred gain on sale of communities . . . . . . . . . . . . . . . . . . . . . . . . 20,233 20,324
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,516 2,508
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 894
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222,843 222,341
-------------- --------------
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 558
Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 25,000
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 70,000 shares; issued and outstanding
33,473 and 30,609 at March 31, 2003, and December 31, 2002, respectively . . . . - -
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and
outstanding 10,247,226 shares at March 31, 2003, and December 31, 2002 . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,328 68,944
Accumulated other comprehensive gain . . . . . . . . . . . . . . . . . . . . . . . . 1,391 1,247
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (157,521) (155,258)
-------------- --------------
Total shareholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,801) (85,066)
-------------- --------------
Total liabilities and shareholders' deficit . . . . . . . . . . . . . . . . . . . . $ 161,400 $ 162,833
============== ==============

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

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

Three Months Ended
March 31,
----------------------------
2003 2002
------------- -------------

Revenues:
Community revenue. . . . . . . . . . . . $ 43,087 $ 32,121
Other service fees . . . . . . . . . . . 993 1,000
Management fees. . . . . . . . . . . . . 3,097 3,025
------------- -------------
Total operating revenues . . . . 47,177 36,146
------------- -------------

Expenses:
Community operations . . . . . . . . . . 28,646 20,562
General and administrative . . . . . . . 5,404 4,923
Depreciation and amortization. . . . . . 1,846 1,851
Facility lease expense . . . . . . . . . 8,604 6,728
------------- -------------
Total operating expenses . . . . 44,500 34,064
------------- -------------
Income from operations.. . . . . 2,677 2,082

Other income (expense):
Interest income. . . . . . . . . . . . . 156 109
Interest expense . . . . . . . . . . . . (3,274) (2,926)
Other, net . . . . . . . . . . . . . . . 48 (567)
------------- -------------
Net other expense . . . . . . . (3,070) (3,384)
------------- -------------

Net loss . . . . . . . . . . . . (393) (1,302)

Preferred stock dividends. . . . . . . . . 1,870 1,997
------------- -------------
Net loss to common shareholders. $ (2,263) $ (3,299)
============= =============

Loss per common share - basic and diluted. $ (0.22) $ (0.32)
============= =============

Weighted average number of common shares
outstanding - basic and diluted. . . . 10,247 10,196
============= =============

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

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

Three Months Ended March 31,
------------------------------------
2003 2002
----------------- -----------------

Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (393) $ (1,302)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 78
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,846 1,851
Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . (99) (61)
Loss on sale of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 530
Write off of deferred gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14
Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . (1,176) (1,864)
----------------- -----------------
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . 228 (754)
----------------- -----------------

Cash flows from investing activities:
Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (484) (81)
Purchase of minority partner interest . . . . . . . . . . . . . . . . . . . . . . . . . - (3,070)
Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . . . . . . . - 25,010
Management and lease acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . . (189) (1,044)
Advances to affiliates and other managed communities. . . . . . . . . . . . . . . . . (43) (650)
Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) (110)
Distributions to minority partners. . . . . . . . . . . . . . . . . . . . . . . . . . . (299) -
----------------- -----------------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . (1,029) 20,055
----------------- -----------------

Cash flows from financing activities:
Proceeds from sale of stock under employee stock purchase plan. . . . . . . . . . . . . 46 7
Decrease in Restricted deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 668
Repayment of short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . (960) -
Debt issue and other financing costs. . . . . . . . . . . . . . . . . . . . . . . . . . (232) (946)
Proceeds from long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . - 30,609
Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (59) (50,789)
----------------- -----------------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . (1,205) (20,451)
----------------- -----------------

Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . (2,006) (1,150)

Cash and cash equivalents at the beginning of the period. . . . . . . . . . . . . . . . . 6,960 9,811
----------------- -----------------

Cash and cash equivalents at the end of the period. . . . . . . . . . . . . . . . . . . . $ 4,954 $ 8,661
================= =================

Supplemental disclosure of cash flow information - cash paid during the period
for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,691 $ 4,780

Noncash investing and financing activities:
Unrealized holding gains in investment securities . . . . . . . . . . . . . . . . . . . $ 144 $ 129
Accrued and in-kind preferred stock dividends . . . . . . . . . . . . . . . . . . . . . $ 1,870 $ 1,997

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

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, self-insured
retention, insurance deductibles, health insurance, and litigation. Emeritus
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

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

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

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

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

* 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
5

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

residents were to deteriorate, resulting in an impairment of their
ability to make payments, additional charges may be required.

* Emeritus records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized, which at this
time shows a net asset valuation of zero. 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.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The Company adopted SFAS No. 145 in the fourth quarter of 2002.
Adoption did not have a material impact on the Company's financial condition and
results of operations in the quarter ended March 31, 2003.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged.
Management cannot determine the impact of SFAS No. 146 on the Company's
financial statements as it will be applied prospectively.

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

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

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

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises, such as the Company,
with a variable interest in a variable interest entity created before February
1, 2003, the Interpretation is applied to the enterprise no later than the end
of the first annual reporting period beginning after June 15, 2003. Management
is currently evaluating the impact of this Interpretation on the Company's
financial statements.

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 March 31, 2003, and for the three months ended March 31, 2003 and
2002. The results of operations for the period ended March 31, 2003, are not
necessarily indicative of the operating results for the full year. The Company
presumes that those reading this interim financial information have read or have
access to its 2002 audited consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations that
are contained in the 2002 Form 10-K filed March 28, 2003. Therefore, the
Company has omitted footnotes and other disclosures herein, which are disclosed
in the Form 10-K.

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 five Emeritrust II Development communities, under management
agreements described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002. In May 2002, the Company entered into an agreement for
a third party to operate one of these communities. The new operator had the
rights to all economic benefits, the responsibility for all detriments, and an
option to purchase this community from the owner. As of April 1, 2003, the new
operator exercised its option to purchase the community, thus reducing the
numbers above from 46 to 45 for all Emeritrust communities and from 25 to 24 for
the Emeritrust I communities, respectively. 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.

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

reflecting funding obligations of zero and $35,000, respectively. For the three
months ended March 31, 2003 and 2002, management fees earned and recognized for
the Emeritrust II Operating communities, for which there is no funding
obligation, were $493,000 and $486,000, respectively. Thus, the management fees
recognized for all of the Emeritrust communities increased $173,000 for the
first quarter of 2003 compared to the comparable period in 2002.

The management agreements and related options to purchase these communities
expire June 30, 2003, (except that management agreements with respect to five
communities continue until December 31, 2003). Because the Company is not in a
position to exercise the options to acquire the communities prior to expiration,
it is currently in discussions with the owners of the communities and their
lenders to extend the management agreements and related options. While the
Company believes that these arrangements will be extended, it cannot guarantee
that these discussions will be successful or, if the arrangements are extended,
what the terms will be. If the Company is unsuccessful, it could lose the
management fee revenue from these communities and future rights with respect to
them.

EIGHT BUILDING ACQUISITION

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

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

HRT has also agreed to extend a $600,000 loan to the Company for working capital
purposes and for capital and other improvements to the facilities. This loan
will have a 10-year term with no extensions, bearing interest at 10% annually
with monthly interest-only payments. In addition, if the Company exercises its
purchase option at any time on any facility, the pro rata principal portion of
the loan will become due at the time the option is exercised.

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

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 $15.0 million at March 31, 2003, 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 basis, retroactively, and the cumulative effect of approximately
$294,000 was reflected in the first quarter of 2002. In addition, since the
Company had not paid these dividends for more than six consecutive quarters,
under the Designation of Rights and Preferences of the Series A and Series B
stock in the Company's Articles of Incorporation, the Series A and B
shareholders, as the case may be, may designate one director in addition to the
other directors that they are entitled to designate under the shareholders'
agreement. Under the Series A shareholders' agreement, however, the Series A
shareholders' right to designate this additional director under the Articles is
limited to circumstances in which they would not otherwise be entitled to name a
director. Currently, the Series A shareholders do not have the right to
designate an additional director. As of January 1, 2002, the Series B
shareholders became entitled to designate an additional director under the
Articles, but thus far have chosen not to do so.

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

Series B dividends are 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. On 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. On April 1, 2003, 334 shares and 338
shares were issued as paid-in-kind dividends to cover the fourth quarter of 2002
and the first quarter of 2003, respectively.

LONG-TERM DEBT

The current portion of long-term debt at March 31, 2003, has decreased
approximately $200,000 since December 31, 2002, primarily due to a paydown
related to a Seller note for one community. In January 2003, the Company
reached an agreement with GMAC Commercial Mortgage Corporation ("GMAC") to
extend a $6.8 million note originally set to mature February 1, 2003. The
original $6.8 million note has been bifurcated into a $6.2 million Note A and a
$560,000 Note B. The new notes of $6.8 million mature March 1, 2006, and
provide for monthly principal payments of approximately $22,000 in addition to
interest at LIBOR plus 4.5%, with a floor of 7%, and LIBOR plus 7.75%, with a
floor of 9.75%, respectively.

In connection with the GMAC extension, the original Seller note, with a
principal balance of $921,000 at December 31, 2002, was extended to March 1,
2006. The principal balance was reduced by a $200,000 payment in February 2003
and the note now bears interest at 12% per annum and provides for monthly
payments, including principal and interest, of $12,500.

Long-term debt is further discussed in the Notes to Condensed Consolidated
Financial Statements under the category "Liquidity".

STOCK-BASED COMPENSATION

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

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

Three Months ended March 31,
-------------------------------------
2003 2002
------------------ ------------------
(In thousands, except per share data)

Net loss to common shareholders:
As reported . . . . . . . . . . . . . . . . . . . . . . . $ (2,263) $ (3,299)
Add: Stock-based employee compensation expense
included in reported net loss . . . . . . . . . . . . . - -
Deduct: Stock-based employee compensation
determined under fair value based method for all awards (286) (199)
------------------ ------------------
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . $ (2,549) $ (3,498)
================== ==================
Net loss per common share -- basic and diluted:
As reported . . . . . . . . . . . . . . . . . . . . . . . $ (0.22) $ (0.32)
================== ==================

Pro forma . . . . . . . . . . . . . . . . . . . . . . . . $ (0.25) $ (0.34)
================== ==================

The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants in the first quarter of 2003 and 2002:

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

dividend yield of 0.0% for all periods; expected volatility of 90.4% for the
first quarter of 2003, and 92.8% for the first quarter of 2002, and; risk-free
interest rates of 2.5% for the first quarter of 2003, and 4.75% for the first
quarter of 2002; and an expected option term of 4 years.

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 10,494,991 and 9,507,196 potential common shares at
March 31, 2003 and 2002, 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
three-month period ended March 31, 2003, represents the change in value of the
Company's investment in ARV Assisted Living, Inc. ("ARV").

On April 23, 2003, ARV announced that, at a special meeting held on that date,
its shareholders voted to approve the Agreement and Plan of Merger, dated as of
January 3, 2003, between ARV and Prometheus Assisted Living LLC ("Prometheus").

ARV further announced that the merger transaction closed and trading of the ARV
stock on the American Stock Exchange ceased on April 23, 2003. Under the terms
of the merger, shares of ARV's stock held by shareholders other than Prometheus
and its affiliates were converted into the right to receive merger consideration
of $3.90 per share, without interest. On April 25, 2003, the Company received
approximately $2.9 million in exchange for its 755,884 shares of ARV common
stock in which it had a cost basis of approximately $1.5 million, thus
recognizing a gain of approximately $1.4 million.

OTHER COMPREHENSIVE LOSS

Other comprehensive loss includes the following transactions for the three-month
period ended March 31, 2003 and 2002, respectively:

Three Months ended March 31,
------------------------------------
2003 2002
----------------- -----------------
(In thousands)

Net loss to common shareholders. . $ (2,263) $ (3,299)
Other comprehensive income:
Unrealized holding gains
on investment securities 144 129
----------------- -----------------
Comprehensive loss . . . . . . . . $ (2,119) $ (3,170)
================= =================

LIQUIDITY

The Company has incurred significant operating losses since its inception and
has a working capital deficit of $28.5 million, although $3.9 million represents
deferred revenue and $15.0 million of preferred dividends is due only if
declared by the Company's board of directors. At times in the past, the Company
has been dependent upon third party financing or disposition of assets to fund
operations. If such

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

transactions are necessary in the future, Emeritus cannot guarantee that they
will be available on a timely basis, on terms attractive to the Company, or at
all.

Throughout 2002 and continuing in the first quarter of 2003, the Company
refinanced substantially all of its debt obligations, extending the maturities
of such financings to dates in 2005 or thereafter, at which time the Company
will need to refinance or otherwise repay the obligations. Many of the
Company's debt instruments and leases contain "cross-default" provisions
pursuant to which a default under one obligation can cause a default under one
or more other obligations to the same lender or lessor. Such cross-default
provisions affect 16 owned assisted living properties and 64 properties operated
under leases. Accordingly, any event of default could cause a material adverse
effect on the Company's financial condition if such debt or leases are
cross-defaulted. At March 31, 2003, the Company was in compliance with all such
covenants.

Management believes that the Company will be able to sustain positive operating
cash flow at least through March 31, 2004, and will have adequate cash for all
necessary investing and financing activities including required debt service and
capital expenditures.

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

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

Through 1998, we focused on rapidly expanding our operations in order to
assemble a portfolio of assisted living communities with a critical mass of
capacity. We pursued an aggressive acquisition and development strategy during
that time, acquiring 35 and developing 10 communities in 1996, acquiring 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 to concentrate our efforts on improving
the performance of our existing facilities. During 2002 and 2003, we have
resumed pursuing, on a selective basis, management contracts and acquisition
opportunities, which we believe will be beneficial to the Company.

In our consolidated portfolio, we had an increase in average monthly revenue per
occupied unit to $2,756 for the first quarter of 2003 from $2,518 for the first
quarter of 2002, primarily brought about by our rate enhancement program. This
represents an average revenue increase of $238 per month per occupied unit, or
9.5%. The average occupancy rate decreased to 77.1% for the first quarter of
2003 from 82.0% for the first quarter of 2002. However, the year-to-year
comparison of these results is skewed by the impact of the 24 building lease
acquisition in the fourth quarter of 2002. The table below shows the results
exclusive of this acquisition:

Three months ended March 31,
-------------------------------------------------------------
2003 2002
--------------------------------------------- --------------
A B C D E
------------- --------------- -------------- -------------- --------------
24 Building (A w/o B) (C-D)
Consolidated Lease Consolidated Increase
Portfolio Acquisition Portfolio (Decrease)
------------- --------------- -------------- -------------- --------------

Average monthly revenue
per occupied unit . . $ 2,756 $ 2,978 $ 2,701 $ 2,518 $ 183
============== ============== ============== ============== ==============

Average occupancy rate. 77.1% 65.0% 80.9% 82.0% (1.1%)
============== ============== ============== ============== ==============

In our total operated portfolio, which includes managed communities, we had an
increase in average monthly revenue per occupied unit to $2,689 for the first
quarter of 2003 from $2,500 for the first quarter of 2002, primarily brought
about by our rate enhancement program. This represents an average revenue
increase of $189 per month per occupied unit, or 7.6%. The average occupancy
rate decreased to 78.6% for the first quarter of 2003 from 80.8% for the first
quarter of 2002. However, the year-to-year comparison of these results is
skewed by the impact of the 24 building lease acquisition in the fourth quarter
of 2002. The table below shows the results exclusive of this acquisition:

Three months ended March 31,
-------------------------------------------------------------
2003 2002
--------------------------------------------- --------------
A B C D E
------------- --------------- -------------- -------------- --------------
Total 24 Building (A w/o B) Total (C-D)
Operated Lease Operated Increase
Portfolio Acquisition Portfolio (Decrease)
------------- --------------- -------------- -------------- --------------

Average monthly revenue
per occupied unit . . $ 2,689 $ 2,978 $ 2,662 $ 2,499 $ 163
============== ============== ============== ============== ==============

Average occupancy rate. 78.6% 65.0% 80.2% 80.8% (0.6%)
============== ============== ============== ============== ==============

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

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 eight
communities as discussed in "Eight Building Acquisition" in the Notes to
Condensed Consolidated Financial Statements and in Management's Discussion and
Analysis of Financial Condition and Results of Operations.

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

As of March 31, As of December 31, As of March 31,
2003 2002 2002
---------------------- -------------------- ----------------------
Buildings Units Buildings Units Buildings Units
---------- ---------- ---------- ---------- --------- ---------

Owned (1) . . . . . . . . . . . . . . . 17 1,687 17 1,687 16 1,579
Leased (1). . . . . . . . . . . . . . . 67 5,279 67 5,279 44 3,716
Managed/Admin Services. . . . . . . . . 94 8,577 94 8,577 88 8,194
Joint Venture/Partnership . . . . . . . 2 219 2 219 3 333
---------- ---------- ---------- ---------- --------- ---------
Operated Portfolio . . . . . . . . 180 15,762 180 15,762 151 13,822

Percentage increase (2) - - 35.3% 28.7% 13.5% 12.9%

- --------
(1) Included in our consolidated portfolio of communities.
(2) The percentage increase indicates the change from the prior year, or, in
the case of March 31, 2003 and 2002, from the end of the prior year.

We rely primarily on our residents' ability to pay our charges for services from
their own or familial resources and expect that we will do so for the
foreseeable future. Although care in an assisted living community is typically
less expensive than in a skilled nursing facility, we believe that generally
only seniors with income or assets meeting or exceeding the regional median can
afford to reside in our communities. 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 losses since our inception, and as of March 31, 2003, we
had an accumulated deficit of approximately $157.5 million. These losses
resulted from a number of factors, including:

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

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

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

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

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

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,
2002. In May 2002, we entered into an agreement for a third party to operate
one of these communities. The new operator had the rights to all economic
benefits, the responsibility for all detriments, and an option to purchase this
community from the owner. As of April 1, 2003, the new operator exercised its
option to purchase the community, thus reducing the numbers above from 46 to 45
for all Emeritrust communities and from 25 to 24 for the Emeritrust I
communities, respectively. 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 March 31, 2003 and 2002, total gross management fees
earned for the Emeritrust I communities were approximately $848,000 and
$698,000, respectively, of which $837,000 and $698,000, respectively, were
recognized as revenue. For the three months ended March 31, 2003 and 2002,
total gross management fees earned for the Emeritrust II Development communities
were $185,000, and $168,000, respectively, of which $182,000 and $155,000,
respectively, were recognized as revenue after reflecting funding obligations of
zero and $35,000, respectively. For the three months ended March 31, 2003 and
2002, management fees earned and recognized for the Emeritrust II Operating
communities, for which there is no funding obligation, were $493,000 and
$486,000, respectively. Thus, the management fees recognized for all of the
Emeritrust communities increased $173,000 for the first quarter of 2003 compared
to the comparable period in 2002.

The management agreements and related options to purchase these communities
expire June 30, 2003, (except that management agreements with respect to five
communities continue until December 31, 2003). Because we are not in a position
to exercise the options to acquire the communities prior to expiration, we are
currently in discussions with the owners of the communities and their lenders to
extend the management agreements and related options. While we believe that
these arrangements will be extended, we cannot guarantee that these discussions
will be successful or, if the arrangements are extended, what the terms will be.
If we are unsuccessful, we could lose the management fee revenue from these
communities and future rights with respect to them.

OTHER TRANSACTIONS

In January 2003, we reached an agreement with GMAC Commercial Mortgage
Corporation ("GMAC") to extend a $6.8 million note originally set to mature
February 1, 2003. The original $6.8 million note has been bifurcated into a
$6.2 million Note A and a $560,000 Note B. The new notes of $6.8 million mature
March 1, 2006, and provide for monthly principal payments of approximately
$22,000 in addition to interest at LIBOR plus 4.5%, with a floor of 7%, and
LIBOR plus 7.75%, with a floor of 9.75%, respectively.

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

EIGHT BUILDING ACQUISITION

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

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

HRT has also agreed to extend a $600,000 loan to us for working capital purposes
and for capital and other improvements to the facilities. This loan will have a
10-year term with no extensions, bearing interest at 10% annually with monthly
interest-only payments. In addition, if we exercise our purchase option at any
time on any facility, the pro rata principal portion of the loan will become due
at the time the option is exercised.

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

INVESTMENT SECURITIES

On April 23, 2003, ARV Assisted Living, Inc. ("ARV") announced that, at a
special meeting held on that date, its shareholders voted to approve the
Agreement and Plan of Merger, dated as of January 3, 2003, between ARV and
Prometheus Assisted Living LLC ("Prometheus").

ARV further announced that the merger transaction closed and trading of the ARV
stock on the American Stock Exchange ceased on April 23, 2003. Under the terms
of the merger, shares of ARV's stock held by shareholders other than Prometheus
and its affiliates were converted into the right to receive merger consideration
of $3.90 per share, without interest. On April 25, 2003, we received
approximately $2.9 million in exchange for our 755,884 shares of ARV common
stock in which we had a cost basis of approximately $1.5 million, thus
recognizing a gain of approximately $1.4 million.

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, self-insured retention, insurance deductibles,
health insurance, and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

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

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

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

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

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

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

* We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized, which at this time
shows a net asset valuation of zero. 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.

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

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

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

Period-to-Period
Percentage
Increase
(Decrease)
Percentage of Revenues Three
---------------------------- Months
Three Months ended ended
March 31, March 31,
---------------------------- -------------
2003 2002 2002-2003
------------- ------------- -------------

Revenues. . . . . . . . . . . . . . 100.0% 100.0% 30.5%
Expenses:
Community operations . . . . . 60.7 56.9 39.3
General and administrative . . 11.5 13.6 9.8
Depreciation and amortization. 3.9 5.1 (0.3)
Facility lease expense . . . . 18.2 18.6 27.9
------------- ------------- -------------
Total operating expenses . 94.3 94.2 30.6
------------- ------------- -------------
Income from operations. . . . . . . 5.7 5.8 28.6
Other income (expense)
Interest income. . . . . . . . 0.3 0.3 43.1
Interest expense . . . . . . . (6.9) (8.1) 11.9
Other, net . . . . . . . . . . 0.1 (1.6) N/A
------------- ------------- -------------
Net other expense. . . . . (6.5) (9.4) (9.3)
------------- ------------- -------------

Net loss . . . . . . . . . (0.8%) (3.6%) (69.8%)
============= ============= =============

Comparison of the three months ended March 31, 2003 and 2002
- ------------------------------------------------------------

Total Operating Revenues: Total operating revenues for the three months ended
March 31, 2003, increased by $11.1 million to $47.2 million from $36.1 million
for the comparable period in 2002, or 30.5%.

Community revenue increased by approximately $11.0 million in the three months
ended March 31, 2003, compared to the three months ended March 31, 2002. This
increase is primarily due to additional revenue related to a 24 building lease
acquisition in the fourth quarter of 2002. These communities, which represent
revenue of approximately $9.5 million, were included in our consolidated
portfolio in the first quarter of 2003, but were not included in the comparable
quarter of 2002. The remaining increase in revenue is attributed to the net
effect of an increase in average monthly revenue per unit and a decrease in the
occupancy rate. Average monthly revenue per unit (excluding the 24 community
acquisition impact which was favorable by $55) was $2,701 for the first quarter
of 2003 compared to $2,518 for the comparable quarter of 2002, an increase of
approximately 7.3%. The occupancy rate for the first Quarter of 2003 (excluding
the 24 community acquisition impact which was unfavorable by 3.8 percentage
points) decreased 1.1 percentage points from the prior year quarter.

Community Operations: Community operating expenses for the three months ended
March 31, 2003, increased by $8.0 million to $28.6 million from $20.6 million in
the first quarter of 2003, or 39.3%. The change was primarily comprised of a net
increase in operating expenses of approximately $7.6 million related to the 24
building lease acquisition in the fourth quarter of 2002. The remaining increase
in operating expenses was primarily due to increases in personnel costs,
property taxes and utilities.

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

Community operating expenses as a percentage of total operating revenue
increased to 60.7% in the first quarter of 2003 from 56.9% in the first quarter
of 2002.

General and Administrative: General and administrative (G&A) expenses for the
three months ended March 31, 2003, increased $481,000 to $5.4 million from $4.9
million for the comparable period in 2002, or 9.8%. As a percentage of total
operating revenues, G&A expenses decreased to 11.5% for the three months ended
March 31, 2003, compared to 13.6% for the three months ended March 31, 2002.
G&A expenses increased 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. G&A as a percentage of operating
revenues for all communities decreased to 5.5% from 5.9% for the three months
ended March 31, 2003 and 2002, respectively.

Depreciation and Amortization: Depreciation and amortization for the three
months ended March 31, 2003, was $1.8 million compared to $1.9 million for the
comparable period in 2002. In 2003, depreciation and amortization represents
3.9% of total operating revenues, compared to 5.1% for the comparable period in
2002. This decrease as a percentage of revenue is primarily due to increased
revenue.

Facility Lease Expense: Facility lease expense for the three months ended March
31, 2003, was $8.6 million compared to $6.7 million for the comparable period of
2002, representing an increase of $1.9 million, or 27.9%. This increase is
primarily due to the 24 building lease acquisition in the fourth quarter of
2002. We leased 67 communities as of March 31, 2003, compared to 44 leased
communities as of March 31, 2002. The additional facility lease expense
approximates $1.5 million for the first quarter of 2003. The balance of the
increase was attributable to variable rent escalation provisions in existing
leases. Facility lease expense as a percentage of revenues was 18.2% for the
three months ended March 31, 2003, and 18.6% for the three months ended March
31, 2002.

Interest Income: Interest income for the three months ended March 31, 2003, was
$156,000 versus $109,000 for the comparable period of 2002. This increase is
primarily attributable to a higher return on certain restricted deposits related
to a sale-leaseback transaction in the fourth quarter of 2002.

Interest Expense: Interest expense for the three months ended March 31, 2003,
was $3.3 million compared to $2.9 million for the comparable period of 2002.
This increase of $348,000, or 11.9%, is primarily attributable to two refinance
transactions that occurred in 2002. The additional interest expense related to
the two transactions for the three months ended March 31, 2003, was
approximately $235,000. The remaining difference is attributable to van and
auto lease interest expense primarily related to the 24 building lease
acquisition in October of 2002 and additional loan fee amortization related to a
refinancing transaction, which occurred in January of 2003. As a percentage of
total operating revenues, interest expense decreased to 6.9% from 8.1% for the
three months ended March 31, 2003 and 2002, respectively.

Other, net: Other, net (expense) for the three months ended March 31, 2003, was
income of $48,000 compared to expense of $567,000 for the comparable period in
2002. The net change of $615,000 is primarily comprised of the following items:
During the first quarter of 2003, we amortized deferred gains related to three
communities of approximately $87,000. During the first quarter of 2002, we
repurchased a related party's economic interest in a 172-unit community
resulting in an expense of $158,000 and the sale-leaseback of two communities
and re-lease of two additional communities resulting in an expense of $372,000,
for a combined impact of $530,000.

Preferred dividends: For the three months ended March 31, 2003 and 2002, the
preferred dividends were approximately $1.9 million and $2.0 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, and the cumulative effect of approximately
$294,000 was reflected in the first quarter of 2002. In addition, since we have
not paid these dividends for six consecutive quarters, under the Designation of
Rights and Preferences of the Series A and Series B stock in the Company's
Articles of

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

Incorporation, the Series A and B shareholders, as the case may be, may
designate one director in addition to the other directors that they are entitled
to designate under the shareholders' agreement. Under the Series A
shareholders' agreement, however, the Series A shareholders' right to designate
this additional director under the Articles is limited to circumstances in which
they would not otherwise be entitled to name a director. Currently, the Series
A shareholders do not have the right to designate an additional director. As of
January 1, 2002, the Series B shareholders became entitled to designate an
additional director under the Articles, but thus far have chosen not to do so.

Same Community Comparison

We operated 59 communities on a comparable basis during both the three months
ended March 31, 2003 and 2002. The following table sets forth a comparison of
same community results of operations, excluding general and administrative
expenses, for the three months ended March 31, 2003 and 2002.

Three Months ended March 31,
(In thousands)
---------------------------------------------------
Dollar % Change
2003 2002 Change Fav/(Unfav)
------------ ------------ -------- -------------

Revenue. . . . . . . . . . . . $ 33,615 $ 32,355 $ 1,260 3.9%
Community operating expenses . (20,600) (19,988) (612) (3.1)
------------ ------------ -------- -------------
Community operating income 13,015 12,367 648 5.2
Depreciation & amortization. . (1,549) (1,600) 51 3.2
Facility lease expense . . . . (6,911) (6,444) (467) (7.2)
------------ ------------ -------- -------------
Operating income . . . . . 4,555 4,323 232 5.4
Interest expense, net. . . . . (2,496) (2,314) (182) (7.9)
------------ ------------ -------- -------------
Net income . . . . . . . . $ 2,059 $ 2,009 $ 50 2.5%
============ ============ ======== =============

The same communities represented $33.6 million or 71.3% of our total revenue of
$47.2 million for the first quarter of 2003. Same community revenues increased
by $1.3 million or 3.9% for the quarter ended March 31, 2003, from the
comparable period in 2002. This increase is due to higher average revenue per
unit offset by the combined effect of declines in occupancy. Average revenue
per occupied unit increased by $161 per month or 6.3%. Average occupancy
decreased to 81.1% in the first quarter of 2003 from 81.9% in the first quarter
of 2002.

Community operating expenses increased approximately $612,000 due to a
combination of factors: the increase in operating expenses was primarily due to
increases in liability and health insurance and added personnel expenses
associated with our increasing emphasis on dementia care (Alzheimer's), normal
salary increases, and other employee costs of $857,000, as well as decreases in
other operating expense categories of $230,000. Occupancy expenses, consisting
of facility lease expense, depreciation and amortization, and interest expense
combined, increased approximately $598,000 as a result of the net effect of a
refinancing transaction related to 11 buildings in December of 2002, and
variable rent escalation related to other communities, partially offset by lower
interest rates. For the quarter ended March 31, 2003, net income increased to
$2.1 million from $2.0 million for the comparable period of 2002.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2003, net cash provided by operating
activities was $228,000 compared to $754,000 used in operating activities for
the comparable period in the prior year. The primary components of operating
cash provided were the depreciation and amortization of $1.8 million partially
offset by the net loss of $393,000 and the net increase in other operating
assets and liabilities of $1.2 million. The primary components of operating
cash used for the three months ended March 31, 2002, were the net loss of $1.3
million, an increase in prepaid insurance of $1.4 million in the three months
ended March 31, 2002, which is typical in the first quarter of each year,
partially offset by depreciation and amortization of $1.9 million.

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

Net cash used by investing activities amounted to $1.0 million for the three
months ended March 31, 2003, and was comprised primarily of funds used to
purchase approximately $484,000 of various property and equipment, and $299,000
of partner distributions. Net cash provided by investing activities amounted to
$20.1 million for the three months ended March 31, 2002, and was comprised
primarily of funds of approximately $25.0 million related to the sale of two
buildings offset by the purchase of minority interest in two buildings for
approximately $3.1 million, repayment of advances by third parties and
affiliates of $650,000 and additional lease acquisition costs of $1.0 million.

For the three months ended March 31, 2003, net cash used in financing activities
was $1.2 million primarily from short-term debt repayments of $960,000, which
include debt repayments related to the January 2003 refinancing transaction
discussed above in "Other Transactions". Also related to that refinancing
transaction, approximately $232,000 relates to debt issuance and other financing
costs. For the three months ended March 31, 2002, net cash used in financing
activities was $20.5 million primarily from the repayment of long-term
borrowings related to the sale, minority interest purchase, and lease
transaction.

We have incurred significant operating losses since our inception and have a
working capital deficit of $28.5 million, although $3.9 million represents
deferred revenues and $15.0 million of preferred cash dividends is only due if
declared by our board of directors. At times in the past, we have been
dependent upon third party financing or disposition of assets to fund
operations. If such transactions are necessary in the future, we cannot
guarantee that they will be available on a timely basis, on terms attractive to
us, or at all.

Throughout 2002 and continuing in the first quarter of 2003, we refinanced
substantially all of our debt obligations, extending the maturities of such
financings to dates in 2005 or thereafter, at which time we will need to
refinance or otherwise repay the obligations. Many of our debt instruments and
leases contain "cross-default" provisions pursuant to which a default under one
obligation can cause a default under one or more other obligations to the same
lender or lessor. Such cross-default provisions affect 16 owned assisted living
properties and 64 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 March 31, 2003, we are in compliance with all
such covenants.

Management believes that we will be able to sustain positive operating cash flow
at least through March 31, 2004, and will have adequate cash for all necessary
investing and financing activities including required debt service and capital
expenditures.

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 report that
are not historical or current facts deal with potential future circumstances,
operations, and prospects. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from our actual future
experience as a result of such factors as: the effects of competition and
economic conditions on the occupancy levels in our communities; our ability
under current market conditions to maintain and increase our resident charges in
accordance with rate enhancement programs without adversely affecting occupancy
levels; increases in interest rates that would increase costs as a result

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

of variable rate debt; our ability to control community operation expenses,
including insurance and utility costs, without adversely affecting the level of
occupancy and the level of resident charges; our ability to generate cash flow
sufficient to service our debt and other fixed payment requirements; our ability
to find sources of financing and capital on satisfactory terms to meet our cash
requirements to the extent that they are not met by operations; and making
satisfactory arrangements for the continued operation of the Emeritrust
communities beyond June 30, 2003, when our management agreements for those
communities expire. We have attempted to identify, in context, certain of the
factors that we currently believe may cause actual future experience and results
to differ from our current expectations regarding the relevant matter or subject
area. These and other risks and uncertainties are detailed in our reports filed
with the Securities and Exchange Commission (SEC), including our Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q.

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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 March 31, 2003, our variable rate borrowings
totaled approximately $64.6 million. If market interest rates were to average
2% more, our annual interest expense and net loss would increase approximately
$1.3 million. This amount is determined by considering the impact of
hypothetical interest rates on our outstanding variable rate borrowings as of
March 31, 2003, and does not consider changes in the actual level of borrowings
that may occur subsequent to March 31, 2003. 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.

[The rest of this page is intentionally left blank]

PART II. OTHER INFORMATION

ITEMS 1 THROUGH 4 ARE NOT APPLICABLE.

ITEM 5. OTHER INFORMATION

In lieu of filing a report on Form 8-K related to a lease acquisition for eight
assisted living communities owned by Healthcare Realty Trust, a real estate
investment trust ("HRT") completed on May 1, 2003, we are disclosing the
information herein. This transaction is discussed in "Eight Building
Acquisition" in the Notes to the Condensed Consolidated Financial Statements and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations. The required financial statements for the acquired business are not
included in this quarterly report at this time, but will be filed on a Form 8-K
within sixty days after the date on which we would have been required to file a
Form 8-K disclosing this transaction.

Item 6 Exhibits And Reports On Form 8-K

(a) Exhibits

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

10.75 Loyalton of Bloomsburg, Pennsylvania; Loyalton of Creekview, Pennsylvania;
Loyalton of Harrisburg, Pennsylvania; Loyalton of Danville, Virginia;
Loyalton of Harrisonburg, Virginia; Loyalton of Roanoke, Virginia;
Loyalton of Greensboro, North Carolina; Loyalton of Ravenna, Ohio.
The following agreements are representative of those executed in connection
with these properties:
10.75.1 Lease Agreement by HR Acquisition I Corporation ("Tenant"),
Capstone Capital of Pennsylvania, Inc., and HRT Holdings, Inc.
(collectively the "Lessor") and Emeritus Corporation ("Lessee")
dated May 1, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.2 Promissory Note by Emeritus Corporation ("Maker"),
for HR ACQUISITION I CORPORATION ("Payee") for principal
amount of $600,000.00 dated May 1, 2003.. . . . . . . . . . . . . . . . . . . . . . (1)
10.75.3 Bill of Sale, Blanket Conveyance and Assignment by BCC at Bloomsburg, Inc.
("Tenant") and BCC Development and Management Co. ("Manager") to and
for the benefit of Capstone Capital of Pennsylvania, Inc. ("HCRT Assignee")
and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003. . . . . . . . . . (1)
10.75.4 Bill of Sale, Blanket Conveyance and Assignment by ALCO VI, LLC ("Tenant")
and Balance Care at Mechanicsburg, Inc. ("Manager") to and for
the benefit of Capstone Capital of Pennsylvania, Inc. ("HCRT Assignee")
and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003. . . . . . . . . . (1)
10.75.5 Bill of Sale, Blanket Conveyance and Assignment by Extended Care Operators
of Harrisburg, LLC ("Tenant") and BCC at Harrisburg, Inc. ("Manager") to
and for the benefit of Capstone Capital of Pennsylvania, Inc. ("HCRT Assignee")
and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003. . . . . . . . . . (1)
10.75.6 Bill of Sale, Blanket Conveyance and Assignment by ALCO XI, LLC ("Tenant")
and BCC at Danville, Inc. ("Manager") to and for the benefit of
HRT Holdings, Inc. ("HCRT Assignee") and Emeritus Corporation
("Emeritus Assignee") dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . (1)
10.75.7 Bill of Sale, Blanket Conveyance and Assignment by ALCO IX, LLC ("Tenant")
and BCC at Harrisonburg, Inc. ("Manager") to and for the benefit of
HRT Holdings, Inc. ("HCRT Assignee") and Emeritus Corporation
("Emeritus Assignee") dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . (1)
10.75.8 Bill of Sale, Blanket Conveyance and Assignment by ALCO X, LLC ("Tenant")
and BCC at Roanoke, Inc. ("Manager") to and for the benefit of
HRT Holdings, Inc. ("HCRT Assignee") and Emeritus Corporation
("Emeritus Assignee") dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . (1)
10.75.9 Bill of Sale, Blanket Conveyance and Assignment by
Extended Care Operators of Greensboro, LLC ("Tenant")
and BCC at Greensboro, Inc. ("Manager") to and for the benefit of
HR Acquisition I Corporation ("HCRT Assignee")
and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.. . . . . . . . . (1)
10.75.10 Bill of Sale, Blanket Conveyance and Assignment by
Extended Care Operators of Ravenna, LLC ("Tenant")
and BCC at Ravenna, Inc. ("Manager") to and for the benefit of
HR Acquisition I Corporation ("HCRT Assignee")
and Emeritus Corporation ("Emeritus Assignee") dated May 1, 2003.. . . . . . . . . (1)

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

10.75.11 Operations and Transfer Agreement by and among BCC at Bloomsburg, Inc.
("Tenant"), BCC Development and Management Co. ("Manager") and
Balanced Care Corporation ("Parent") and Emeritus Corporation ("New Operator")
and Capstone Capital of Pennsylvania, Inc. ("Owner")
dated April 30, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.12 Operations and Transfer Agreement by and among ALCO VI, LLC ("Tenant"),
Balanced Care at Mechanicsburg, Inc. ("Manager") and Balanced Care Corporation
("Parent") and Emeritus Corporation ("New Operator")
and Capstone Capital of Pennsylvania, Inc. ("Owner") dated April 30, 2003.. . . . . (1)
10.75.13 Operations and Transfer Agreement by and among Extended Care Operators
of Harrisburg, LLC ("Tenant"), BCC at Harrisburg, Inc. ("Manager")
and Balanced Care Corporation ("Parent") and Emeritus Corporation
("New Operator") and HR Acquisition I Corporation ("Owner")
dated April 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.14 Operations and Transfer Agreement by and among ALCO XI, LLC ("Tenant"),
BCC at Danville, Inc. ("Manager") and Balanced Care Corporation ("Parent")
and Emeritus Corporation ("New Operator") and HRT Holdings, Inc. ("Owner")
dated April 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.15 Operations and Transfer Agreement by and among ALCO IX, LLC ("Tenant"),
BCC at Harrisonburg, Inc. ("Manager") and Balanced Care Corporation ("Parent")
and Emeritus Corporation ("New Operator") and HRT Holdings, Inc. ("Owner")
dated April 30, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.16 Operations and Transfer Agreement by and among ALCO X, LLC ("Tenant"),
BCC at Roanoke, Inc. ("Manager") and Balanced Care Corporation ("Parent")
and Emeritus Corporation ("New Operator") and HRT Holdings, Inc. ("Owner")
dated April 30, 2003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.17 Operations and Transfer Agreement by and among Extended Care Operators
of Greensboro, LLC ("Tenant"), BCC at Greensboro, Inc. ("Manager") and
Balanced Care Corporation ("Parent")and Emeritus Corporation ("New Operator")
and HR Acquisition I Corporation ("Owner") dated April 30, 2003.. . . . . . . . . . . . (1)
10.75.18 Operations and Transfer Agreement by and among Extended Care Operators
of Ravenna, LLC ("Tenant"), BCC at Ravenna, Inc. ("Manager") and
Balanced Care Corporation ("Parent") and Emeritus Corporation ("New Operator")
and HR Acquisition I Corporation ("Owner") dated April 30, 2003.. . . . . . . . . . (1)
10.75.19 Assignment and Assumption Agreement by and among BCC at Bloomsburg, Inc.
(the "Tenant"), BCC Development and Management Co. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003. . . . . . . . . . . (1)
10.75.20 Assignment and Assumption Agreement by and among ALCO VI, LLC
(the "Tenant"), Balanced Care at Mechanicsburg, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003. . . . . . . . . . . (1)
10.75.21 Assignment and Assumption Agreement by and among Extended Care Operators
of Harrisburg, LLC (the "Tenant"), BCC at Harrisburg, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . (1)
10.75.22 Assignment and Assumption Agreement by and among ALCO XI, LLC
(the "Tenant"), BCC at Danville, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . (1)
10.75.23 Assignment and Assumption Agreement by and among ALCO IX, LLC
(the "Tenant"), BCC at Harrisonburg, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . (1)
10.75.24 Assignment and Assumption Agreement by and among ALCO X, LLC
(the "Tenant"), BCC at Roanoke, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . (1)
10.75.25 Assignment and Assumption Agreement by and among Extended Care Operators
of Greensboro, LLC (the "Tenant"), BCC at Greensboro, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . (1)
10.75.26 Assignment and Assumption Agreement by and among Extended Care Operators
of Ravenna, LLC (the "Tenant"), BCC at Ravenna, Inc. ("Manager")
and Emeritus Corporation (the "Assignee") dated April 30, 2003.. . . . . . . . . . . (1)
10.75.27 Leasehold Mortgage with Security Agreement and Assignment of Rents
for location: Bloomsburg, Pennsylvania, by Emeritus Corporation ("Mortgagor"),
for the benefit of Capstone Capital of Pennsylvania, Inc.("Mortgagee"),
dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.28 Leasehold Mortgage with Security Agreement and Assignment of Rents
for location: Mechanicsburg, Pennsylvania, by Emeritus Corporation ("Mortgagor"),
for the benefit of Capstone Capital of Pennsylvania, Inc.("Mortgagee"),
dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.29 Leasehold Mortgage with Security Agreement and Assignment of Rents
for location: Harrisburg, Pennsylvania, by Emeritus Corporation ("Mortgagor"),
for the benefit of Capstone Capital of Pennsylvania, Inc.("Mortgagee"),
dated May 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.75.30 Leasehold Deed of Trust with Security Agreement and Assignment of Rents
for location: Danville, Virginia, by Emeritus Corporation ("Grantor"),
for the benefit of HRT Holdings, Inc.("Beneficiary"), dated May 1, 2003. . . . . . . (1)

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

10.75.31 Leasehold Deed of Trust with Security Agreement and Assignment of Rents
for location: Harrisonburg, Virginia, by Emeritus Corporation ("Grantor"),
for the benefit of HRT Holdings, Inc.("Beneficiary"), dated May 1, 2003. . . . . . . (1)
10.75.32 Leasehold Deed of Trust with Security Agreement and Assignment of Rents
for location: Roanoke, Virginia, by Emeritus Corporation ("Grantor"),
for the benefit of HRT Holdings, Inc.("Beneficiary"), dated May 1, 2003. . . . . . . (1)
10.75.33 Leasehold Deed of Trust with Security Agreement and Assignment of Rents
for location: Greensboro, North Carolina, by Emeritus Corporation ("Grantor"),
for the benefit of HR Acquisition I Corporation ("Beneficiary"), dated May 1, 2003.. (1)
10.75.34 Leasehold Deed of Trust with Security Agreement and Assignment of Rents
for location: Ravenna, Ohio, by Emeritus Corporation ("Grantor"),
for the benefit of HR Acquisition I Corporation ("Beneficiary"), dated May 1, 2003.. (1)
99.1 Certification of Periodic Reports
99.1.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Daniel R. Baty dated
May 9, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)(2)
99.1.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Raymond R. Brandstrom
dated May 9, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)(2)
99.2 Press Releases
99.2.1 Press Release dated April 30, 2003, announcing disposition of ARV
Assisted Living common stock.. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
99.2.2 Press Release dated May 1, 2003, announcing the 8 building lease acquisition.. . . . . (1)
99.2.3 Press Release dated May 8, 2003, reports on first quarter 2003 results. . . . . . . . (1)

- --------------------------
(1) Filed herewith
(2) A signed original of this written statement required by Section 906 has
been provided to Emeritus Corporation and will be retained by Emeritus
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.

(b) Reports On Form 8-K.

None.

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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: May 9, 2003

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 officer 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 officer 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 officer 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
May 9, 2003

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

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

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;

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 officer 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/ Raymond R. Brandstrom
--------------------------------
Raymond R. Brandstrom
Chief Financial Officer
May 9, 2003