Housing alternatives for seniors include a broad spectrum of senior living service and care options, including independent living, assisted living, memory care, skilled nursing care and continuing care retirement communities, or CCRCs.

The senior living industry has evolved to meet the growing demand for senior care generated by an aging population demanding new and better housing alternatives. According to the U.S. Census Bureau, the population greater than 65 years old is expected to increase to approximately 20% of the overall U.S. population during the next 25 years, from approximately 12% in 2000. As life expectancy continues to increase and the elderly continue to become a higher percentage ofthe total U.S. population, it is believed the demand for service-based senior housing will increase.

The senior living industry’s independent living and assisted living segments are large and fragmented, characterized predominantly by numerous local and regional operators. According to ASHA the top five operators of senior living facilities measured by total resident capacity control only 7% of the total capacity. In addition, according to ASHA, only the top 5 managers operate more than 14,000 senior living units/beds.

According to ASHA, the number of new senior housing units identified as under construction has declined approximately 60% from 65,879 units in 1999 to 26,355 units in 2004.

The Company’s Independent Living Facilities are primarily designed for middle to upper income senior citizens age 70 and older who desire an upscale residential environment providing the highest quality of service. The majority of the Company’s Independent Living Facilities consist of both independent living and assisted living units in a single facility, which allows residents to “age-in-place” by providing them with a continuum of senior independent and assisted living services. The Company’s Independent Living Facilities are large multi-story buildings containing from 74 to 341 units. Residents may choose from studio, one-bedroom and two-bedroom units, depending upon the specific facility.

The Company’s Assisted Living Facilities offer housing and 24-hour assistance with ADLs to mid-acuity frail and elderly residents.

The Company’s Assisted Living Facilities include both freestanding, multi-story facilities with more than 30 beds and smaller, freestanding single story facilities with less than 30 beds. Depending upon the specific location, the facility may include private studio, one-bedroom and one-bedroom deluxe apartments, or individual rooms for one or two residents in wings or “neighborhoods” scaled to a single-family home, which includes a living room, dining room, patio or enclosed porch, laundry room and personal care area, as well as a caregiver work station.

The Company’s Memory Care Facilities are specially designed freestanding facilities for residents with Alzheimer’s disease and other dementias requiring the attention, personal care and services needed to help cognitively impaired residents maintain a higher quality of life. The Company’s Memory Care Facilities have from 20 to 60 beds and some are part of a campus setting, which includes a free-standing assisted living facility.

The Company’s CCRCs offer a variety of living arrangements and services to accommodate all levels of physical ability and health. Most of the Company’s CCRCs have independent living, assisted living and skilled nursing available on one campus, and some also include memory care and Alzheimer’s units. In addition, four of the Company’s CCRC facilities also contain single-family homes that are owned by the resident, who pays a monthly maintenance charge to the community for various maintenance services.

Total operating expenses increased by $31.4 million, or 22%, to $173.9 million for the three months ended March 31, 2005, compared with $142.5 million for the tree months ended March 31, 2004.

Interest income increased by $138.0 thousand, or 61.6%, to $362.0 thousand for the three months ended March 31, 2005, compared with $224.0 thousand for the tree months ended March 31, 2004.

Income (loss) before discontinued operations decreased by ($3.8 million), or 46.6%, to ($4.4 million) for the tree months ended March 31, 2005, compared with ($8.2 million) for the tree months ended March 31, 2004.