ELDERTRUST, S-11/A, 1997-12-16

ELDERTRUST
S-11/A, 1997-12-16
REAL ESTATE

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As filed with the Securities and Exchange Commission on December 16, 1997
Registration No. 333-37451
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2

FORM S-11

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ElderTrust
(Exact name of registrant as specified in its governing instrument)

415 McFarlan Road, Suite 202
Kennett Square, PA 19348
(610) 925-0808
(Address of principal executive offices)
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EDWARD B. ROMANOV, JR.
President and Chief Executive Officer
ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
(610) 925-0808
(Name and address of agent for service)
---------------------
Copies to:

J. Warren Gorrell, Jr. Michael F. Taylor
George P. Barsness BROWN & WOOD LLP
HOGAN & HARTSON L.L.P. One World Trade Center
555 Thirteenth Street, N.W.
New York, New York 10048
Washington, D.C. 20004-1109
(212) 839-5300

(202) 637-5600

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

---------------------

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / --------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / --------

If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / ---------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Class Amount Being Offering Price Aggregate Offering Registration
of Securities Being Registered Registered(1) Per Share(2) Price(2) Fee(3)
- ------------------------------------------ --------------- ------------------ -------------------- -------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest, $.01
par value per share ..................... 6,957,500 $21.00 $146,107,500 $44,275
</TABLE>

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1) Includes 907,500 shares that are issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

EXPLANATORY NOTE

This Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 4,840,000 of common shares of beneficial interest, $.01 par value per share,
of ElderTrust, a Maryland real estate investment trust (the "Common Shares"),
together with separate Prospectus pages relating to a concurrent offering
outside the United States and Canada of an aggregate of 1,210,000 Common Shares
(the "International Offering"). The complete Prospectus for the U.S. Offering
follows immediately. After such Prospectus are the following alternate pages
for the International Offering: a front cover page; an "Underwriting" section;
and a back cover page. All other pages of the Prospectus for the U.S. Offering
are to be used for both the U.S. Offering and the International Offering.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
PROSPECTUS

6,050,000 Common Shares

ElderTrustSM
Common Shares of Beneficial Interest
-------------------
ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a real estate
investment trust ("REIT") for federal income tax purposes. Upon completion of
the Offering (the "Offering"), approximately 50.5% of the Company's total
assets will consist of properties leased to and loans made to consolidated
subsidiaries of Genesis Health Ventures, Inc. ("Genesis"), a leading provider
of healthcare and support services to the elderly. Subsidiaries of Genesis will
operate or manage substantially all of the properties initially being acquired
by the Company. Approximately $108.2 million of the net proceeds of the
Offering, including initial draws under the Company's proposed credit facility,
will be paid to Genesis and its affiliates, including Michael R. Walker,
Chairman of the Board and Chief Executive Officer of Genesis and Chairman of
the Board of Trustees of the Company.

All of the common shares of beneficial interest, $.01 par value per share,
of the Company (the "Common Shares") offered hereby are being sold by the
Company and will represent approximately 86.9% of the Company's outstanding
common equity. The remaining common equity in the Company will be beneficially
owned by officers and trustees of the Company and other continuing investors.
Of the 6,050,000 Common Shares being offered hereby, 4,840,000 shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
1,210,000 shares are being offered initially outside the United States and
Canada by the International Managers. See "Underwriting."

Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price will
be between $19.00 and $21.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The Company has applied to list the Common Shares on the New York Stock
Exchange under the symbol "ETT."

See "Risk Factors" beginning on page 18 for certain risk factors relevant
to an investment in the Common Shares, including:
o The dependence of the Company's revenues and ability to make distributions
on Genesis as lessee or manager of substantially all of the properties
initially being acquired by the Company;

o Conflicts of interest between the Company and Genesis and Mr. Walker,
including the lack of arm's length negotiations and independent valuations
or appraisals, and the benefits to be derived by Genesis and Mr. Walker,
resulting in the risk that the consideration to be paid by the Company for
the initial properties and other assets may exceed their fair market values
and that the lease and loan terms may not reflect market terms;

o The possibility that the Company may not be able effectively to manage its
intended rapid growth, the Company's lack of operating history and
management's lack of experience in operating a REIT.

o Operating risks inherent in the highly regulated healthcare industry
which may affect the operations of the Company's lessees and tenants;

o The possibility that the Company may not be able to refinance outstanding
debt upon maturity or that indebtedness might be refinanced on less
favorable terms and the absence of a limitation on the amount of
indebtedness that the Company can incur, which could adversely affect the
Company's cash flow and ability of the Company to make cash distributions;

o General real estate investment risks, the possibility of defaults under
leases and defaults under term and construction loans and the lack of
minimum rent provisions in certain of the facility leases;

o The Board of Trustees may change the Company's investment, financing and
other policies without shareholder approval;

o Limitations on shareholders' ability to change control of the Company,
including a prohibition on actual or constructive ownership of Common
Shares in excess of 8.6% of the Company's outstanding Common Shares; and

o Taxation of the Company as a regular corporation if it fails to qualify as
a REIT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Common Share ...... $ $ $
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Total (3) ............ $ $ $

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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(2) Before deducting estimated expenses of $_____________ payable by the
Company.

(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an additional 726,000 Common Shares, and has granted the
International Managers a 30-day option to purchase up to an additional
181,500 Common Shares, on the same terms and conditions as set forth
above, solely to cover overallotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-------------------
The Common Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York
on or about , 1998.
-------------------
Merrill Lynch & Co.
BT Alex. Brown
Goldman, Sachs & Co.
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The date of this Prospectus is , 1998.

<PAGE>

TABLE OF CONTENTS

Page
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SUMMARY ................................................... 1
The Company ............................................. 1
Risk Factors .......................................... 3
Business and Growth Strategies ........................ 3
Possible Subordinated CMBS Investments .................. 4
Right of First Refusal Agreement ........................ 5
Conflicts of Interest ................................. 5
The Initial Investments ................................. 6
Term Loans, Construction Loans, Penn Mortgage
and Florida Facilities Note .......................... 8
Construction Loan Commitments ........................... 9
Structure and Formation of the Company .................. 9
Benefits to Related Parties ........................... 12
The Offering .......................................... 15
Distributions .......................................... 15
Tax Status of the Company .............................. 16
Summary Historical and Pro Forma
Financial Information .............................. 17
RISK FACTORS ............................................. 18
Dependence on Genesis for the Company's Revenues
and Ability to Make Distributions .................. 18
No Assurance that the Company is Paying Fair Market
Value for the Initial Properties and Other Assets
Being Acquired by the Company or that Rents under
Percentage Rent and Minimum Rent Leases and
Interest Rates under Term Loans, Construction Loans
and Construction Loan Commitments are on Market
Terms ................................................ 18
Conflicts of Interest between the Company and Genesis
and Mr. Walker in Connection with the Formation
and Operation of the Company ........................ 19
Lack of Operating History and Inexperience of
Management in Operating a REIT could Affect REIT
Qualification ....................................... 20
No Assurance that the Company will be Able
Effectively to Manage its Intended Rapid Growth ...... 21
Operating Risks Inherent in the Highly Regulated
Healthcare Industry may Adversely Affect the
Operations of the Company's Lessees and Borrowers 21
The Company's Use of Debt Financing, the Absence of
a Limitation on Debt, Increases in Interest Rates and
Requirements of Tax-Exempt Bond Financing could
have Adverse Effects on the Company .................. 23
The Company's Performance and Value are subject to
Risks Associated with the Real Estate Industry ...... 25
Making Loans on Development Projects .................. 26
The Board may Change Investment Policies without
Shareholder Approval ................................. 26
Possible Subordinated CMBS Investments .................. 26
The Ability of Shareholders to Effect a Change in
Control of the Company is Limited .................. 27
Failure to Qualify as a REIT would cause the Company
to be Taxed as a Corporation ........................ 29
Liability for Environmental Matters could Adversely
Affect the Company's Financial Condition ............ 30
Competition in the Marketplace could have an Adverse
Impact on the Ability of Lessees and Borrowers to
Make Lease and Loan Payments to the Company ......... 31
The Executive Officers and Trustees of the Company
will have Substantial Influence ..................... 31
The Company will be Dependent on Key Personnel
whose Continued Service is Not Guaranteed ............ 31

Page
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Purchasers of Common Shares will Experience
Immediate Dilution ................................. 32
Lack of a Prior Public Market, Changes in Market
Conditions, Changes in Earnings and Cash
Distributions, Changes in Interest Rates and
Dependence on External Sources of Capital could
Adversely Impact the Trading Price of the Common
Shares ............................................. 32
ERISA Risks ............................................. 33
THE COMPANY ............................................. 34
BUSINESS AND GROWTH STRATEGIES ........................... 35
CONFLICTS OF INTEREST .................................... 37
USE OF PROCEEDS .......................................... 38
DISTRIBUTIONS ............................................. 38
CAPITALIZATION .......................................... 42
DILUTION ................................................ 43
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION ................................. 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................. 46
Overview ................................................ 46
Nonrecurring Compensation Expense ..................... 46
Results of Operations ................................. 47
Pro Forma Statements of Operations ..................... 47
Liquidity and Capital Resources ........................ 47
Funds from Operations ................................. 48
BUSINESS AND PROPERTIES ................................. 50
General ................................................ 50
Initial Properties .................................... 51
Lessees ................................................ 53
Initial Property Acquisition Agreements ............... 62
Term Loans, Construction Loans, Penn Mortgage and
Florida Facilities Note .............................. 64
Construction Loan Commitments and Related Purchase
Contracts .......................................... 71
Mortgage Debt .......................................... 73
Leases ................................................ 73
Credit Facility and Tax-Exempt Financing ............... 78
Possible Subordinated CMBS Investments .................. 79
Government Regulation ................................. 79
Competition ............................................. 82
Legal Proceedings ....................................... 82
Office Lease .......................................... 82
Employees ............................................. 82
MANAGEMENT ................................................ 83
Trustees, Trustee Nominees And Executive Officers ...... 83
Committees of the Board of Trustees ..................... 84
Compensation of the Board of Trustees .................. 85
Executive Compensation ................................. 85
1998 Share Option and Incentive Plan .................. 86
Employment and Non-Competition Agreements ............... 87
Incentive Compensation ................................. 88
Limitation of Liability and Indemnification ............ 88
Indemnification Agreements .............................. 89
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .......................................... 89
STRUCTURE AND FORMATION OF THE COMPANY 91
BENEFITS TO RELATED PARTIES .............................. 93
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES 97

i
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Page
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Investment Policies ....................................... 97
Financing Policies ....................................... 98
Lending Policies .......................................... 98
Conflict of Interest Policies ........................... 98
Policies With Respect to Other Activities ............... 99
PARTNERSHIP AGREEMENT ....................................... 100
Management ................................................ 100
Sales of Assets .......................................... 100
Removal of the General Partner; Transfer of the
Company's Interests .................................... 100
Reimbursement of the Company;
Transactions with the Company and its Affiliates ...... 100
Redemption of Units ....................................... 101
Restrictions on Transfer of Units by Limited Partners . 101
Issuance of Additional Units and Preference Units ......... 101
Capital Contributions .................................... 102
Distributions; Allocations of Income and Loss ............ 102
Exculpation and Indemnification of the Company ............ 102
Amendment of the Operating Partnership Agreement ......... 102
Term ...................................................... 103
PRINCIPAL SHAREHOLDERS .................................... 104
SHARES OF BENEFICIAL INTEREST .............................. 105
General ................................................... 105
Common Shares ............................................. 105
Preferred Shares .......................................... 106
Power To Issue Additional Common Shares and
Preferred Shares ....................................... 106
Restrictions on Ownership and Transfer .................. 106
Transfer Agent and Registrar .............................. 109
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS ................................................... 110
Number of Trustees; Classification and Removal of
Board of Trustees; Other Provisions .................. 110
Changes in Control Pursuant to Maryland Law ............... 111

Page
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Amendments to the Declaration of Trust and Bylaws ......... 111
Advance Notice of Trustee Nominations and New
Business ............................................. 112
Meetings of Shareholders ................................. 112
Anti-Takeover Effect of Certain Provisions of Maryland
Law and of the Declaration of Trust and Bylaws ......... 112
Maryland Asset Requirements .............................. 112
SHARES AVAILABLE FOR FUTURE SALE ........................... 113
General ................................................... 113
Registration Rights ....................................... 113
FEDERAL INCOME TAX
CONSIDERATIONS .......................................... 114
Taxation of the Company ................................. 114
Requirements for Qualification as a REIT .................. 116
Failure of the Company to Qualify as a REIT ............... 123
Taxation of Taxable U.S. Shareholders of the Company
Generally ............................................. 123
Backup Withholding for Company Distributions ............ 125
Taxation of Tax-Exempt Shareholders of the Company . 126
Taxation of Non-U.S. Shareholders of the Company ......... 126
Tax Aspects of the Company's Ownership of Interests
in the Operating Partnership ........................... 129
Other Tax Consequences for the Company and its
Shareholders .......................................... 130
ERISA CONSIDERATIONS ....................................... 131
Employment Benefit Plans, Tax-Qualified Pension,
Profit Sharing or Stock Bonus Plans and IRAs ......... 131
Status of the Company and the Operating Partnership
under ERISA .......................................... 131
UNDERWRITING ................................................ 134
EXPERTS ................................................... 137
LEGAL MATTERS ............................................. 137
ADDITIONAL INFORMATION .................................... 137
GLOSSARY ................................................... 138
INDEX TO FINANCIAL STATEMENTS .............................. F-1

ii
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[INSERT MAP, CHARTS AND/OR PICTURES]

Certain persons participating in this Offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Common Shares. Such
transactions may include stabilizing, the purchase of Common Shares to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."

Information contained in or delivered in connection with this Prospectus
contains "forward-looking statements" relating to, without limitation, future
economic performance, plans and objectives of management for future operations
and projections of revenue and other financial items, which can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The cautionary statements
set forth under the caption "Risk Factors" and elsewhere in the Prospectus
identify important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements.
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the more detailed
information included elsewhere in the Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that (i) the initial
public offering price is $20.00 per share (the midpoint of the price range set
forth on the cover page of this Prospectus), (ii) the transactions described
under "Structure and Formation of the Company" are consummated, and (iii) the
Underwriters' overallotment option is not exercised. As used herein, (i)
"Company" means ElderTrust, a Maryland real estate investment trust, and one or
more of its subsidiaries (including ElderTrust Operating Limited Partnership, a
Delaware limited partnership (the "Operating Partnership") and ET Capital
Corp., a Delaware corporation), or, as the context may require, ElderTrust only
or the Operating Partnership only and (ii) "Genesis" means Genesis Health
Ventures, Inc., a Pennsylvania corporation, and its subsidiaries that will
lease or manage substantially all of the properties and other assets acquired
by the Company in its formation or, as the context may require, Genesis only or
such subsidiaries of Genesis only. See "Glossary" for the meanings of other
terms used herein. The Company will be the sole general partner of, will own a
substantial majority interest in, and will conduct all of its operations
through, the Operating Partnership and its subsidiaries.

The Company

The Company was formed on September 23, 1997 to invest in
healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a REIT for federal
income tax purposes. Upon completion of the Offering, the Company intends to
invest in 21 assisted and independent living facilities, skilled nursing
facilities and medical office and other buildings (the "Initial Properties"),
term mortgage loans (the "Term Loans") and construction loans (the
"Construction Loans") totaling $35.6 million, an $800,000 first mortgage note
(the "Penn Mortgage") and substantially all of the economic interest in a $7.5
million second mortgage note (the "Florida Facilities Note"). The Initial
Properties and properties securing the loans are located in eight states in the
eastern United States. The Company also has agreed to or has the option to
purchase the nine assisted living facilities that secure the Term Loans and the
Construction Loans, as well as eight of the nine assisted living development
and expansion projects currently in the planning stage for which the Company
will make loan commitments totaling $53.3 million (the "Construction Loan
Commitments").

The Company will lease the Initial Properties pursuant to percentage rent
leases ("Percentage Rent Leases") or minimum rent leases ("Minimum Rent
Leases") (other than the medical office and other buildings, which will be
acquired by the Company subject to the existing tenant leases). Percentage Rent
Leases will be based on a specified percentage of facility revenues with no
required minimum rent. Minimum Rent Leases will provide for base rent, plus
scheduled base rent step-ups and, in the case of certain of the Minimum Rent
Leases, additional rent based upon incremental revenues over the base year.
Both types of leases are triple net leases that require the lessees to pay all
operating expenses, taxes, insurance and other costs, and have initial terms of
10 or 12 years, subject to renewal. Tenant leases of the medical office and
other buildings provide for specified annual rent, subject to increases in rent
in certain of the leases ("Fixed Rent Leases"). The Company expects to realize
an initial annual yield of approximately 10.1% on its investment in Initial
Properties that are subject to Minimum Rent Leases and an initial yield of
approximately 10.4% on its investment in Initial Properties that are subject to
Fixed Rent Leases, based upon the minimum or fixed rent provisions of those
leases. The expected initial annual yield on the Company's investment in
Initial Properties that are subject to Percentage Rent Leases is approximately
10.5% based upon pro forma rent for the properties subject to such leases
(determined by multiplying the percentage rents set forth in the applicable
leases by the pro forma revenues for the facilities) for the month ended
September 30, 1997, annualized. The weighted average occupancy for the three
facilities that are subject to Percentage Rent Leases was 83.3% at September
30, 1997. Assuming revenues per bed remain constant, a 1% increase or decrease
in the weighted average occupancy for these three facilities would increase or
decrease the yield on the Percentage Rent Leases by approximately 13 basis
points. The Term Loans and Construction Loans to be made by the Company will
have fixed rates of interest based on a spread (350 or 400 basis points) over
the three-year U.S. Treasury Note rate in effect as of the closing of the
Offering, except for two Term Loans and two Construction Loans which will have
fixed rates of interest of 10.5%. See "Risk Factors -- Dependence on Genesis
for the Company's Revenues and Ability to Make Distributions," "-- Operating
Risks Inherent in the Highly Regulated Healthcare Industry may Adversely Affect
the Operations of the Company's Lessees and Borrowers" and "Business and
Properties -- Term Loans, Construction Loans, Penn Mortgage and Florida
Facilities Note."

The Company intends to focus initially on the acquisition of real estate
equity interests in and financing of, or mortgages secured by, assisted living,
independent living and skilled nursing facilities, and, to a lesser extent,
medical and other office

1
<PAGE>

buildings, located in the eastern United States, although the Company may make
investments in other types of healthcare facilities and in other geographical
areas. One of the Company's initial investments consists of a medical office
building condominium project. In addition to investments in real estate and
mortgages, the Company also may invest in securities or interests in persons
primarily engaged in real estate activities and other issuers, including
investments in real estate mortgage conduits. The Company's investment,
financing and other policies may be amended or revised from time to time by the
Board of Trustees without a vote of the shareholders. See "Risk Factors -- The
Board may Change Investment Policies without Shareholder Approval," "--
Possible Subordinated CMBS Investments," "Business and Growth Strategies" and
"Policies with Respect to Certain Activities."

Upon completion of the Offering, the Company expects to have a one-year,
secured credit facility of up to $140 million from an affiliate of Deutsche
Morgan Grenfell (the "Credit Facility"), which will be used to fund
approximately $43.5 million of the purchase price for the Initial Properties
and other assets being acquired by the Company, the Term Loans and the initial
draws under the Construction Loans. The Credit Facility also will be used for
one or more of the following purposes: (i) to fund the remaining draws under
the Construction Loans; (ii) to fund the Construction Loan Commitments; (iii)
to facilitate possible acquisitions or future developments; (iv) to repay
indebtedness; and (v) for working capital and other general corporate purposes.
The Company intends to grow rapidly and, accordingly, may fund the purchase of
additional properties and other investments from future equity or debt
financings, including mortgage indebtedness, or by reinvestment of proceeds
from the sale of properties (subject to any required distributions under the
tax requirements applicable to REITs). The Company does not have a policy
limiting the amount of indebtedness that the Company may incur. Upon completion
of the Offering, the Company's debt to market capitalization ratio will be
approximately 35.9% (27.5% if the underwriters' overallotment option is
exercised in full) of the Company's total market capitalization. See "Risk
Factors" and "Business and Growth Strategies."

Upon completion of the Offering, approximately 50.5% of the Company's
total assets will consist of properties leased to and loans made to
consolidated subsidiaries of Genesis. In addition, ten of the Initial
Properties or interests therein, the Penn Mortgage and the Florida Facilities
Note will be purchased from Genesis, and Genesis or entities in which it has an
interest will be the borrower under all but two of the Term and Construction
Loans. In addition, Michael R. Walker, who will serve both as the Company's
Chairman of the Board and as Chairman of the Board and Chief Executive Officer
of Genesis, has interests in five of the Initial Properties. (Three other
executive officers of Genesis have interests in three of these five
properties.) Subsidiaries of Genesis will operate or manage substantially all
of the Initial Properties. Approximately $106.3 million of the net proceeds
from the Offering, including initial draws under the Company's proposed credit
facility, will be paid to Genesis and entities in which it has an interest, and
approximately $1.9 million will be paid to Mr. Walker, as the purchase price
for Initial Properties or interests therein and certain other assets being
acquired by the Company, as repayment of indebtedness, as repayment of certain
expenses incurred by the Company in its formation and as the purchase price of
or initial draws under Term and Construction Loans being made to or acquired
from Genesis. See "Risk Factors -- Dependence of Genesis for the Company's
Revenues and Ability to Make Distributions," "Conflicts of Interest" and
"Benefits to Related Parties."

Upon completion of the Offering, substantially all of the Company's assets
will be owned by, and its operations conducted through, the Operating
Partnership. The Operating Partnership was formed on July 30, 1997 by
ElderTrust Realty Group, Inc., a Maryland corporation owned by Mr. Walker and
Edward B. Romanov, Jr., President and Chief Executive Officer and a trustee of
the Company, as the organizational general partner. The organizational limited
partners of the Operating Partnership were Mr. Romanov, D. Lee McCreary, Jr.,
Vice President and Chief Financial Officer of the Company, and ET Partnership,
a Pennsylvania general partnership. The partners in ET Partnership consist of
Genesis, Mr. Romanov and MGI Limited Partnership, a Delaware limited
partnership whose general partner is a corporation owned by Mr. Walker and
whose limited partners consist of Mr. Walker and four other executive officers
of Genesis. Immediately prior to completion of the Offering, the Company will
be admitted as an additional general partner of the Operating Partnership and
ElderTrust Realty Group, Inc. will withdraw as the general partner of the
Operating Partnership. The Company will contribute the net proceeds of the
Offering to the Operating Partnership in exchange for units of partnership
interest in the Operating Partnership ("Units"). The Company initially will own
approximately 93.1% of the equity of the Operating Partnership. See "Structure
and Formation of the Company."

2
<PAGE>

Risk Factors

An investment in the Common Shares involves various risks, and prospective
investors should carefully consider these and other matters discussed under
"Risk Factors" prior to making an investment in the Company. Such risks
include:

o the dependence of the Company's revenues and ability to make
distributions on Genesis, as lessee or manager of substantially all of the
Initial Properties. In addition, the Company will make Construction Loan
Commitments totaling $42.9 million to Genesis;

o conflicts of interest between the Company and Genesis and Mr. Walker,
including the lack of arm's length negotiations and independent valuations
or appraisals, and the benefits to be derived by Genesis and Mr. Walker,
resulting in the risk that the consideration to be paid by the Company for
the Initial Properties and other assets may exceed their fair market
values and that the lease and loan terms may not reflect market terms;

o the possibility that the Company may not be able effectively to manage
its intended rapid growth, the Company's lack of operating history and
management's lack of experience in operating a REIT;

o operating risks inherent in the highly regulated healthcare industry
which may affect the operations of the Company's lessees and tenants;

o the possibility that the Company may not be able to refinance
outstanding debt upon maturity or that indebtedness might be refinanced on
less favorable terms and the absence of a limitation on the amount of
indebtedness that the Company can incur, which could adversely affect the
Company's cash flow and ability of the Company to make cash distributions;

o general real estate investment risks, the possibility of defaults under
leases and Term and Construction Loans and the lack of minimum rent
provisions in certain of the facility leases;

o the Board of Trustees may change the Company's investment, financing and
other policies without shareholder approval;

o the possible anti-takeover effect of the Company's ability to limit, for
purposes of maintaining its REIT status, the actual or constructive
ownership of Common Shares to 8.6% of the outstanding Common Shares and
certain other provisions contained in the organizational documents of the
Company and the Operating Partnership, any of which could have the effect
of delaying or preventing a transaction or change in control of the
Company that might involve a premium price for the Common Shares or
otherwise would be in the best interests of the Company's shareholders;

o taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, the Company's liability for certain
federal, state and local income taxes in such event, and the resulting
decrease in cash available for distribution; and

o the absence of a prior public market for the Common Shares and no
assurance that a public market will develop or be sustained.

Business and Growth Strategies

The Company's principal business objective is to maximize growth in cash
available for distribution and to enhance the value of its portfolio in order
to maximize total return to shareholders. The Company's business and growth
strategies to achieve this objective are: (i) to invest in a high quality
portfolio of healthcare-related properties operated or managed by established
operators or in mortgages secured by such properties located in close proximity
to complementary healthcare services and facilities; (ii) to pursue
aggressively opportunities for portfolio growth by providing traditional and
innovative REIT financing to established operators in the healthcare industry;
(iii) to provide shareholders the opportunity for increased distributions from
annual increases in rental income and interest income and from portfolio
growth; and (iv) to provide shareholders with stock price appreciation
resulting from potential increases in the value of the Company's investments.
There can be no assurance, however, that these investment objectives will be
realized.

3
<PAGE>

services and facilities, such as skilled nursing facilities operated by Genesis
and other healthcare providers. Genesis intends for residents of assisted
living facilities owned by the Company to have access to long-term care at
Genesis-operated skilled nursing facilities located near the assisted living
facility. In addition, complementary healthcare providers, such as Genesis,
will be available to provide ancillary services (such as pharmacy, physical
therapy, nursing and physician services) needed from time to time by residents
of the facilities leased or managed by Genesis through the Genesis ElderCareTM
Networks. See "Business and Properties -- Lessees -- Genesis Initial
Properties.".

The Company expects to achieve growth as follows:

Internal Growth. Management believes the Company's future internal growth
will come from (i) potentially higher occupancy and associated increased rental
income under the Percentage Rent Leases and Minimum Rent Leases from facilities
not previously operated or managed by Genesis due, in part, to the ability of
facility residents to participate in a Genesis ElderCareTM Network, (ii) future
price increases to facility residents and resulting increases in rental income
payable under the Percentage Rent Leases and Minimum Rent Leases and (iii)
adjustments to rents under certain of the Fixed Rent Leases.

Growth from Draws Under Construction Loans, Construction Loan Commitments
and Facility Purchase Contracts and Options. The Company anticipates additional
growth from (i) increasing draws under the Construction Loans, which are
expected to increase from an initial $8.2 million to approximately $28.8
million in 18 months, (ii) funding of the Construction Loan Commitments, which
is expected to total approximately $45.1 million in 18 months and (iii) the
purchase and leaseback to Genesis, pursuant to purchase contracts that will be
in place as of the closing of the Offering, of the five facilities in lease-up
(the "Lease-up Assisted Living Facilities") and two of the four facilities in
development (the "Initial Assisted Living Development Projects") upon the
earlier of the maturity of the related Term Loan or Construction Loan or at
such time as the facility reaches average monthly occupancy of at least 90% for
three consecutive months ("Stabilized Occupancy"). The Company has an option to
purchase the two remaining Initial Assisted Living Development Projects for
which Construction Loans will be made at the closing of the Offering. In
addition, the Company has agreed to purchase or has the option to purchase
eight of the nine assisted living development and expansion projects currently
in the preliminary planning phase. See "Business and Properties."

External Growth. The Company's external growth strategy is to become a
significant source of healthcare industry capital. The Company intends to focus
initially on the acquisition and financing of assisted living, independent
living and skilled nursing facilities, and, to a lesser extent, medical office
and other buildings, located in the eastern United States, although the Company
may also make investments in other types of healthcare facilities and in other
geographic regions. The Company intends to offer Units to sellers who would
otherwise recognize a taxable gain upon a sale of assets, which also may
facilitate sale/leaseback transactions on a tax-deferred basis. The Company
believes that the substantial healthcare industry experience and numerous
relationships of its management and trustees will help the Company identify,
evaluate and complete additional investments. In making future investments, the
Company intends to focus on established healthcare operators which meet the
Company's standards for facility quality, proximity to complementary healthcare
services and facilities and experience of management. In the near term, the
Company anticipates that a significant portion of new investments will involve
Genesis as lessee or manager.

Possible Subordinated CMBS Investments

The Company and Genesis are currently discussing a possible transaction
involving the purchase by the Company in the first half of 1998 of up to $30
million in subordinated collateralized mortgage-backed securities ("CMBSs")
issued by real estate mortgage conduits ("REMICs") and secured by skilled
nursing facilities currently owned by Genesis. Any such transaction would be
subject to, among other things, the approvals of the Board of Trustees of the
Company and the Board of Directors of Genesis, availability of financing,
negotiation of the transaction documents, receipt of necessary third party
consents and regulatory approvals. There can be no assurance that any such
transaction will be consummated. See "Risk Factors -- Possible Subordinated
CMBS Investments," "Business and Growth Strategies," "Business and Properties
- -- Possible Subordinated CMBS Investments". and "Policies with Respect to
Certain Activities."

4
<PAGE>

Right of First Refusal Agreement

The Company and Genesis have entered into an agreement for a period of
three years from the closing of the Offering (subject to annual renewals
thereafter), pursuant to which Genesis has granted the Company a right of first
refusal to purchase and leaseback to Genesis any assisted or independent living
facility which Genesis determines to sell and leaseback (the "Right of First
Refusal Agreement"). The Right of First Refusal Agreement also provides the
Company with a right to offer financing to Genesis and other developers of
assisted and independent living facilities which, once developed, will be
operated by Genesis. The Company believes that its agreement with Genesis will
provide it with opportunities to acquire, and finance the development of,
additional assisted and independent living facilities within the Genesis
ElderCareSM healthcare network. In turn, the Company has provided Genesis a
right of first refusal to lease or manage any assisted or independent living
facility financed or acquired by the Company within Genesis' markets unless the
facility will be leased or managed by the developing or selling company or an
affiliate. See "Risk Factors -- Conflicts of Interest Between the Company and
Genesis and Mr. Walker in Connection with the Formation and Operation of the
Company."

Conflicts of Interest

Conflicts of interest exist on the part of the Company and Genesis and Mr.
Walker. Such conflicts include: (i) Mr. Walker's serving simultaneously as
Chairman of the Board of the Company and Chairman of the Board and Chief
Executive Officer of Genesis; (ii) the lack of arm's length negotiations and
the absence of independent valuations or appraisals with respect to the
purchase prices of, and, as applicable, the leaseback provisions for, the
Initial Properties and other assets or interests therein being acquired by the
Company, or which the Company has contracted to purchase, from Genesis and
entities in which it has an interest and from Mr. Walker, as well as with
respect to the terms of the Term Loans, Construction Loans and Construction
Loan Commitments being made by the Company; (iii) the fact that ten of the
Initial Properties or interests therein will be purchased from Genesis and
entities in which it has an interest, and that Genesis or entities in which it
has an interest will be the borrower under all but two of the Term and
Construction Loans; (iv) the fact that interests in five of the Initial
Properties will be acquired from Mr. Walker (three other executive officers of
Genesis have interests in three of these five properties); and (v) the
potential for future conflicts arising from any failure by the Company to
enforce the terms of the leases, Term Loans, Construction Loans and
Construction Loan Commitments and other agreements to be entered into between
the Company and Genesis and Mr. Walker and three executive officers of Genesis
transferring property interests to the Company. In addition, Mr. Romanov,
President and Chief Executive Officer and a trustee of the Company, previously
served as Senior Vice President of Genesis. He will resign as an employee of
Genesis upon completion of the Offering. Following the Offering, the Company
will be prohibited by the terms of its Bylaws from acquiring additional
properties from Genesis or the Company's trustees and officers or affiliates
thereof without the approval of a majority of the disinterested trustees (other
than pursuant to agreements entered into in connection with the Formation
Transactions). Genesis, Mr. Walker, Mr. Romanov and certain other executive
officers of Genesis will receive certain benefits in the formation
transactions. See "Benefits to Related Parties."

5
<PAGE>

The Initial Investments
The following tables set forth certain information regarding the Initial
Properties, the Term and Construction Loans, the Penn Mortgage and the Florida
Facilities Note (collectively, the "Initial Investments"). All of the Initial
Properties will be leased to or managed by Genesis except for The Woodbridge and
the medical office and other buildings. The Company will hold a fee interest in
each of the Initial Properties except for the land underlying the Windsor Clinic
and Training Facility which will be a leasehold interest subject to a long-term
ground lease from Genesis and the land underlying the Professional Office
Building I which will be a leasehold interest subject to a long-term ground
lease from an affiliate of Crozer-Keystone Health System, a Pennsylvania
nonprofit corporation ("CKHS"). The initial lessees include various wholly owned
subsidiaries of Genesis, Crozer/Genesis ElderCare Limited Partners
("Crozer/Genesis"), a Pennsylvania limited partnership which is owned 50% by
Genesis and 50% by CKHS, Senior LifeChoice, LLC ("SLC"), a privately held
Pennsylvania limited liability company, or a wholly owned subsidiary of SLC, and
a wholly owned subsidiary of the Age Institute of Florida, Inc., a Florida
not-for-profit corporation ("Age Institute of Florida"). Of the 21 Initial
Properties, ten are owned by Genesis or by entities in which Genesis has
interests and five are owned by entities in which Mr. Walker has an interest.
Three other executive officers of Genesis have interests in three of these five
properties. See "Business and Properties -- Lessees" and "-- Leases."

<TABLE>
<CAPTION>
Initial Properties
Number Year Built/
Property Location of Beds(1) Occupancy(2) Renovated
- ------------------------------- ------------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods Agawam, MA 122 13.5% 1997
Willowbrook Clarks Summit, PA 65 74.6 1996
Riverview Ridge Wilkes-Barre, PA 105 94.1 1993
Highgate at Paoli Pointe Paoli, PA 82 92.7 1995
The Woodbridge Kimberton, PA 90 66.1 1996
--- ------
Subtotal/Avg. 464 63.9%(8)
=== =======
Independent Living Facility:
Pleasant View Concord, NH 72 93.8% 1926
Skilled Nursing Facilities(9):
Rittenhouse CC Philadelphia, PA 183 96.6% 1930/1993(10)
Lopatcong CC Phillipsburg, NJ 153 95.2 1984/1992(12)
Phillipsburg CC Phillipsburg, NJ 92(13) 86.8 1930/1993(14)
Wayne NRC Wayne, PA 118 91.8 1920/1989(15)
Belvedere NRC Chester, PA 147(16) 92.5 1960/1983(17)
Chapel Manor NRC Philadelphia, PA 240 84.3 1973
Harston Hall NCH Flourtown, PA 196(18) 89.4 1977/1991(19)
Pennsburg Manor NRC Pennsburg, PA 120 89.7 1982
Silverlake NRC Bristol, PA 174 97.9 1969/1988(20)
------- -------
Subtotal/Avg. 1,423 93.2%
========= =======
Rentable Year Built/
Property Location Sq. Feet Occupancy Renovated
- ------------------------------- ------------------- ----------------- ----------- ------------
Medical Office and Other Buildings:
Professional Off. Bldg. I Upland, PA 39,972 100.0% 1977
DCMH Med. Off. Bldg.(23) Drexel Hill, PA 60,706(24) 100.0 1984/1987/
1997(25)
Salisbury Med. Off. Bldg. Salisbury, MD 10,961 100.0 1984
Windsor Off. Bldg. Windsor, CT 2,100 100.0 1934/1965(27)
Windsor Clinic/Trg. Fac.(29) Windsor, CT 9,662 100.0 1996
Lacey Branch Off. Bldg. Forked River, NJ 4,100 100.0 1996
----------------- -----------
Subtotal/Avg. 127,501 100.0%
================= ===========
Total Initial Properties

<CAPTION>
Initial Properties % of
Purchase Initial Initial Rent
Property Price(3) Investments Lease Term(4) Type(5) Lessee
- ------------------------------- ------------------ ------------- -------------------- ------------ ---------------------
(in thousands) (Years)
<S> <C> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods $ 11,536 6.0% 10.0 (6) Genesis(7)
Willowbrook 5,894 3.1 10.0 Percentage Genesis(7)
Riverview Ridge 5,720 3.0 10.0 Percentage Genesis(7)
Highgate at Paoli Pointe 11,115 5.8 10.0 Minimum Genesis(7)
The Woodbridge 11,668 6.1 10.0 Minimum SLC(7)
--------- --- ------
Subtotal/Avg. $ 45,933 24.0% 10.0
--------- ---- ======
Independent Living Facility:
Pleasant View $ 3,742 1.9% 10.0 Percentage Genesis(7)
--------- ----
Skilled Nursing Facilities(9):
Rittenhouse CC $ 8,855 4.6% 10.0 Minimum Genesis(11)
Lopatcong CC 13,778 7.2 10.0 Minimum Genesis(11)
Phillipsburg CC 6,266 3.3 10.0 Minimum Genesis(11)
Wayne NRC 6,065 3.2 10.0 Minimum Genesis(11)
Belvedere NRC 10,413 5.5 12.0 Minimum Crozer/Genesis
Chapel Manor NRC 11,334 5.9 12.0 Minimum Crozer/Genesis
Harston Hall NCH 7,300 3.8 12.0 Minimum Crozer/Genesis
Pennsburg Manor NRC 10,000 5.2 12.0 Minimum Crozer/Genesis
Silverlake NRC 8,000 4.2 10.0 Minimum Age Inst. of Fl.(21)
--------- ---- ------
Subtotal/Avg. $ 82,011 42.9% 11.0
--------- ---- ======
% of
Purchase Initial Remaining Rent
Property Price(3) Investments Lease Term(22) Type(5) Lessee
- ------------------------------- ---------- ---- --------------- ------- ----------
(in thousands) (Years)
Medical Office and Other Buildings:
Professional Off. Bldg. I $ 4,000 2.1% 1.2 Fixed Physicians
DCMH Med. Off. Bldg.(23) 7,923 4.1 3.9 Fixed Physicians
Salisbury Med. Off. Bldg. 1,349 0.7 1.0(26) Fixed Genesis(26)
Windsor Off. Bldg. 325 0.2 5.0(28) Fixed Genesis
Windsor Clinic/Trg. Fac.(29) 1,493 0.8 5.0(28) Fixed Genesis
Lacey Branch Off. Bldg. 545 0.3 18.0 Fixed Ocean FSB
------------ ---- -------
Subtotal/Avg. $ 15,635 8.2% 3.6
------------ ---- =======
Total Initial Properties $ 147,321 77.0%
============ ====
</TABLE>

6
<PAGE>

- --------
(1) Based on the number of private and semi-private beds currently available.
(2) Represents the average occupancy for the month ended September 30, 1997
determined by dividing total patient days by the number of days in the
month.
(3) Does not include estimated net capitalized acquisition costs aggregating
approximately $1.4 million. Includes, for certain of the Initial
Properties, mortgage indebtedness being repaid at the closing of the
Offering and assumed mortgage indebtedness totaling $34.2 million as of
December 1, 1997. See "Use of Proceeds" and "Business and Properties --
Mortgage Debt."
(4) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering. The weighted average initial lease term for each facility type
is based on the purchase prices for the facilities.
(5) For the nine months ended September 30, 1997, on a pro forma basis, the
lease coverage ratios, which are a measure of the ability of a facility's
revenues to cover required lease payments (net operating income before
interest, depreciation, rent and the subordinated portion of management
fees (if any) divided by rent payments) for the assisted living facility
and four skilled nursing facilities to be leased to Genesis under Minimum
Rent Leases was 0.83x, 2.31x, 1.64x, 1.70x and 0.96x, respectively; the
lease coverage ratio for the facility to be leased to SLC under a Minimum
Rent Lease was 0.24x; the lease coverage ratios for the four facilities to
be leased to Crozer/Genesis under Minimum Rent Leases were 1.29x, 1.25x,
1.67x and 1.35x, respectively; and the lease coverage ratio for the
facility to be leased to the Age Institute of Florida under a Minimum Rent
Lease was 1.54x. Lease coverage ratios are not provided for facilities
that will be subject to Percentage Rent Leases because rental revenues for
those facilities are based on a fixed percentage of the facility's
revenues. See "Risk Factors -- Operating Risks Inherent in the Highly
Regulated Healthcare Industry may Adversely Affect the Operations of the
Company's Lessees and Borrowers" and "Business and Properties -- Leases."
(6) Initially, rent equals a fixed base rent with no revenue participation. At
the time the facility reaches average monthly occupancy of at least 90%
for three consecutive months ("Stabilized Occupancy"), the lease will
automatically convert into a Percentage Rent Lease.
(7) Genesis will guarantee the performance of its subsidiaries under the
Genesis leases. The Highgate facility initially may be leased by SLC. If
subsequently leased by a subsidiary of SLC, SLC will guarantee the
performance of its subsidiary under such lease.
(8) At September 30, 1997, Heritage Woods, Willowbrook and The Woodbridge were
in the initial lease-up phase. Excluding these facilities, the assisted
living facilities included in the Initial Properties had an average
occupancy of 93.5%.
(9) "NRC" means a nursing and rehabilitation center, "NCH" means a nursing and
convalescent home and "CC" means a care center.
(10) The facility was originally built in the 1930's with two expansions in the
1970's. A renovation of interior finishes was completed in 1993. The
Company has agreed to finance an expansion of this facility to be
undertaken by Genesis. See "Business and Properties -- Construction Loan
Commitments and Related Purchase Contracts."
(11) These facilities initially will be leased by wholly owned subsidiaries of
Genesis, and Genesis will guarantee the obligations of its wholly owned
subsidiaries under these Minimum Rent Leases. However, in the event
Genesis assigns one or more of the leases to a non-wholly owned subsidiary
or a third party, Genesis may not continue to guarantee the applicable
leases. Any such assignment of a Minimum Rent Lease would require the
consent of the Company which may not be unreasonably withheld. The Company
will evaluate the creditworthiness of any assignee in determining whether
to provide its consent. Genesis is currently negotiating an arrangement
with a Philadelphia-based hospital system. If the arrangement is
negotiated successfully, the hospital system would lease-back the Wayne
skilled nursing facility following its sale to the Company and Genesis
would manage the facility. In addition, Genesis would not guarantee the
lease. See "Risk Factors -- Conflicts of Interest Between the Company and
Genesis and Mr. Walker in Connection with the Formation and Operation of
the Company -- No assurance that Genesis will continue to guarantee
Minimum Rent Leases of its wholly owned subsidiaries."
(12) This facility was originally built in 1984 with an addition of three
skilled nursing beds in 1992. The Company has agreed to finance an
expansion of this facility to be undertaken by Genesis. See "Business and
Properties -- Construction Loan Commitments and Related Purchase
Contracts."
(13) Includes 32 assisted living units.
(14) This facility was originally built during the 1930's with an addition in
1988. A renovation of interior finishes was completed in 1993.
(15) This facility is estimated to have been built circa 1920. Additions were
completed in 1966, 1974 and 1989. During 1989, there was a complete renovation
of the building.
(16) Includes 27 assisted living units.
(17) This facility was built in 1960 and was expanded in 1983.
(18) Includes 76 assisted living units.
(19) This facility was built in 1977 and was expanded in 1991.
(20) This facility opened in 1969, was expanded in 1977 and was renovated in
1988.
(21) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
(22) For each building, represents the weighted average remaining lease term
for all rentable space in the applicable building as of September 30, 1997.
(23) The property consists of a condominium unit containing six of the eight
floors in the building which is located on the campus of the Delaware
County Memorial Hospital ("DCMH").
(24) The DCMH Medical Office Building is currently undergoing expansion,
including an expansion of two of the six floors included in the
condominium unit which the Company will acquire. This expansion is
expected to be completed in the first quarter of 1998 and will increase
the rentable square feet in the Company's condominium unit to 65,740
square feet. All of the rentable space to be added to the Company's
condominium unit has been pre-leased.
(25) This building was built in 1984, and a renovation of interior finishes was
completed in 1987. This building is currently undergoing expansion.
(26) Two subsidiaries of Genesis lease approximately 83% of the rentable space
in the Salisbury Medical Office Building. The remaining approximately 17%
of the rentable space in the building is leased by Quest Diagnostics,
Inc., a corporation unaffiliated with Genesis or the Company. At the
closing of the Offering, Genesis will enter into a new lease with the
Company with respect to the space leased by Genesis in the building. Each
of these leases will have an initial term of five years, subject to
renewals. The lease with Quest Diagnostics, Inc. expired on November 30,
1997. The Company expects to enter into a new two-year lease with Quest
Diagnostics.
(27) This building was originally constructed in 1934 with an addition in 1965.

(28) At the closing of the Offering, Genesis will enter into a new lease with
the Company with respect to all of the rentable space in the Windsor
Office Building and the Windsor Clinic and Training Facility. Each of
these leases will have an initial term of five years, subject to renewals.

(29) The Windsor Clinic and Training Facility are connected to each other. The
Windsor Clinic consists of 5,490 rentable square feet, and the Windsor
Training Facility includes 4,172 rentable square feet.

7
<PAGE>

Term Loans, Construction Loans, Penn Mortgage and Florida Facilities Note

The following table sets forth certain information regarding the Term
Loans, the Construction Loans, the Penn Mortgage and the Florida Facilities
Note. The project owner/borrowers include various wholly owned subsidiaries of
Genesis, the Multicare Companies, Inc., a 44% owned subsidiary of Genesis
("Multicare"), Lake Washington, Ltd., a Florida limited partnership in which
Genesis holds a 49% interest ("Lake Washington"), SLC or wholly owned
subsidiaries of SLC, a wholly owned subsidiary of the Age Institute of Florida
and Philadelphia Suburban Development Corporation. Facilities under development
are subject to various risks and uncertainties, including zoning, construction
and related development risks. See "Risk Factors -- Making Loans on Development
Projects." There can be no assurance that any of the Initial Assisted Living
Development Facilities that secure the Construction Loans will be completed on
a timely basis or at all. The Company has agreed or has the option to purchase
the nine facilities that secure the Term Loans and the Construction Loans at
the end of the loan terms or at such time as each facility achieves Stabilized
Occupancy. See "Business and Properties -- Term Loans, Construction Loans, Penn
Mortgage and Florida Facilities Note -- Purchase Contracts and Options for Term
Loan and Construction Loan Properties" for additional information.

<TABLE>
<CAPTION>
Loan Amount
Expected to be % of
Number of Funded at Initial Interest
Security Property Location Beds(1) Closing Investments Rate
- ------------------------------------- ------------------ ----------- ---------------- ------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities
Harbor Place Melbourne, FL 120 $ 4,728 2.5% (3)
Mifflin Shillington, PA 67 5,164 2.7 (3)
Coquina Center Ormond Beach, FL 80 4,577 2.4 (3)
Lehigh Macungie, PA 70 6,665 3.5 10.50%
Berkshire Reading, PA 64 6,269 3.3 10.50%
--- -------- -----
Subtotal/Avg. 401 $ 27,403 14.4%
=== -------- -----
Construction Loans - Initial Assisted Living Development Projects:
Oaks Wyncote, PA 52 $ 1,500 0.8% (3)
Montchanin Wilmington, DE 92 2,000 1.0 10.50%
Mallard Landing Salisbury, MD 60 1,702 0.9 (3)
Sanatoga Pottstown, PA 70 3,000 1.6 10.50%
--- -------- -----
Subtotal/Avg. 274 $ 8,202 4.3%
=== -------- -----
Penn Mortgage:
Personal care facility (unoccupied) Philadelphia, PA 180 $ 800 0.4% 10.25%
-------- -----
Florida Facilities Note(7):
11 skilled nursing facilities Florida 1,219 $ 7,406 3.9% 13.00%
-------- -----
Total Loan Investments $ 43,811 23.0%
-------- -----
Total Initial Investments $191,132 100.0%
======== =====

<CAPTION>
Purchase
Initial Development Contract/ Project/Owner
Security Property Maturity Loan Amount(2) Status Option Borrower
- ------------------------------------- ---------- ---------------- ------------- ----------- ----------------------
(years) (in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities
Harbor Place 2 $ 4,728 Lease-up Contract Lake Washington
Mifflin 2 5,164 Lease-up Contract Genesis (4)
Coquina Center 2 4,577 Lease-up Contract Genesis (4)
Lehigh 2 6,665 Lease-up Contract Multicare (5)
Berkshire 2 6,269 Lease-up Contract Multicare (5)
-------
Subtotal/Avg. $27,403
-------
Construction Loans - Initial Assisted Living Development Projects:
Oaks 3 $ 5,380 Constr. Contract Genesis (4)
Montchanin 3 9,500 Constr. Option SLC (6)
Mallard Landing 3 7,564 Zoned Option SLC (6)
Sanatoga 3 6,511 Constr. Contract Multicare (5)
-------
Subtotal/Avg. $28,955
-------
Penn Mortgage:
Personal care facility (unoccupied) 1 $ 800 N/A N/A Phil. Sub. Dev. Corp.
-------
Florida Facilities Note(7):
11 skilled nursing facilities 10 $ 7,406 N/A N/A Age Inst. of Fl. (8)
-------
Total Loan Investments $64,564
-------
Total Initial Investments
</TABLE>

- --------
(1) Based on the number of private and semi-private beds currently available.
(2) Represents the total committed loan amount under the applicable Term Loan
or Construction Loan.
(3) The interest rates on these loans will be set at the closing of the
Offering at a fixed rate of interest equal to 400 basis points over the
then applicable three-year U.S. Treasury Note rate, except for the
Construction Loan for the Oaks development project which will have a fixed
interest rate equal to 350 basis points over the then applicable
three-year U.S. Treasury Note rate.
(4) The project owner/borrower of these projects will be a wholly owned
subsidiary of Genesis. Genesis will guarantee the loans made to such
subsidiaries.
(5) The project owner/borrower of these projects are subsidiaries of Multicare.
Multicare will guarantee 20% of the principal amount of the loans.
(6) The project owner/borrower of these projects will be wholly owned
subsidiaries of SLC. SLC will guarantee the loans made to such
subsidiaries.
(7) See "Business and Properties -- Term Loans, Construction Loans, Penn
Mortgage and Florida Facilities Note -- The Florida Facilities Note" for
additional information. The amount shown in the table represents the
Company's economic interest in the Florida Facilities Note on a pre-tax
basis.
(8) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.

8
<PAGE>

Construction Loan Commitments

In addition to the foregoing, the Company has entered into Construction
Loan Commitments totaling $42.9 million with Genesis and $10.4 million with SLC
to provide financing for an additional nine assisted living development and
expansion projects which are in the planning stage. The resident capacity of
these facilities is expected to total approximately 700 to 800. Eight of these
projects will be owned by subsidiaries of Genesis and one will be owned by a
subsidiary of SLC. The Company's obligation to fund the Construction Loan
Commitments for these projects is subject to a number of conditions, including
receipt by Genesis and SLC of all necessary zoning, land use, building,
occupancy, licensing and other required governmental approvals and
authorizations. The Company has contracted to purchase the projects to be owned
by Genesis. See "Business and Properties -- Construction Loan Commitments and
Related Purchase Contracts." There can be no assurance that any of these
development projects will be completed on a timely basis or at all. See "Risk
Factors -- Making Loans on Development Projects."

Structure and Formation of the Company

Company Structure. At the completion of the Offering, substantially all of
the Company's assets will be owned by, and its operations conducted through,
the Operating Partnership and its subsidiaries. The Company will be the sole
general partner of the Operating Partnership and will contribute the net
proceeds of the Offering to the Operating Partnership in exchange for a number
of Units equal to the number of Common Shares sold in the Offering.

Formation of the Company. The formation transactions ("Formation
Transactions") include the following transactions which will have occurred
prior to the Closing of the Offering:

o ElderTrust Realty Group, Inc. was formed by Messrs. Walker and Romanov in
June 1997 as the organizational general partner of the Operating
Partnership. The Operating Partnership was formed on July 30, 1997 by
Messrs. Romanov and McCreary and ET Partnership. The partners in ET
Partnership consist of Genesis, Mr. Romanov and MGI Limited Partnership,
a limited partnership whose general partner is a corporation owned by
Mr. Walker and whose limited partners consist of Mr. Walker and the
following four other executive officers of Genesis: (i) Richard R.
Howard, President and a director of Genesis; (ii) David C. Barr,
Executive Vice President and Chief Operating Officer of Genesis; (iii)
John F. DePodesta, Senior Vice President, Law & Public Policy of
Genesis; and (iv) George V. Hager, Jr., Senior Vice President and Chief
Financial Officer of Genesis.

o The Company was formed on September 23, 1997.

o ET Capital Corp. was formed by the Operating Partnership, which owns all of
the nonvoting stock of ET Capital Corp. (representing a 95% equity
interest), and Mr. Romanov, who owns all of the voting stock of ET
Capital Corp. (representing a 5% equity interest).

o The Operating Partnership will purchase from Genesis and certain other
persons their direct or indirect interests in certain of the 21 Initial
Properties, the Penn Mortgage and, through ET Capital Corp.,
substantially all of the economic interest in the Florida Facilities
Note for an aggregate amount of cash equal to $109.5 million. Of the 21
Initial Properties, ten are owned by Genesis or by entities in which
Genesis has interests.

o Certain other persons (the "Continuing Investors") will contribute the
remaining interests in the Initial Properties to the Operating
Partnership in exchange for an aggregate of 220,000 Units. The
Continuing Investors include Messrs. Walker and Howard, individually,
and Senior LifeChoice Corp. and three other individuals not affiliated
with the Company or Genesis. Following completion of the Offering,
Messrs. Walker, Howard, Barr and Hager and Kent P. Dauten, a trustee
nominee, will own, in the aggregate, approximately 62.8% of the
interests in Senior LifeChoice Corp., and six other individuals not
affiliated with the Company or Genesis will own the remaining interests
in Senior LifeChoice Corp.

o The Operating Partnership agreed to make Term Loans and Construction Loans
(totaling $39.3 million) to Genesis and entities in which it has an
interest and to acquire the seven facilities that secure such loans at
the end of the loan term or at such time as each such facility reaches
Stabilized Occupancy.

9
<PAGE>

o The Operating Partnership agreed to purchase from Genesis one Construction
Loan (totaling $9.5 million) and to make a second Construction Loan
(totaling $7.6 million) secured by two facilities owned by subsidiaries
of SLC, and entered into option agreements granting it an option to
acquire from such subsidiaries of SLC for cash the facilities that
secure such loans at the end of the loan term or at such time as each
such facility reaches Stabilized Occupancy.

o The Operating Partnership has made Construction Loan Commitments totaling
$53.3 million with respect to nine assisted living development and
expansion projects in the planning phase. Pursuant to these Construction
Loan Commitments, the Operating Partnership will agree to purchase for
cash eight of these projects which are owned by Genesis upon the earlier
of the maturity of the related loan or at such time following completion
of development as each such facility reaches Stabilized Occupancy.

o Prior to the closing of the Offering, Messrs. Walker and Romanov will
purchase the interest of Genesis in ET Partnership for an aggregate
purchase price of $4.5 million. ET Partnership will be liquidated and
Messrs. Walker and Romanov and MGI Limited Partnership will receive
direct interests in the Operating Partnership in respect of their
respective interests in ET Partnership.

The following transactions will occur at or immediately prior to the closing of
the Offering:

o The Company will be admitted to the Operating Partnership as an additional
general partner, and ElderTrust Realty Group, Inc. will withdraw as a
general partner of the Operating Partnership.

o The Company will sell 6,050,000 Common Shares in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for Units.

o The Operating Partnership will consummate the acquisition of the Initial
Properties (including the repayment of approximately $7.5 million of
indebtedness secured by certain of the Initial Properties and the
assumption of approximately $34.2 million of indebtedness secured by
certain other of the Initial Properties), the funding of the Term Loans
and the initial draws under the Construction Loans, the purchase of the
Penn Mortgage and the purchase of substantially all of the economic
interest in the Florida Facilities Note.

o The Operating Partnership will be recapitalized to reflect the ownership of
interests in the Operating Partnership by the Company, the Continuing
Investors, Messrs. Walker, Romanov and McCreary and MGI Limited
Partnership, and the Operating Partnership will issue Units to each of
its partners to represent these interests. The Units issued to Mr.
Walker and to Mr. Romanov in respect of the Genesis interest in ET
Partnership purchased by Messrs. Walker and Romanov prior to the
liquidation of ET Partnership will be exchanged for Common Shares on a
one-for-one basis.

o Mr. Walker will enter into a non-competition agreement with the Company
(which will not limit in any way any activities related to Mr. Walker's
employment by or interest in Genesis), and Mr. Romanov will enter into
an employment and non-competition agreement with the Company. See
"Management -- Employment and Non-Competition Agreements."

o The Operating Partnership will acquire all of the assets and liabilities of
ElderTrust Realty Group, Inc., which will consist of a lease, a bank
account and certain contract rights and obligations, for cash in the
amount of $100,000. ElderTrust Realty Group, Inc. will then be
dissolved.

o As a result of the foregoing transactions, the Company will own 6,482,600
Units, which will represent an approximate 93.1% interest in the
Operating Partnership after the Offering.

o The Company will have the right to exchange Common Shares for Units held by
Messrs. Romanov and McCreary, MGI Limited Partnership and the Continuing
Investors upon the election by such holders to redeem their Units any
time after 14 months after the closing of the Offering.

10
<PAGE>

Rent Leases were determined on a comparable basis, adjusted for the risk
associated with the fact that there are no minimum rent provisions in such
leases. There can be no assurance that the aggregate value of the cash and
Units received by the participants in the Formation Transactions does not
exceed the fair market value of the properties and other assets acquired by the
Company.

Organization Chart. As a result of the Offering and the Formation
Transactions, the structure of the Company and the ownership of equity in the
Company will be as shown in the following chart:

Shareholders:
93.3% Public Shareholders
6.7% Other Shareholders(1)
|
|
--------------------

ElderTrust

--------------------
|
General partner Messrs. Romanov and McCreary,
interest (0.1%) MGI Limited Partnership and
Mr. Romanov Limited partner Continuing Investors(2)
| interest (93.0%) |
| | |
| | Limited partner
| | interest (6.9%)
| | /
| /\ /
| / \ /
Voting Stock / \ /
(5% of equity) / \ /
| / Elder \ /
| // Trust \ /
| / / Operating \ /
| / / Limited \/
| Nonvoting Stock / / Partnership \
| (95% of equity (3)) /__________________\
| / |
| / |
| / |
- --------------- / |
ET Capital Corp./ |
- --------------- |
| |
| |
- ------------------ --------------------------------------
Initial Properties, Property-Owning Genesis
Florida Facilities Subsidiaries, Term Loans, Construction and other
Note Loans, Penn Mortgage and ------- Lessees and
Construction Loan Commitments Borrowers(4)
- ------------------ --------------------------------------
- -----------
(1) Includes (i) 100 Common Shares issued to Mr. McCreary at the time of the
Company's formation, (ii) 225,000 Common Shares to be acquired by Messrs.
Walker and Romanov upon exchange of Units following the liquidation of ET
Partnership, which Units will be issued with respect to Genesis' interest
in ET Partnership, (iii) 200,000 Common Shares to be issued and sold to
Mr. Romanov in a private placement and (iv) Common Share awards totaling
2,500 shares each to be made upon completion of the Offering to the
Company's three trustee nominees under the Company's 1998 Share Option and
Incentive Plan. See "Benefits to Related Parties."

(2) Messrs. Romanov and McCreary and MGI Limited Partnership will be issued an
aggregate of 262,000 Units with respect to their interests in the
Operating Partnership. The partners of MGI Limited Partnership include Mr.
Walker and Messrs. Howard, Barr, DePodesta and Hager. The Continuing
Investors will receive 220,030 Units in the Formation Transactions. The
Continuing Investors include Messrs. Walker and Howard, individually, and
Senior LifeChoice and three other individuals not affiliated with the
Company or Genesis.

(3) The Operating Partnership also owns a promissory note of ET Capital Corp.
with an initial principal balance of approximately $5.6 million. As a
result of the Operating Partnership's ownership of nonvoting stock and
debt of ET Capital Corp., the Company, through the Operating Partnership,
expects to receive most of the after-tax economic benefits of ET Capital
Corp. See "Business and Properties -- Term Loans, Construction Loans, Penn
Mortgage and Florida Facilities Note -- The Florida Facilities Note."

(4) Includes (i) certain wholly owned subsidiaries of Genesis, (ii)
Crozer/Genesis (which is owned 50% by Genesis), (iii) Lake Washington
(which is owned 49% by Genesis), (iv) certain wholly owned subsidiaries of
Multicare (which is owned 44% by Genesis), (v) SLC (directly or indirectly
through a wholly owned subsidiary), (vi) certain wholly owned subsidiaries
of SLC and (vii) a wholly owned subsidiary of the Age Institute of
Florida.

11
<PAGE>

Benefits to Related Parties

Upon completion of the Offering and the Formation Transactions, Genesis
and entities in which it has an interest, Mr. Walker and three other executive
officers of Genesis who are transferring interests in certain of the Initial
Properties to the Company, Messrs. Romanov and McCreary, the Company's three
trustee nominees and one other executive officer of Genesis will receive an
aggregate amount of cash equal to approximately $114.1 million (including $4.5
million paid to Genesis by Messrs. Walker and Romanov in exchange for Genesis'
interest in ET Partnership and $94,000 contributed to ET Capital Corp. by Mr.
Romanov and paid to Genesis as part of the purchase price of the Florida
Facilities Note), Units and Common Shares with an aggregate value of
approximately $11.3 million (including 225,000 Common Shares issued to Messrs.
Walker and Romanov in exchange for 225,000 Units issued to Messrs. Walker and
Romanov in respect of Genesis' interest in ET Partnership) and certain other
benefits, as described in greater detail below:

Genesis

o Genesis will receive approximately $61.2 million in cash from the Company
for the 10 Initial Properties or interests therein transferred by
Genesis or entities in which it has an interest to the Company in the
Formation Transactions. The estimated purchase price for these
facilities and interests is approximately $61.7 million, including
approximately $480,000 of assumed indebtedness. The aggregate book value
reflected on Genesis' financial statements of the Initial Properties to
be acquired from Genesis as of September 30, 1997 was approximately
$41.3 million. The Company does not believe that the book values of the
Initial Properties or interests therein being acquired from Genesis
(which reflect the historical cost of such Initial Properties, net of
accumulated depreciation, where applicable) are equivalent to the fair
market values of such Initial Properties.

o Genesis or entities in which it owns an interest will receive approximately
$31.9 million in cash from the Company as a result of the funding of the
Term Loans and the initial draws under two of the Construction Loans to
be made by the Company. The Company will be obligated to fund
approximately $7.4 million in subsequent advances under these two
Construction Loans.

o The Company has agreed to purchase from Genesis or entities in which it
owns an interest for cash the five Lease-up Assisted Living Facilities
and the two Initial Assisted Living Development Project owned by Genesis
or entities in which it owns an interest. The estimated aggregate
purchase price of these facilities is $52.2 million.

o The Company has agreed to make Construction Loan Commitments to Genesis
totaling approximately $42.9 million for eight assisted living
development and expansion projects which are owned by Genesis and which
are in the planning stage. Pursuant to these Construction Loan
Commitments, the Operating Partnership will agree to purchase for cash
these projects from Genesis upon the earlier of the maturity of the
related loan or at such time following completion of development as each
such project reaches Stabilized Occupancy. The estimated aggregate
purchase price of these facilities upon completion of development is
approximately $52.6 million.

o The Company has agreed to purchase from Genesis a Construction Loan made by
Genesis to a subsidiary of SLC with respect to the Montchanin Initial
Assisted Living Development Project for a purchase price equal to the
outstanding loan balance (currently $2.0 million).

o Genesis will receive $800,000 from the Company as payment of the purchase
price for the Penn Mortgage and $7.5 million from ET Capital Corp. as
payment of the purchase price for the Florida Facilities Note.

o As a result of the assumption by the Company of debt secured by two of the
Initial Properties, Genesis will be released from guarantees of such
indebtedness totaling approximately $3.2 million.

o It is estimated that Genesis will receive approximately $3.0 million in
cash from the Company as reimbursement for expenses incurred by Genesis
on behalf of the Company in connection with the Formation Transactions.

o Genesis will receive $4.5 million in cash or notes from Messrs. Walker and
Romanov for the interest owned by Genesis in ET Partnership. Mr. Walker
and Mr. Romanov will receive 225,000 Units in respect of this interest
upon recapitalization of the Operating Partnership, which Units will be
exchanged for Common Shares on a one-for-one basis substantially
simultaneously with the closing of the Offering.

12
<PAGE>

Mr. Walker

o Mr. Walker will receive cash distributions totaling approximately $358,000
from certain entities in which he owns interests and which own interests
in three of the Initial Properties. Mr. Walker also will receive a direct
or indirect interest in 88,110 Units in exchange for his ownership
interests in certain of the Initial Properties that are not owned by
Genesis. Such Units, together with Mr. Walker's interest in the Units to
be distributed to MGI Limited Partnership upon the recapitalization of
the Operating Partnership, will have a total value of approximately $2.5
million based on the assumed initial public offering price of the Common
Shares. In addition, Mr. Walker will receive approximately $1.9 million
in cash from the Company as repayment of indebtedness. The aggregate
book value of Mr. Walker's ownership interests in the Initial Properties
being transferred to the Company in which he holds interests was
approximately negative $251,000 as of September 30, 1997.

o Mr. Walker will receive $50,000 in cash (representing a return of his
initial investment) following the sale by Elder Trust Realty Group, Inc.
of all of its assets and liabilities to the Operating Partnership.

o The Company will grant to Mr. Walker options to purchase 150,000 Common
Shares under the Company's 1998 Share Option and Incentive Plan. These
options will vest over three years.

o Mr. Walker will enter into a non-competition agreement with the Company.
See "Management -- Employment and Non-Competition Agreements."

o Commencing 14 months after the Offering, Mr. Walker will have registration
rights with respect to the Common Shares that may be issued to him in
exchange for Units he will receive in the Formation Transactions, as
well as with respect to the Common Shares to be acquired by him upon
exchange of the Units distributed to him in respect of the interest in
ET Partnership purchased by him from Genesis.

Other Executive Officers of Genesis

o Mr. Howard will receive a cash distribution in the amount of approximately
$91,000 from an entity in which he owns an interest and which owns
one of the Initial Properties. Messrs. Howard, Barr and Hager will
receive direct or indirect interests in 24,139 Units in the agregate in
exchange for their ownership interests in certain of the Initial
Properties that are not owned by Genesis. Such Units will have a total
value of approximately $483,000 based on the assumed initial public
offering price of the Common Shares. The aggregate book value of Messrs.
Howard, Barr and Hager's ownership interests in the Initial Properties
being transferred to the Company in which they hold interests was
approximately negative $80,000 as of September 30, 1997.

o Messrs. Howard, Barr, Hager and DePodesta will have an interest in the Units
to be distributed to MGI Limited Partnership upon the recapitalization
of the Operating Partnership, which interest will consist, in the
aggregate, of 95,454 Units having a total value of approximately $1.9
million based on the assumed initial public offering price of the Common
Shares.

Executive Officers and Trustee Nominees of the Company

o Messrs. Romanov and McCreary will receive a total of 130,750 Units upon the
recapitalization of the Operating Partnership (not including the Units
distributed to Mr. Romanov with respect to the Operating Partnership
interest acquired by Mr. Romanov from Genesis), as a portion of their
compensation packages, which Units will have a total value of
approximately $2.6 million based on the assumed initial public offering
price of the Common Shares.

o Mr. Romanov will receive $50,000 in cash (representing a return of his
initial investment) following the sale by ElderTrust Realty Group, Inc.
of all of its assets and liabilities to the Operating Partnership.

o Mr. Dauten will receive an indirect interest in 18,924 Units in exchange for
his ownership interests in certain of the Initial Properties that are not
owned by Genesis. Such Units will have a total value of approximately
$378,000 based on the assumed initial public offering price of the Common
Shares. The aggregate book value of Mr. Dauten's ownership interests in
the Initial Properties being transferred to the Company in which he holds
interests was approximately negative $63,000 as of September 30, 1997.

13
<PAGE>

o The Company will issue and sell to Mr. Romanov 200,000 Common Shares in a
private placement at a per share purchase price equal to the initial
public offering price. Mr. Romanov will pay for such shares with a
10-year recourse promissory note, with interest only payable until
maturity at an annual rate of 7%.

o The three trustee nominees will each receive an award of 2,500 Common
Shares each under the Company's 1998 Share Option and Incentive Plan.
The Company also will grant options to purchase 7,500 Common Shares to
each of the three trustee nominees of the Company under the Company's
1998 Share Option and Incentive Plan. The options will have an exercise
price equal to the initial public offering price and will vest over
three years.

o The Company will grant to Messrs. Romanov and McCreary options to purchase
300,000 Common Shares and 25,000 Common Shares, respectively, under the
Company's 1998 Share Option and Incentive Plan. The options will have an
exercise price equal to the initial public offering price. One-half of
the options to be granted to Mr. Romanov will vest immediately and
one-half will vest over three years and the options to be granted to Mr.
McCreary will vest over five years.

o Mr. Romanov will enter into an employment and non-competition agreement
with the Company. See "Management -- Employment and Non-Competition
Agreements."

o Commencing 14 months after the Offering, Messrs. Romanov, Dauten and
McCreary will have registration rights with respect to the Common Shares
issued to them and that may be issued to them in exchange for Units they
receive in the Formation Transactions, as well as, in the case of Mr.
Romanov, with respect to the Common Shares to be acquired by them upon
exchange of the Units distributed to them in respect of the interest in
ET Partnership purchased by them from Genesis.

14
<PAGE>

The Offering

All of the Common Shares offered hereby are being offered by the Company.

<TABLE>
<S> <C>
Common Shares Offered by the Company .................. 6,050,000 shares
Common Shares Outstanding After the Offering (1) ...... 6,482,600 shares
Common Shares and Units Outstanding After the
Offering (1)(2) ....................................... 6,964,630 shares and Units
Use of Proceeds ....................................... To acquire certain of the Initial Properties,
the Penn Mortgage and substantially all of
the economic interest in the Florida Facili-
ties Note, to fund Term Loans and Construc-
tion Loans, to repay mortgage indebtedness
secured by certain of the Initial Properties
and Lease-up Assisted Living Facilities and
for working capital and other general corpo-
rate purposes. See "Use of Proceeds" and
"Structure and Formation of the Company."
Proposed NYSE Symbol ................................. "ETT"
</TABLE>

- -----------
(1) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 225,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued
and sold to Mr. Romanov in a private placement and (iv) Common Share
awards totaling 2,500 shares each to be made to the Company's three
trustee nominees under the Company's 1998 Share Option and Incentive Plan
upon completion of the Offering. See "Benefits to Related Parties."

(2) Includes 262,000 Units to be issued to Messrs. Romanov and McCreary and MGI
Limited Partnership in connection with the Formation Transactions. All
Units are exchangeable on a one-for-one basis for Common Shares or, at the
option of the Company, cash, subject to certain exceptions and
limitations. Excludes 689,498 Common Shares reserved for issuance pursuant
to the Company's 1998 Share Option and Incentive Plan.

Distributions

Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Shares. The
initial distribution, covering a partial quarter commencing on the date of
completion of the Offering and ending on March 31, 1998, is expected to be
$____ per share, which represents a pro rata distribution based on a full
quarterly distribution of $0.365 per share and an annual distribution of $1.46
per share (or an annual distribution rate of 7.3%). The Company does not intend
to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised. The following discussion and the information
set forth under "Distributions" should be read in conjunction with the Pro
Forma Statements of Operations and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this Prospectus.

15
<PAGE>

for medical office building tenant improvements and purchases of office
equipment) and (ii) financing activities (other than scheduled loan principal
payments on existing indebtedness). The estimate of Cash Available for
Distribution is being made solely for the purpose of setting the initial
distribution and is not intended to be a projection or forecast of the
Company's results of operations or its liquidity, nor is the methodology upon
which such estimate was made necessarily intended to be a basis for determining
future distributions. Future distributions by the Company will be at the
discretion of the Board of Trustees. There can be no assurance that any
distributions will be made or that the estimated level of distributions will be
maintained by the Company.

The Company anticipates that its distributions may exceed earnings and
profits for federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that up to 10% of the distributions anticipated to be
paid by the Company for the 12-month period following the completion of the
Offering will represent a return of capital for federal income tax purposes and
in such event will not be subject to federal income tax under current law to
the extent such distributions do not exceed a shareholder's basis in his Common
Shares. The nontaxable distributions will reduce the shareholder's tax basis in
the Common Shares and, therefore, the gain (or loss) recognized on the sale of
such Common Shares or upon liquidation of the Company will be increased (or
decreased) accordingly. The percentage of shareholder distributions that
represents a nontaxable return of capital may vary substantially from year to
year.

The Code generally requires that a REIT distribute annually at least 95%
of its net taxable income (excluding any net capital gain). See "Federal Income
Tax Considerations -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements." The estimated Cash Available for Distribution is
anticipated to be in excess of the annual distribution requirements applicable
to REITs under the Code. Under certain circumstances, the Company may be
required to make distributions in excess of Cash Available for Distribution in
order to meet such distribution requirements. For a discussion of the tax
treatment of distributions to holders of Common Shares, see "Federal Income Tax
Considerations."

Tax Status of the Company

The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1998, and believes its
organization and proposed method of operation will enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational requirements. In addition,
in order to maintain its qualification as a REIT under the Code, the Company
generally will be required each year to distribute at least 95% of its net
taxable income. As a REIT, the Company generally will not be subject to federal
income tax on net income it distributes currently to its shareholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax at regular corporate rates. See "Risk Factors -- Failure to
Qualify as a REIT would cause the Company to be Taxed as a Corporation" and
"Federal Income Tax Considerations -- Failure of the Company to Qualify as a
REIT." Even if the Company qualifies for taxation as a REIT, the Company will
be subject to certain federal, state and local taxes on its income and
property.

16
<PAGE>

Summary Historical and Pro Forma Financial Information

The following table sets forth financial information for the Company which
is derived from the Balance Sheet and the Pro Forma Balance Sheet and
Statements of Operations included elsewhere in this Prospectus. The adjustments
for the Offering assume an initial public offering price of $20.00 per share
and that the Underwriters' overallotment option is not exercised.

Pro forma operating data are presented for the year ended December 31,
1996, and the nine months ended September 30, 1997, as if the Offering and the
acquisitions of the Initial Investments and related transactions had occurred,
and as if the respective leases had been in effect at January 1, 1996. The pro
forma balance sheet data is presented as of September 30, 1997, as if the
Offering and the acquisitions of the Initial Investments and related
transactions had occurred, and as if the respective leases had been in effect
at that date. The pro forma information incorporates certain assumptions that
are included in the notes to the Pro Forma Balance Sheet and Statements of
Operations included elsewhere in this Prospectus. The pro forma information
does not purport to represent what the actual financial position or results of
operations of the Company would have been as of or for the periods indicated
nor does it purport to represent the financial position or results of
operations for any future period.

<TABLE>
<CAPTION>
Pro Forma at Pro Forma at
or for the Nine or for the
Months Ended Year Ended
Historical(1) September 30, 1997 December 31, 1996
--------------- -------------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma operating data:
Revenues ....................................... $ -- $ 13,040 $ 14,484
Net income ....................................... -- 3,330 1,567
Earnings per share .............................. -- 0.51 0.24
Weighted average number of Common Shares
outstanding .................................... 100 6,482,600 6,482,600
Pro forma balance sheet data:
Initial Properties .............................. $ -- $ 155,838 N/A
Investment in ET Capital Corp. .................. -- 7,406 N/A
Loans receivable ................................. -- 30,629 N/A
Other assets .................................... -- 2,406 N/A
Total assets .................................... -- 203,545 N/A
Mortgages payable .............................. -- 34,239 N/A
Credit Facility ................................. -- 43,471 N/A
Minority interest in Operating Partnership ...... -- 9,641 N/A
Total shareholders' equity ..................... 100 112,806 N/A
Other data:
Funds from Operations (2) ........................ $ -- $ 6,722 $ 5,548
Weighted average number of Common Shares
and Units outstanding ........................ 100 6,964,630 6,964,630
</TABLE>

- -----------
(1) The Company was formed on September 23, 1997 and was capitalized with the
issuance of 100 Common Shares for a purchase price of $100.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines "Funds from Operations" as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures ("Funds from Operations"). The Company
believes that Funds from Operations is helpful to investors as a measure
of the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures and to fund other
cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.

17
<PAGE>

RISK FACTORS

An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information before making a
decision to purchase Common Shares in the Offering.

Dependence on Genesis for the Company's Revenues and Ability to Make
Distributions

Ten of the Initial Properties or interests therein will be purchased from
Genesis or entities in which it has an interest, and Genesis or entities in
which it has an interest will be the borrower on all but two of the Term and
Construction Loans. Genesis will operate or manage substantially all of the
Initial Properties. In addition, the Company will make Construction Loan
Commitments totaling $42.9 million to Genesis. The Company's revenues and
ability to make expected distributions to shareholders, therefore, will depend
in significant part upon the revenues derived from, and Genesis' successful
operation of, the facilities leased to or managed by Genesis, as well as the
ability of Genesis to complete successfully and on schedule the development
projects securing Construction Loans and Construction Loan Commitments made to
Genesis.

No Assurance that the Company is Paying Fair Market Value for the Initial
Properties and other Assets Being Acquired by the Company or that Rents under
Percentage Rent and Minimum Rent Leases and Interest Rates under Term Loans,
Construction Loans and Construction Loan Commitments are on Market Terms

The amount of consideration to be received by Genesis, Mr. Walker and the
three other executive officers of Genesis transferring Initial Properties or
interests therein to the Company in the Formation Transactions, as well as the
terms of the leases, Term Loans, Construction Loans and Construction Loan
Commitments to be entered into by the Company, and the purchase prices for
properties that will secure the Term Loans, Construction Loans and Construction
Loan Commitments being made by the Company, were not determined as a result of
arm's length negotiations. The amount of consideration to be paid by the
Company to acquire interests in the Initial Properties and other assets being
acquired by the Company from Genesis, Mr. Walker and the three other executive
officers of Genesis transferring interests in Initial Properties to the
Company, as well as the terms of the leases, Term Loans, Construction Loans and
Construction Loan Commitments to be entered into by the Company, and the
purchase prices for properties that will secure the Term Loans, Construction
Loans and Construction Loan Commitments being made by the Company, were
determined by Genesis, Mr. Walker and Mr. Romanov. The purchase prices of the
Initial Properties were determined primarily based on an evaluation of the
current and anticipated cash flows and operating results of the facilities. To
determine the purchase price for each of the Initial Properties, the
anticipated annual cash flow for each facility less ongoing capital
expenditures and a management fee was divided by an agreed upon capitalization
rate. Rental rates under the Minimum Rent Leases and the interest rates on Term
Loans, Construction Loans and Construction Loan Commitments were based on an
agreed upon yield. Rental rates under the Percentage Rent Leases were
determined on a comparable basis, adjusted for the risk associated with the
fact that there are no minimum rent provisions in such leases. No independent
valuations or appraisals of the Initial Properties or the other assets being
acquired by the Company were obtained by the Company. Each of Genesis and Mr.
Walker and Mr. Romanov will receive substantial economic benefits as a result
of consummation of the Formation Transactions and the Offering. See "Benefits
to Related Parties." Accordingly, there can be no assurance that the
consideration to be paid by the Company for the Initial Properties and other
assets being acquired by the Company and for properties subject to purchase
contracts and options represents the fair market value thereof or that rents
under Percentage Rent and Minimum Rent Leases and interest rates under Term
Loans, Construction Loans and Construction Loan Commitments are at market
rates.

The valuation of the Company has not been determined by a valuation of its
assets, but instead has been determined based upon a capitalization of the
Company's pro forma Funds from Operations, estimated cash available for
distribution and potential for growth and the other factors discussed under
"Underwriting." In determining the estimated initial public offering price,
certain assumptions were made concerning the estimate of revenue to be derived
from the Initial Properties and other assets being acquired by the Company. See
"Distributions." This methodology has been used because management believes
that it is appropriate to value

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the Company as an ongoing business, rather than with a view to values that
could be obtained from a liquidation of the Company or of individual assets
owned by the Company. There can be no assurance that the prices paid by the
Company for the Initial Properties and other assets being acquired by the
Company will not exceed their respective fair market values, and it is possible
that the market value of the Common Shares may exceed the shareholders'
proportionate share of the aggregate fair market value of such assets.

Conflicts of Interest between the Company and Genesis and Mr. Walker in
Connection with the Formation and Operation of the Company

Conflicts of interest may result in less vigorous enforcement of the terms
by the Company of contribution, lease and other agreements with Genesis and Mr.
Walker due to conflicts of interest. Michael R. Walker, the Company's
Chairman of the Board, is Chairman of the Board and Chief Executive Officer of
Genesis and will continue to serve in such capacity following completion of the
Offering. At September 30, 1997, Mr. Walker beneficially owned approximately
2.2% of the outstanding common stock of Genesis. Because he serves as Chairman
of both Genesis and the Company, Mr. Walker will have a conflict of interest
with respect to his obligations as a trustee of the Company with respect to
enforcing (i) the terms of the contribution, loan, purchase and Right of First
Refusal agreements relating to the various properties and other assets owned by
Genesis or in which it holds interests being transferred by it to the Company
or that will be acquired by the Company from Genesis in the future and (ii) the
related leases entered into by the Company and Genesis. The failure to enforce
material terms of these agreements and leases could result in a monetary loss
to the Company, which loss could have a material adverse effect on the
Company's financial condition and results of operations. The Company's ongoing
dependence on Genesis as a lessee and/or manager of a substantial portion of
its properties may deter the Company from vigorously enforcing the terms of
such agreements and operating leases. Mr. Walker also will have a conflict of
interest with respect to enforcing the terms of the purchase agreements for the
five Initial Properties or interests therein acquired from Mr. Walker and
Messrs. Howard, Barr and Hager. Edward B. Romanov, Jr., the Company's President
and Chief Executive Officer and a member of the Company's Board of Trustees,
served as Senior Vice President, Development of Genesis from June 1990 until
August 1997. He will resign as an employee of Genesis upon completion of the
Offering. Mr. Romanov has a loan outstanding from Genesis in the amount of
$450,000, which he expects to repay within 90 days of the closing of the
Offering. In addition, Mr. Walker, Mr. Dauten, a trustee nominee, and three
executive officers of Genesis hold interests in certain properties being
transferred to the Company by third parties other than Genesis.

A prepayment or refinancing of debt or sale of properties will have
different effects on Continuing Investors than on shareholders. Certain
Continuing Investors, including Messrs. Walker and Dauten, may incur adverse
tax consequences upon the prepayment or refinancing of certain debt securing
the Initial Properties or a sale of a property which are different from the tax
consequences to the Company and persons who purchase Common Shares in the
Offering. Consequently, such Continuing Investors may have different objectives
regarding the appropriate timing of such actions. While the Company will have
the exclusive authority under the Agreement of Limited Partnership of the
Operating Partnership (the "Operating Partnership Agreement") to determine
whether, when and on what terms to prepay or refinance debt or to sell a
property, any such decision would require the approval of the Board of
Trustees. Messrs. Walker and Dauten will have substantial influence with
respect to any such decision, and such influence could be exercised in a manner
not consistent with the interests of some, or a majority, of the Company's
shareholders.

Holders of Units have different interests than shareholders and may
exercise their voting rights in the Operating Partnership in a manner that
conflicts with the interests of shareholders. After the Offering, the Company,
as the sole general partner of the Operating Partnership, will have fiduciary
obligations to the other limited partners in the Operating Partnership, the
discharge of which may conflict with the interests of the Company's
shareholders. In addition, those persons holding beneficial interests in Units
(including Messrs. Walker, Romanov, Dauten and McCreary and the three executive
officers of Genesis), as limited partners, will have the right to vote on
amendments to the Operating Partnership Agreement (most of which require
approval by a majority in interest of the limited partners, including the
Company) and such individuals may exercise their voting rights in a manner that
conflicts with the interests of the Company's shareholders.

No assurance that Genesis will continue to guarantee Minimum Rent Leases
of its wholly owned subsidiaries. The skilled nursing facilities being acquired
from Genesis initially will be leased under

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<PAGE>

Minimum Rent Leases by wholly owned subsidiaries of Genesis, and Genesis will
guarantee the lease obligations of such wholly owned subsidiaries. In the event
Genesis assigns one or more of the leases to a non-wholly owned subsidiary or a
third party, Genesis may not continue to guarantee the applicable leases. Under
the terms of the Minimum Rent Leases, any such assignment of a Minimum Rent
Lease would require the consent of the Company which may not be unreasonably
withheld. The Company will evaluate the creditworthiness of any assignee in
determining whether to provide its consent; however, the possibility exists
that any such transferee will not be as creditworthy as Genesis. Genesis is
currently negotiating an arrangement with a Philadelphia-based hospital system
involving an assignment of the Wayne lease. See "Business and Properties --
Initial Properties."

Genesis' right of first refusal to lease acquired facilities not operated
by the seller may discourage third parties from entering into transactions with
the Company or result in less favorable lease terms to the Company. The Company
and Genesis have entered into the Right to First Refusal Agreement, pursuant to
which (i) for three years following the closing of the Offering (subject to
annual renewals thereafter) the Company has (a) a right of first refusal to
purchase and leaseback to Genesis any assisted or independent living facility
which Genesis determines to sell and leaseback and (b) a right to offer
financing to Genesis and other developers of assisted and independent living
facilities which, once developed, will be operated by Genesis, and (ii) Genesis
has a right of first refusal to lease or manage any assisted living or
independent living facility financed or acquired by the Company within Genesis'
markets unless the facility will be leased or managed by the developing or
selling company or an affiliate thereof. While the Company believes that the
Right to First Refusal Agreement will provide the Company with opportunities to
acquire, and finance the development of, additional assisted and independent
living facilities from Genesis, the right of first refusal of Genesis to lease
or manage any assisted living or independent living facility financed or
acquired by the Company within Genesis' markets unless the facility will be
leased or managed by the developing or selling company or an affiliate thereof
may impair the Company's ability to find a suitable lessee for a facility (if
other than Genesis) in those situations where the seller of the facility did
not desire to leaseback the facility or result in the Company's entering into
leases with Genesis on less favorable terms than could be achieved if Genesis
did not have such right of first refusal.

Genesis' right of first refusal on offers to purchase or lease facilities
subject to leases with Genesis may discourage third party offers. Under the
applicable lease agreements with Genesis, Genesis has a right of first refusal
on offers to purchase or lease any facility subject to a Percentage Rent Lease
or a Minimum Rent Lease between the Company and Genesis during the term of the
lease (as extended) and for one year thereafter. The existence of this right of
first refusal may discourage third parties from offering to purchase or lease
any such facility.

The Company will experience ongoing competition from and conflicts with
Genesis. The Company's facilities (whether or not operated by Genesis) may
compete with facilities owned and operated by Genesis in certain markets. As a
result, Genesis will have a conflict of interest due to its ownership of
certain competing facilities and its operation and management of a substantial
portion of the facilities owned by the Company. Because the Percentage Rent
Leases to be entered into with Genesis provide for lower operating margins for
Genesis than Minimum Rent Leases, Genesis may also have a conflict of interest
to the extent that it is involved in the placement of private pay residents
with acuity levels equally suited to an assisted living facility or a skilled
nursing facility.

Lack of Operating History and Inexperience of Management in Operating a REIT
could Affect REIT Qualification

The Company has been recently organized and has no operating history. The
Company will be self-administered and self-managed. The Company's Board of
Trustees and executive officers will have overall responsibility for management
of the Company. Although certain of the Company's executive officers and
trustees have extensive experience in the acquisition, development and
financing of real properties and in the operation of healthcare facilities and
publicly-owned corporations, none of the management of the Company has prior
experience in operating a business in accordance with the Code requirements for
maintaining REIT qualification. Failure to maintain REIT status would have an
adverse effect on the Company's ability to make anticipated distributions to
shareholders. There can be no assurance that the past experience of management
will be appropriate to the business of the Company. See "Management."

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No Assurance that the Company will be Able Effectively to Manage its Intended
Rapid Growth

The Company intends to grow rapidly. The Company's ability to manage its
growth effectively will require it successfully to identify, structure and
manage new investments.

Operating Risks Inherent in the Highly Regulated Healthcare Industry may
Adversely Affect the Operations of the Company's Lessees and Borrowers

Any failure by lessees or borrowers to comply with applicable government
regulations in the highly regulated healthcare industry could adversely affect
their ability to make lease or loan payments to the Company. The long-term
care segment of the healthcare industry is highly regulated. Operators of
skilled nursing facilities are subject to federal, state and local laws
relating to the delivery and adequacy of medical care, distribution of
pharmaceuticals, equipment, personnel, operating policies, fire prevention,
rate-setting and compliance with building and safety codes and environmental
laws. Operators of skilled nursing facilities also are subject to periodic
inspection by governmental and other authorities to assure continued compliance
with various standards, the continued licensing of the facility under state
law, certification under the Medicare and Medicaid programs and the ability to
participate in other third party payment programs. Many states have adopted
Certificate of Need or similar laws which generally require that the
appropriate state agency approve certain acquisitions of skilled nursing
facilities and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditures being undertaken. The failure to
obtain or maintain any required regulatory approvals or licenses could prevent
an operator from offering services or adversely affect its ability to receive
reimbursement for services and could result in the denial of reimbursement,
temporary suspension of admission of new patients, suspension or
decertification from the Medicaid or Medicare program, restrictions on the
ability to acquire new facilities or expand existing facilities and, in extreme
cases, revocation of the facility's license or closure of a facility. Federal
law also imposes civil and criminal penalties for submission of false or
fraudulent claims, including nursing home bills and cost reports, to Medicare
or Medicaid. There can be no assurance that lessees of skilled nursing
facilities owned by the Company, or the Age Institute of Florida as the obligor
on the Florida Facilities Note, or the provision of services and supplies by
such lessees or the Age Institute of Florida, will meet or continue to meet the
requirements for participation in the Medicaid or Medicare programs or state
licensing authorities or that regulatory authorities will not adopt changes or
new interpretations of existing regulations that would adversely affect the
ability of lessees or borrowers to make rental or loan payments to the Company.

Both Medicare and the Pennsylvania Medicaid program (which constituted
14.8% and 62.3% of the revenues for the month ended September 30, 1997,
respectively, of the nine skilled nursing facilities included in the Initial
Properties) impose limitations on the amount of reimbursement available for
capital-related costs, such as depreciation, interest and rental expenses,
following a change of ownership, including a sale and leaseback transaction.
Under currently applicable Medicare reimbursement policies, the amount of
Medicare reimbursement available to a skilled nursing facility for rental
expenses following a sale and leaseback transaction may not exceed the amount
that would have been reimbursed as capital costs had the provider retained
legal title to the facility. The Pennsylvania Medicaid program imposes a
similar limitation, basing reimbursement for capital-related costs for new
owners (including rent paid by lessees) on the appraised fair rental value of
the facility to the prior owner as determined by the Pennsylvania Department of
Public Welfare. Thus, if rental expenses are greater than the allowable capital
cost reimbursement a skilled nursing facility would have received had the sale
and leaseback transaction not occurred and the provider retained legal title,
the amount of Medicare reimbursement received by the provider will be limited.
Medicare will begin a three-year phase out of separate capital cost
reimbursement for skilled nursing facilities beginning July 1, 1998 under
provisions of the Balanced Budget Act of 1997, which establish a prospective
payment system for skilled nursing facilities that will factor capital-related
costs into the facility's per diem rates for resident care. There can be no
assurance that reimbursement of the costs of skilled nursing facilities
included in the Initial Properties under current or future reimbursement
methodologies will be adequate to cover the rental payments owed to the
Company.

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becoming subject to more stringent regulation and licensing by state and local
health and social service agencies and other regulatory authorities. In
general, these assisted living requirements address, among other things:
personnel education, training and records; facility services, including
administration of medication, assistance with self-administration of medication
and limited nursing services; monitoring of wellness; physical plant
inspections; furnishing of resident units; food and housekeeping services;
emergency evacuation plans; and resident rights and responsibilities, including
in certain states the right to receive certain healthcare services from
providers of a resident's choice. In several states, assisted living facilities
also require a Certificate of Need before the facility can be opened, expand or
reduce its resident capacity or make other significant capital expenditures.
Certain of the Initial Properties are licensed to provide independent living
services which generally involve lower levels of resident assistance. Like
skilled nursing facilities and other healthcare facilities, assisted living
facilities are subject to periodic inspection by government authorities. In
most states, assisted living facilities, as well as skilled nursing and other
healthcare facilities, also are subject to state or local building code, fire
code and food service licensure or certification requirements. Any failure by
the Company's lessees or borrowers to meet applicable regulatory requirements
may result in the imposition of fines, imposition of a provisional or
conditional license or suspension or revocation of a license or other sanctions
or adverse consequences, including delays in opening or expanding a facility.
Any failure by the Company's lessees or borrowers to comply with such
requirements could have a material adverse effect on the Company.

Healthcare operators also are subject to federal and state
anti-remuneration laws and regulations, such as the Medicare/Medicaid
anti-kickback law, which govern certain financial arrangements among healthcare
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients or the purchasing, leasing, ordering or
arranging for any goods, facilities, services or items for which payment can be
made under Medicare or Medicaid. A violation of the federal anti-kickback law
could result in the loss of eligibility to participate in Medicare or Medicaid,
or in civil or criminal penalties. The federal government, private insurers and
various state enforcement agencies have increased their scrutiny of providers,
business practices and claims in an effort to identify and prosecute fraudulent
and abusive practices. In addition, the federal government has issued fraud
alerts concerning nursing services, double billing, home health services and
the provision of medical supplies to nursing facilities; accordingly, these
areas may come under closer scrutiny by the government. Furthermore, some
states restrict certain business corporations from providing, or holding
themselves out as a provider of, medical care. Possible sanctions for violation
of any of these restrictions or prohibitions include loss of licensure or
eligibility to participate in reimbursement programs and civil and criminal
penalties. State laws vary from state to state, are often vague and have seldom
been interpreted by the courts or regulatory agencies. There can be no
assurance that these federal and state laws will ultimately be interpreted in a
manner consistent with the practices of the Company's lessees or the Age
Institute of Florida.

Reliance on government and other third party reimbursement by operators of
skilled nursing facilities. Assisted living services currently are not
generally reimbursable under government reimbursement programs, such as
Medicare and Medicaid. A significant portion of the revenue derived from the
nine skilled nursing facilities included in the Initial Properties and the 11
skilled nursing facilities securing the Florida Facilities Note, however, is
attributable to government reimbursement programs such as Medicare and
Medicaid. Future budget reductions in government-financed programs could
significantly reduce reimbursement payments, and there can be no assurance that
future payment rates will be sufficient to cover the costs of providing
services to residents of such facilities. The Medicare program is highly
regulated and subject to frequent and substantial changes. In recent years,
changes in the Medicare program have resulted in reduced levels of payment for
a substantial portion of healthcare services. There can be no assurance that
reimbursement levels will not be further reduced in future periods. The
Medicaid program is a federally-mandated, state-run program providing benefits
to low income and other eligible persons and is funded through a combination of
state and federal funding. The method of reimbursement for skilled nursing care
under Medicaid varies from state to state, but is typically based on rates set
by the state. Under Medicare and many state Medicaid programs, rates for
skilled nursing facilities are based on facilities costs as reported to the
applicable federal or state agency. The facilities costs for services purchased
from an organization related by ownership or control are limited to the costs
(not charges) of the related organization. Any failure

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<PAGE>

to comply with these requirements could have a variety of adverse consequences
on the operator of the skilled nursing facility, including recoupment of
amounts overpaid and other sanctions under false claim laws. Although lease and
loan payments to the Company are not directly linked to the level of government
reimbursement, to the extent that changes in these programs have a material
adverse effect on the revenues from such facilities, such changes could have a
material adverse impact on the ability of the lessees of the skilled nursing
facilities included in the Initial Properties, and the Age Institute of Florida
as the borrower under the Florida Facilities Note, to make lease and loan
payments. Healthcare facilities also have experienced increasing pressures from
private payors attempting to control healthcare costs that in some instances
have reduced reimbursement to levels approaching that of government payors.
There can be no assurance that future actions by private third party payors,
including cost control measures adopted by managed care organizations, will not
result in further reductions in reimbursement levels, or that future
reimbursements from any payor will be sufficient to cover the costs of the
facilities' operations.

Potential delays may be encountered in substituting lessees or operators
due to the fact that licenses will be held by lessees and borrowers and not by
the Company. A loss of license or Medicare/Medicaid certification by a lessee
of the Company or by the Age Institute of Florida, or a default by lessees or
borrowers under loans made by the Company, could result in the Company having
to obtain another lessee or substitute operator for the affected facility or
facilities. Because the facility licenses for the Initial Properties will be
held by lessees or borrowers and not the Company and because under the REIT tax
rules the Company would have to find a new "unrelated" lessee to operate the
properties, the Company may encounter delays in exercising its remedies under
leases and loans made by the Company or substituting a new lessee or operator
in the event of any loss of licensure or Medical/Medicaid certification by a
prior lessee or operator. No assurances can be given that the Company could
contract with a new lessee or successor operator on a timely basis or on
acceptable terms and a failure of the Company to do so could have a material
adverse effect on the Company's financial condition and results of operations.

Shortage of qualified healthcare personnel could adversely affect the
ability of lessees and borrowers to make lease or loan payments to the
Company. The healthcare industry has at times experienced a shortage of
qualified healthcare personnel. The Company's lessees compete with other
healthcare providers and with non-healthcare providers for both professional
and non-professional employees. While the Company believes that its lessees and
borrowers have been able to retain the services of an adequate number of
qualified personnel to staff the facilities included in the Initial Properties
appropriately and maintain standards of quality care, there can be no assurance
that shortages will not in the future affect the ability of the Company's
lessees or borrowers to attract and maintain an adequate staff of qualified
healthcare personnel. A lack of qualified personnel at a facility could result
in significant increases in labor costs at such facility or otherwise adversely
affect operations at such facility. Any of these developments could adversely
affect the ability of lessees or borrowers to make required lease or loan
payments.

Transfers of healthcare facilities will require regulatory approvals and
alternative uses of healthcare facilities are limited. Transfers of operations
of certain healthcare facilities are subject to regulatory approvals not
required for transfers of other types of commercial operations and other types
of real estate. In addition, substantially all of the Initial Properties are
special purpose facilities that may not be easily adaptable to
non-healthcare-related uses.

Proximity to hospitals and other healthcare facilities may affect the
Company's ability to renew leases and attract new tenants in the event of
relocation or closure of a hospital or other healthcare facility. Many of the
assisted living facilities, skilled nursing facilities and medical office
buildings included in the Initial Properties are in close proximity to one or
more hospitals. The relocation or closure of a hospital could make the
Company's assisted living facilities, skilled nursing facility or medical
office building in such area less desirable and affect the Company's ability to
renew leases and attract new tenants. See "Business and Properties --
Government Regulation."

The Company's Use of Debt Financing, the Absence of a Limitation on Debt,
Increases in Interest Rates and Requirements of Tax-Exempt Bond Financing could
have Adverse Effects on the Company

The required repayment of debt or interest thereon could adversely affect
the Company's financial condition. The Company will be subject to risks
normally associated with debt financing, including the risk

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<PAGE>

that the Company's cash flow will be insufficient to pay distributions at
expected levels and meet required payments of principal and interest, the risk
that existing indebtedness on the Initial Properties or subsequently acquired
properties (which in all cases will not have been fully amortized at maturity)
will not be able to be refinanced or that the terms of such refinancing will
not be as favorable as the terms of existing indebtedness. Upon consummation of
the Offering, the Company expects to have $34.2 million of outstanding
indebtedness which will be secured by certain of the Initial Properties and an
additional $43.5 million outstanding under its Credit Facility. See "Business
and Properties -- Mortgage Debt." If principal payments due at maturity cannot
be refinanced, extended or paid with proceeds of other capital transactions,
such as new equity capital, the Company expects that its cash flow will not be
sufficient in all years to pay distributions at expected levels and to repay
such maturing debt. Furthermore, if prevailing interest rates or other factors
at the time of refinancing (such as the reluctance of lenders to make
commercial real estate loans) result in higher interest rates upon refinancing,
the interest expense relating to such refinanced indebtedness would increase,
which would adversely affect the Company's cash flow and the amount of
distributions it can make to investors. If a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the property could be foreclosed by or otherwise transferred
to the mortgagee with a consequent loss of income and asset value to the
Company. Finally, the fact that a significant number of the leases that the
Company has entered into and expects to enter into in the future will not
require payment of minimum rent may adversely affect the Company's ability to
obtain additional or replacement financing in the future.

The absence of a limitation on debt could result in the Company's becoming
highly leveraged and adversely affect the Company's cash flows. Upon
completion of the Offering, the Company's debt to market capitalization ratio
including amounts expected to be drawn under the Credit Facility is expected to
be approximately 35.8% (27.5% if the Underwriters' overallotment option is
exercised in full). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." The
Company does not have a policy limiting the amount of debt that the Company may
incur. Accordingly, the Company could become more highly leveraged, resulting
in an increase in debt service that could adversely affect the Company's cash
flow and, consequently, the amount available for distribution to shareholders,
and could increase the risk of default on the Company's indebtedness.

Rising interest rates and variable rate debt could adversely affect the
Company's cash flows. Upon consummation of the Offering, the Company, through
the Operating Partnership, expects to enter into the Credit Facility. Advances
under the Credit Facility totaling $43.5 million at the Closing of the Offering
and further increasing as draws are made under outstanding Construction Loans
and Construction Loan Commitments are expected to bear interest at variable
rates based upon a specified spread over the one month London Interbank Offered
Rate ("LIBOR"). In addition, the Company will assume debt totaling
approximately $486,000 subject to a variable interest rate. The Company,
through the Operating Partnership, may incur other variable rate indebtedness
in the future. Increases in interest rates on such indebtedness could increase
the Company's interest expense, which would adversely affect the Company's cash
flow and its ability to pay expected distributions to investors. Accordingly,
the Company may in the future engage in other transactions to further limit its
exposure to rising interest rates as appropriate and cost effective. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Any failure to comply with tax-exempt bond financing requirements and
restrictions could result in termination of tax-exempt status and/or
acceleration of the bonds. The Company's indebtedness includes approximately
$21.4 million in connection with tax-exempt bond financings (the "Series 1994
Bonds" and the "Series 1995 Bonds") relating to the Highgate and Woodbridge
assisted living facilities. The underlying Series 1994 and Series 1995 Bonds
are subject to various restrictions, conditions and requirements under the Code
and its implementing regulations. In addition, the Series 1994 and Series 1995
Bond financing documents impose certain requirements and restrictions in
connection with the operation of the facilities, including a requirement that
at all times at least 20% of the rental units in the facilities will be
occupied by tenants whose adjusted gross family income does not exceed 50% of
the median gross income for the relevant geographic area. If these requirements
and restrictions are not complied with, the tax-exempt status of the bonds
could be

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<PAGE>

terminated and/or the bond obligations under the bond documents could be
accelerated. In the event of a default under the bonds used to finance the
Highgate and Woodbridge facilities, the Company's interest in the relevant
property would be subordinate to the interests of the bondholders.

The Company's Performance and Value are subject to Risks Associated with the
Real Estate Industry

The Company's properties will be subject to general real estate investment
risks. The Initial Properties and subsequently acquired properties, including
properties subject to purchase contracts and options, will be subject to
various real estate-related risks. The acquisition of additional properties may
be subject to the ability of the Company to borrow amounts sufficient to pay
the purchase price therefor. There can be no assurance that the value of any
property acquired by the Company will appreciate or that the value of
properties securing the Term Loans, the Construction Loans or the Florida
Facilities Note will not depreciate. Additional risks of investing in real
estate include the possibilities that the real estate will not generate income
sufficient to meet operating expenses, will generate income and capital
appreciation, if any, at rates lower than those anticipated or will yield
returns lower than those available through investment in comparable real estate
or other investments. Income from properties and yields from investments in
such properties may be affected by many factors, including changes in
government regulation (such as zoning laws), general or local economic
conditions (such as fluctuations in interest rates and employment conditions),
the available local supply of and demand for improved real estate, a reduction
in rental income as the result of the inability to maintain occupancy levels,
natural disasters (such as earthquakes and floods) or similar factors. Further,
equity investments in real estate are relatively illiquid, and, therefore, the
ability of the Company to vary its portfolio in response to changed conditions
will be limited.

The Company's financial condition could be adversely affected due to
uninsurable loss. It is the intention of the Company to secure, or to require
Genesis and other lessees, tenants and borrowers to secure, adequate
comprehensive property and liability insurance that covers the Company as well
as the lessee, tenant or borrower. Certain risks may, however, be uninsurable
or not economically insurable, and there can be no assurance that the Company
or a lessee, tenant or borrower will have adequate funds to cover all
contingencies itself. Should such an uninsurable loss occur, the Company could
lose both its invested capital, including its equity interests, and any
anticipated profits relating to such property.

Leases and loan defaults and failure to renew leases could adversely
affect the Company's cash flows. Any lease arrangement, such as the leases
between the Company and lessees and tenants of the Initial Properties and
subsequently acquired properties, creates the possibility that a lessee or
tenant may either default on the lease or fail to exercise an option to renew
the lease, and, in such event, the Company may be unable to lease such property
to another lessee or tenant on a timely basis or at all. Even if the Company
could lease such property to another lessee or tenant, any such replacement
lease may be on less favorable terms than those of the original lease. In such
an instance, the Company would continue to be responsible for payment of any
indebtedness it had incurred with respect to such property. Any such default or
non-renewal could result in a reduction in revenue derived from the affected
lease and defaults or non-renewals under several leases at the same time or
defaults under one or more of the Term Loans, the Construction Loans, the
Construction Loan Commitments (once funded) or the Florida Facilities Note
could have a material adverse effect on the Company's financial condition and
results of operations.

Subordination of Florida Facilities Note and sale of collateral or
refinancing as principal source of repayment. The Florida Facilities Note is
non-recourse to the Age Institute of Florida and is not guaranteed by any
person or entity. Thus, in the event of a default, ET Capital Corp. will have
no recourse for satisfaction of the debt other than to look to the collateral.
Genesis holds a first priority security interest in all of the collateral
securing the Florida Facilities Note. As of the Offering, the outstanding
balance on the first-position obligation to Genesis will be in the approximate
amount of $40.0 million. In the event of a default on the $40.0 million Age
Institute of Florida senior debt held by Genesis, it is possible that if the
collateral were liquidated there would be insufficient equity after
satisfaction of the $40.0 million obligation available to repay the Florida
Facilities Note. Further, the subordination agreement between Genesis and the
Age Institute of Florida relating to the Florida Facilities Note and a $2.5
million pari passu working capital term note (together, the "Subordinated
Notes") will require the Subordinated Note holders to "standstill" in

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their exercise of remedies under certain circumstances. Even if the payment
obligations on the $40.0 million debt are not in default, any default on a
Subordinated Note or any other indebtedness of the Age Institute of Florida
would cause a cross default under the senior loan documents and would allow
Genesis or other holder of the $40.0 million of senior indebtedness to enforce
the standstill provisions of the subordination agreement and to foreclose upon
the $40.0 million of senior debt. The Age Institute of Florida has limited
financial resources. The principal source of repayment of the principal amount
of the Florida Facilities Note, therefore, is likely to be from a sale of the
11 skilled nursing facilities that collateralize the $40.0 million of senior
debt and the Subordinated Notes or from a refinancing of the $40.0 million of
senior debt and the Subordinated Notes. There can be no assurance that the
Florida Facilities Note will be repaid in full or that interest payments on the
Note will be paid when due. See "Business and Properties -- Term Loans,
Construction Loans, Penn Mortgage and Florida Facilities Note -- The Florida
Facilities Note."

The revenues derived by the Company from Percentage Rent Leases will
depend to a greater extent on Genesis' ability to operate successfully the
properties subject to such leases due to the absence of minimum rent
provisions. The Percentage Rent Leases do not require any minimum rent. The
revenues to be derived by the Company under the Percentage Rent Leases,
therefore, will depend upon the ability of Genesis as lessee to operate
successfully properties subject to such leases. See "-- Dependence on Genesis
for the Company's Revenues and Ability to Make Distributions," "-- Conflicts of
Interest Between the Company and Genesis and Mr. Walker in Connection with the
Formation and Operation of the Company -- The Company will experience ongoing
competition from and conflicts with Genesis."

Lack of industry diversification will subject the Company to the risks
associated with investments in a single industry. While the Company is
authorized to invest in various types of income-producing real estate, its
current strategy is to acquire and hold, for long-term investment,
healthcare-related properties only. Consequently, the Company currently has
chosen not to include in the Initial Properties any significant non-healthcare
related real estate assets, and, therefore, will be subject to the risks
associated with investments in a single industry.

Making Loans on Development Projects

The Company has agreed to make the Term and Construction Loans totaling
$56.4 million, of which $35.6 million will be funded at the closing of the
Offering. In addition, the Company has made Construction Loan Commitments
totaling $53.3 million. Lending on development projects is generally considered
to involve greater risks than the purchase and leaseback of operating
properties. Risks associated with such lending activities include that
development activities may be abandoned, construction costs of a facility may
exceed original estimates possibly making the facility uneconomical, occupancy
rates and rents at a completed facility may not be sufficient to cover loan or
lease payments, permanent financing may not be available on favorable terms and
construction and lease-up may not be completed on schedule resulting in
increased debt service expense and construction costs. In addition,
construction lending activities typically will require a substantial portion of
management's time and attention. Such activities also are subject to risks
relating to the borrower's inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required governmental
permits and operations. Further, there can be no assurance that any of the Term
Loans, Construction Loans, or the Construction Loan Commitments (once funded)
will be repaid.

The Board May Change Investment Policies Without Shareholder Approval

The Company's Board of Trustees may change the investment and other
policies of the Company without shareholder approval. Such policy changes may
have adverse consequences to the Company.

Possible Subordinated CMBS Investments

The Company is exploring providing subordinated CMBS financing in
connection with future investments by the Company in healthcare facilities,
including transactions which may involve Genesis in the future. In the
prototype transaction that the Company is considering, one or more privately
held limited partnerships (each a "Private Partnership") would be formed to
acquire skilled nursing facilities or other healthcare facilities. The Private
Partnership would finance up to 90% of the purchase price of the facilities by
means of a mortgage

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<PAGE>

loan made by a REMIC to the Private Partnership and the remainder of the
purchase price of the facilities by means of an equity investment by the
partners in the Private Partnership, who may include Genesis and one or more of
the Company's officers and trustees. The Company likely would not have an
equity interest in the Private Partnership. The Company would invest in a
subordinated mortgage loan interest in the REMIC (the "Subordinated CMBS
Interests"), the principal balance of which would represent approximately 15%
to 20% of the purchase price of the properties and would be subordinate to the
payment of principal and interest on the senior interests in the REMIC ("Senior
CMBS Interests"), which would be held by a third party institutional lender and
the principal balance of which would represent approximately 70% to 75% of the
purchase price of the properties. It is expected that the loan from the REMIC
to the Private Partnership (the "REMIC Loan") would be on terms substantially
similar to the terms then available for first mortgage loans secured by skilled
nursing facilities made on a 90% loan-to-value basis. The REMIC Loan would not
include any equity participation or other similar rights on behalf of the
REMIC. It is expected that the Senior CMBS Interests would have terms
substantially similar to the terms then available for first mortgage loans
secured by skilled nursing facilities on a 70% to 75% loan-to-value basis, and
the Subordinated CMBS Interests would have terms substantially similar to the
terms available for second mortgage loans secured by skilled nursing facilities
where there is 10% equity and senior mortgage indebtedness for 70% to 75% of
the value of the property. The Private Partnership would either operate the
facilities that they acquire or net lease the facilities to Genesis, a Genesis
affiliate or another satisfactory operator for the day-to-day operation of the
properties. If the property were net leased by the Private Partnership, the
Company's investment would likely take the form of a preferred partnership
interest.

An investment by the Company in Subordinated CMBS Interests will involve
materially different potential risks and possible benefits from those
associated with a direct investment in skilled nursing facilities subject to
long-term Minimum Rent Leases. For example, the equity provided by the
investors in the Private Partnership provides security and credit support for
the Subordinated CMBS Interests held by the Company. On the other hand, the
Subordinated CMBS Interests held by the Company are at risk to the extent that
the net revenues of the Private Partnership are not sufficient to cover debt
service on the Senior CMBS Interests. In this regard, under a Minimum Rent
Lease Genesis would be obligated to pay rent to the Company regardless of the
performance of a property, whereas in the case of a Subordinated CMBS Interest,
the Private Partnership (and indirectly the Company) would have the risk
associated with the operation of the facility. In addition, the Company, as a
lender, would have no ability to participate in future appreciation or
increased operating performance at a facility owned by a Private Partnership,
the full benefit of which would accrue to the investors in the Private
Partnership (which could include one or more of the Company's officers and
trustees, as well as one or more officers of Genesis). There are no
REMIC-related transactions involving the Company which are probable at this
time. See "Business and Properties -- Possible Subordinated CMBS Investments."

The Ability of Shareholders to Effect a Change in Control of the Company is
Limited

Provisions in the Company's Declaration of Trust and Bylaws could prevent
changes in control. Certain provisions of the Company's Declaration of Trust
and Bylaws may have the effect of delaying, deferring or preventing a change in
control of the Company or other transaction that could provide the holders of
Common Shares with the opportunity to realize a premium over the
then-prevailing market price of such Common Shares. The Ownership Limit
(described under "-- Possible adverse consequences of ownership limit for
federal income tax purposes could inhibit changes in control") also may have
the effect of delaying, deferring or preventing a change in control of the
Company or other transaction even if such a change in control or transaction
were in the best interests of some, or a majority, of the Company's
shareholders. The Board of Trustees will consist of five members immediately
following the closing of the Offering who will be classified into three classes
with each class serving a three-year term. The staggered terms of the members
of the Board of Trustees may adversely affect the shareholders' ability to
effect a change in control of the Company, even if a change in control were in
the best interests of some, or a majority, of the Company's shareholders. See
"Management -- Trustees, Trustee Nominees and Executive Officers." The
Declaration of Trust authorizes the Board of Trustees to cause the Company to
issue up to 20,000,000 preferred shares of beneficial interest, $0.01 par value
per share ("Preferred Shares"), in series, and to establish the preferences,
rights and other terms of any series of Preferred Shares so issued. Such
Preferred Shares may be issued by the

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<PAGE>

Board of Trustees without shareholder approval, and the preferences, rights and
other terms of any such Preferred Shares may adversely affect the shareholders'
ability to effect a change in control of the Company, even if a change in
control were in the best interests of some, or a majority, of the Company's
shareholders. See "Shares of Beneficial Interest."

Certain provisions of Maryland law could inhibit changes in control.
Under provisions of the Maryland General Corporation Law, as amended ("MGCL"),
as applicable to REITs, certain "business combinations" (including certain
issuances of equity securities) between a Maryland REIT and any person who
beneficially owns ten percent or more of the voting power of the REIT's then
outstanding shares or an affiliate of the trust who, at any time within the
two-year period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting shares of
beneficial interest of the trust (an "Interested Shareholder"), or an affiliate
of the Interested Shareholder, are prohibited for five years after the most
recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be approved by the
affirmative vote of at least (i) 80% of all the votes entitled to be cast by
holders of the outstanding voting shares and (ii) two-thirds of the votes
entitled to be cast by holders of voting shares held by the Interested
Shareholder who is (or whose affiliate is) a party to the business combination
unless, among other conditions, the REIT's common shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. The Board of Trustees of the Company has not
opted out of the business combination provisions of the MGCL. Consequently, the
five-year prohibition and the super-majority vote requirements will apply to a
business combination involving the Company.

Possible adverse consequences of ownership limit for federal income tax
purposes could inhibit changes in control. To maintain its qualification as a
REIT for federal income tax purposes, not more than 50% in value of the
outstanding shares of beneficial interest of the Company may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code, to include
certain entities). See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Organizational Requirements." In addition, for the
Company to maintain REIT status, neither Genesis nor any constructively owns
10% or more of the outstanding stock of Genesis or any other tenant entity may
own actually or constructively 10% or more, in value or voting rights, of the
outstanding shares of beneficial interest of the Company. To facilitate
maintenance of its qualification as a REIT for federal income tax purposes, the
Declaration of Trust generally will prohibit ownership, directly or by virtue
of the attribution provisions of the Code, by any single shareholder of more
than 8.6% of the issued and outstanding Common Shares and generally will
prohibit ownership, directly or by virtue of the attribution provisions of the
Code, by any single shareholder of more than 9.9% of the issued and outstanding
shares of any class or series of the Company's Preferred Shares (collectively,
the "Ownership Limit"). Mr. Romanov may own up to 15.0% of the Common Shares
(the "Excluded Holder Limit"). The Board of Trustees, in its sole discretion,
may waive the ownership limitations with respect to a holder if the Board is
satisfied, based on the advice of counsel or a ruling from the Internal Revenue
Service, that such holder's ownership will not then or in the future jeopardize
the Company's status as a REIT. In view, however, of the potential risks posed
to the Company if a shareholder who owned 10% or more of the Company also were
considered to own 10% or more of Genesis or any other tenant entity, the Board
of Trustees will have less flexibility, as a practical matter, to grant waivers
and exemptions than would be the case if a substantial portion of the Company's
properties were not leased to a single tenant. Absent any such exemption or
waiver, Common Shares acquired or held in violation of the Ownership Limit will
be transferred to a trust for the benefit of a designated charitable
beneficiary, with the person who acquired such Common Shares in violation of
the Ownership Limit not entitled to receive any distributions thereon, to vote
such Common Shares, or to receive any proceeds from the subsequent sale thereof
in excess of the lesser of the price paid therefor or the amount realized from
such sale. A transfer of Common Shares to a person who, as a result of the
transfer, violates the Ownership Limit may be void under certain circumstances.
See "Shares of Beneficial Interest -- Restrictions on Ownership and Transfer."
The Ownership Limit may have the effect of delaying, deferring or preventing a
change in control and, therefore, could adversely affect the shareholder's
ability to realize a premium over the then-prevailing market price for the
Common Shares in connection with such a transaction.

<PAGE>

Failure to Qualify as a REIT would cause the Company to be Taxed as a
Corporation

The Company will be treated as a corporation if it fails to qualify as a
REIT. The Company intends to operate so as to qualify as a REIT under the
Code, commencing with its taxable year ending December 31, 1998. Although
management believes that the Company will be organized and will operate in such
a manner, no assurance can be given that the Company will be organized or will
be able to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and some on a quarterly basis) established under highly
technical and complex Code provisions for which there are only limited judicial
and administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Company's control.
For example, in order to qualify as a REIT, at least 95% of the Company's gross
income in any year must be derived from qualifying sources, and the Company
must pay distributions to shareholders aggregating annually at least 95% of its
REIT taxable income (excluding capital gains and certain noncash income). The
complexity of these provisions and of the applicable regulations that have been
promulgated under the Code (the "Treasury Regulations") is greater in the case
of a REIT, such as the Company, that holds its assets in partnership form. No
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect the Company's ability to operate as a
REIT.

Hogan & Hartson L.L.P., tax counsel to the Company, has rendered an
opinion to the effect that the Company is organized in conformity with the
requirements for qualification as a REIT and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a
REIT. See "Federal Income Tax Considerations -- Taxation of the Company." Such
legal opinion, however, is based on various assumptions and factual
representations by the Company regarding the Company's business and assets and
the Company's ability to meet the various requirements for qualification as a
REIT, and no assurance can be given that actual operating results will meet
these requirements. Such legal opinion is not binding on the Internal Revenue
Service (the "IRS") or any court. Moreover, the Company's qualification and
taxation as a REIT will depend upon the Company's ability to meet (through
actual annual operating results, distribution levels and diversity of stock
ownership) the various qualification tests imposed under the Code, the results
of which will not be reviewed by tax counsel to the Company.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. This
treatment would significantly reduce the net earnings of the Company available
for investment or distribution to shareholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
shareholders would no longer be required to be made. See "Federal Income Tax
Considerations -- Failure of the Company to Qualify as a REIT."

Certain special considerations will apply due to the nature of the
Company's assets. The manner in which the Company will derive income from the
assisted and independent living facilities and skilled nursing facilities will
be governed by special considerations in satisfying the requirements for REIT
qualification. Because the Company would not qualify as a REIT if it directly
operated an assisted or independent living facility, or a skilled nursing
facility, the Company will lease such facilities to a healthcare provider, such
as Genesis, that will operate the facility. It is essential to the Company's
qualification as a REIT that these arrangements be respected as leases for
federal income tax purposes and that the lessees (including Genesis and SLC)
not be regarded as "related parties" of the Company (as determined under the
applicable Code provisions). See "Federal Income Tax Consideration --
Requirements for Qualification as a REIT -- Income Tests." In the event the
leases expire and are not renewed, the Company will have to find a new
"unrelated" lessee to lease and operate the properties in order to continue to
qualify as a REIT. In the event of a default on either a lease of, or a
mortgage secured by, an assisted or independent living facility or skilled
nursing facility, the Company, to maintain its REIT qualification, would have
to engage a new healthcare provider (which could not include Genesis or its
subsidiaries or SLC) to operate the facility after the Company takes

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<PAGE>

possession of the facility. This requirement could deter the Company from
exercising its remedies in the event of a default even though such exercise
otherwise would be in the Company's best interests. Although the Company would
be permitted to operate the facility for 90 days after taking possession of the
facility pursuant to applicable Treasury Regulation without jeopardizing its
REIT status, the fact that the facility licenses will be held by lessees or
borrowers may preclude the Company from doing so under applicable healthcare
regulatory requirements.

Other tax liabilities could adversely affect the Company's cash flows.
Even if the Company qualifies as a REIT, it will be subject to certain
federal, state and local taxes on its income and property and ET Capital Corp.
will be subject to corporate level tax. See "Federal Income Tax Considerations
- -- Other Tax Consequences for the Company and its Shareholders."

Liability for Environmental Matters could Adversely Affect the Company's
Financial Condition

Under federal, state and local laws and regulations relating to protection
of the environment ("Environmental Laws"), a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous
or toxic substances or petroleum product releases at such property and may be
held liable to a governmental entity or to third parties for property damage
and for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner or operator knew of or caused the
presence of the contaminants, and the liability under such laws has been
interpreted to be joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. In addition, the owner or
operator of a site may be subject to claims by third parties based on damages
and costs resulting from environmental contamination emanating from a site.

Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). Such laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM would be disturbed
during renovation or demolition of a building. Such laws may impose fines and
penalties on building owners or operators for failure to comply with these
requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.

Independent environmental consultants have conducted or updated
comprehensive environmental assessments at the Initial Properties, the Lease-up
Assisted Living Facilities and the 11 skilled nursing facilities that secure
the Florida Facilities Note. These assessments have included, at a minimum, a
visual inspection of the properties and the surrounding areas, an examination
of current and historical uses of the properties and the surrounding areas and
a review of relevant state, federal and historical documents. Where
appropriate, on a property by property basis, additional testing has been
conducted, including sampling for asbestos, for lead in drinking water, for
soil contamination where underground storage tanks are or were located or where
other past site usages create a potential for site impact, and for
contamination in groundwater.

These environmental assessments have not revealed any environmental
liabilities that the Company believes would have a material adverse effect on
the Company's business, financial condition or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
ACBM is suspected in approximately one-third of the properties based on visual
inspection and isolated sampling. Most of these buildings contain only minor
amounts of ACBM in good condition and nearly all of it is non-friable. All ACBM
is currently being properly managed and maintained and other requirements
relating to ACBM are being followed. The presence of ACBM should not present a
significant risk as long as compliance with these requirements continues. For a
few of the Initial Properties, potential offsite sources of contamination, such
as nearby underground storage tanks ("USTs"), are noted. For some of the
properties, previous uses, such as the former presence of USTs, have been
noted; in these cases, documented USTs subject to regulatory requirements were
either removed, replaced, or otherwise brought into compliance.

The Company believes that the Initial Properties, the Lease-up Assisted
Living Facilities and the 11 skilled nursing facilities that secure the Florida
Facilities Note are in compliance in all material respects with

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<PAGE>

applicable Environmental Laws. The Company believes that the issues identified
in the environmental reports will not have a material adverse effect on the
Company if it continues to comply with Environmental Laws and with the
recommendations set forth in these reports.

Ancillary to the operation of healthcare facilities are, in various
combinations, the handling, use, storage, transportation, disposal and/or
discharge of hazardous, infectious, toxic, radioactive, flammable and other
hazardous materials, wastes, pollutants or contaminants. Such activities may
result in damage to individuals, property or the environment; may interrupt
operations and/or increase their costs; may result in legal liability, damages,
injunctions or fines; may result in investigations, administrative proceedings,
penalties or other governmental agency actions; and may not be covered by
insurance. There can be no assurance that lessees or borrowers of the Company
will not encounter such risks, and such risks may have a material adverse
effect on their ability to make lease or loan payments to the Company.

Competition in the Marketplace could have an Adverse Impact on the Ability of
Lessees and Borrowers to Make Lease and Loan Payments to the Company

The Company will compete with other healthcare REITs, real estate
partnerships, healthcare providers and other investors, including but not
limited to banks and insurance companies, in the acquisition, leasing and
financing of healthcare facilities. Certain of these investors may have greater
resources than the Company. Genesis and other lessees operating properties that
the Company will own or that secure loans to be made by the Company compete on
a local and regional basis with operators of other facilities that provide
comparable services. Operators compete for residents based on quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price. In general, regulatory and other
barriers to competitive entry in the assisted living industry are not
substantial. Moreover, if the development of new assisted living facilities
outpaces demand for these facilities in certain markets, such markets may
become saturated. Such an oversupply of facilities could cause operators of
Company-owned facilities to experience decreased occupancy, depressed margins
and lower operating results, which could have a material adverse effect on
their ability to make lease or loan payments to the Company. The Company will
purchase, or make loans with an obligation to purchase, all of the assisted
living facilities owned by Genesis as of September 30, 1997 (except for a
32-bed facility as to which the Company will have an option to purchase at fair
market value in cash exercisable within one year after the facility reaches
Stabilized Occupancy).

The Executive Officers and Trustees of the Company will have Substantial
Influence

None of the trustees and executive officers of the Company are selling any
Common Shares in the Offering. Upon completion of the Offering, Messrs. Walker
and Romanov will beneficially own approximately 1.7% and 7.0%, respectively, of
the total issued and outstanding Common Shares and approximately 3.8% and 8.2%,
respectively, of the total Common Shares and Units to be outstanding upon
completion of the Offering. All trustees and executive officers as a group will
beneficially own approximately 10.4% of the total issued and outstanding Common
Shares and approximately 13.7% of the total Common Shares and Units to be
outstanding upon completion of the Offering. After 14 months following
completion of the Offering, all Units issued to the trustees and executive
officers of the Company at the closing of the Offering will be redeemable by
the holder for cash or, at the option of the Company, Common Shares on a
one-for-one basis. Accordingly, such persons will have substantial influence on
the Company, which influence might not be consistent with the interests of
other shareholders. See "Principal Shareholders."

The Company will be Dependent on Key Personnel whose Continued Service is Not
Guaranteed

The Company is dependent on the efforts of its Chairman, Mr. Walker, and
its two executive officers, Messrs. Romanov and McCreary. The loss of their
services could have an adverse effect on the operations of the Company. Mr.
Romanov will enter into an employment and non-competition agreement with the
Company. See "Management -- Employment and Non-Competition Agreements."

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<PAGE>

Purchasers of Common Shares will Experience Immediate Dilution

As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be less
than the estimated initial public offering price per Common Share in the
Offering. Accordingly, purchasers of the Common Shares offered hereby will
experience immediate dilution of $1.83 in the net tangible book value of the
Common Shares from the estimated initial public offering price. See "Dilution."

Lack of a Prior Public Market, Changes in Market Conditions, Changes in
Earnings and Cash Distributions, Changes in Interest Rates and Dependence on
External Sources of Capital could Adversely Impact the Trading Price of the
Common Shares

The absence of a prior public market for Common Shares. Prior to the
completion of the Offering, there has been no public market for the Common
Shares and there can be no assurance that an active trading market will develop
or be sustained or that Common Shares will be resold at or above the assumed
initial public offering price. The offering price of the Common Shares will be
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Shares after the completion of
the Offering. The market value of the Common Shares could be substantially
affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as governmental regulatory action and
changes in tax laws, could have a significant impact on the future market price
of the Common Shares.

Availability of shares for future sale could adversely affect Common Share
price. Sales of a substantial number of restricted Common Shares, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Shares. Subsequent to the Offering, approximately
432,600 restricted Common Shares will be issued and outstanding and 482,030
Units will be issued and outstanding. The restricted Common Shares and Common
Shares issued upon redemption of Units may be sold in the public market
pursuant to registration rights (subject to the terms and conditions thereof)
that the Company has granted or pursuant to Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"). In addition, the Company intends to
reserve 689,498 Common Shares for issuance pursuant to the Company's 1998 Share
Option and Incentive Plan, and these Common Shares will be available for sale
from time to time pursuant to exemptions from registration requirements or upon
registration. Options to purchase a total of 497,500 Common Shares are expected
to be granted to the Company's executive officers and trustees upon the
completion of the Offering. See "Management." No prediction can be made about
the effect that future sales of Common Shares will have on the market prices of
the Common Shares. See "Shares Available for Future Sale."

Changes in market conditions could adversely affect Common Share price.
As with other publicly traded equity securities, the value of the Common
Shares will depend upon various market conditions, which may change from time
to time. Among the market conditions that may affect the value of the Common
Shares are the following: the extent to which a secondary market develops for
the Common Shares following the completion of the Offering; the extent of
institutional investor interest in the Company; the general reputation of
healthcare REITs and the attractiveness of their equity securities in
comparison to other equity securities (including securities issued by other
real estate-based companies); the Company's financial performance; the
financial performance of Genesis and other lessees of the Company's facilities;
and general stock and bond market conditions. Although the offering price of
the Common Shares will be determined by the Company in consultation with the
Underwriters, there can be no assurance that the Common Shares will not trade
below the offering price following the completion of the Offering.

Effect on common share price of changes in earnings and cash
distributions. It is generally believed that the market value of the equity
securities of a REIT is based primarily upon the market's perception of the
REIT's growth potential and its current and potential future cash
distributions, whether from operations, sales or refinancings, and is
secondarily based upon the value of the underlying assets. For that reason,
Common Shares may trade at prices that are higher or lower than the net asset
value per Common Share. To the extent the Company retains operating cash flow
for investment purposes, working capital reserves or other purposes,

32
<PAGE>

these retained funds, while increasing the value of the Company's underlying
assets, may not correspondingly increase the market price of the Common Shares.
The failure of the Company to meet the market's expectation with regard to
future earnings and cash distributions likely would adversely affect the market
price of the Common Shares.

Effect on Common Share price of changes in market interest rates. One of
the factors that will influence the price of the Common Shares will be the
dividend yield on the Common Shares (as a percentage of the price of the Common
Shares) relative to market interest rates. Thus, an increase in market interest
rates may lead prospective purchasers of Common Shares to expect a higher
dividend yield, which would adversely affect the market price of the Common
Shares.

Dependence on external sources of capital could adversely affect Common
Share price. In order to qualify as a REIT under the Code, the Company
generally is required each year to distribute to its shareholders at least 95%
of its net taxable income (excluding any net capital gain). See "Federal Income
Tax Considerations -- Taxation of the Company -- Annual Distribution
Requirements." Because of these distribution requirements, it is unlikely that
the Company will be able to fund all future capital needs, including capital
needs in connection with financing of additional development projects and
acquisitions, from cash retained from operations. As a result, to fund future
capital needs, the Company likely will have to rely on third-party sources of
capital, which may or may not be available on favorable terms or at all. The
Company's access to third-party sources of capital will depend upon a number of
factors, including the market's perception of the Company's growth potential
and its current and potential future earnings and cash distributions and the
market price of the Common Shares. Moreover, additional equity offerings may
result in substantial dilution of shareholders' interests in the Company, and
additional debt financing may substantially increase the Company's leverage.
See "Policies with Respect to Certain Activities -- Financing Policies."

ERISA Risks

Depending upon the particular circumstances of an ERISA Plan (as
hereinafter defined), an investment by an ERISA Plan in the Common Shares may
not be appropriate under Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). In deciding whether to purchase Common Shares on behalf of
an ERISA Plan, a fiduciary of an ERISA Plan, in consultation with its advisors,
should carefully consider its responsibilities under ERISA, the prohibited
transaction rules of ERISA and the Code and the effect of regulations issued by
the U.S. Department of Labor defining what constitutes assets of an ERISA Plan.
See "ERISA Considerations."

33
<PAGE>

THE COMPANY
The Company has been formed to invest in healthcare-related real estate
and mortgages. The Company will be self-administered and self-managed and
expects to qualify as a REIT for federal income tax purposes. Upon completion
of the Offering, the Company intends to invest in an initial portfolio of 21
Initial Properties, the Term Loans totaling $27.4 million secured by five
assisted living facilities in lease-up, Construction Loans totaling $8.2
million secured by four assisted living facilities in development, the Penn
Mortgage and in ET Capital Corp., which will own the Florida Facilities Note.
The Initial Properties and properties securing the loans are located in eight
states in the eastern United States. The Company also agreed to or has the
option to purchase the nine assisted living facilities that secure the Term
Loans and Construction Loans, as well as eight of the nine assisted living
development and expansion projects currently in the planning stage for which
the Company will make Construction Loan Commitments totaling $53.3 million.

The Company will lease the Initial Properties pursuant to Percentage Rent
or Minimum Rent Leases (other then medical office and other buildings, which
will be acquired by the Company subject to the existing Fixed Rate Leases).
Percentage Rent Leases will be based on a specified percentage of facility
revenues with no required minimum rent. Minimum Rent Leases will provide for
base rent, plus scheduled base rent step-ups and, in the case of certain of the
Minimum Rent Leases, additional rent based on incremental revenues over the
base year. Both types of leases are triple net leases that require the lessees
to pay all operating expenses, taxes, insurance and other costs, and have
initial terms of 10 or 12 years, subject to renewal. Fixed Rent Leases provide
for specified annual rent, subject to increases in rent in certain of the Fixed
Rent Leases. The Company expects to realize an initial yield of approximately
10.1% on its investment in Initial Properties that are subject to Minimum Rent
Leases and an initial yield of approximately 10.4% on its investment in Initial
Properties that are subject to Fixed Rent Leases, based upon the minimum or
fixed rent provisions of those leases. The expected initial annual yield on the
Company's investment in Initial Properties that are subject to Percentage Rent
Leases is approximately 10.5% based upon pro forma rent for the properties
subject to such leases (determined by multiplying the percentage rents set
forth in the applicable leases by the pro forma revenues for the facilities)
for the month ended September 30, 1997, annualized. The weighted average
occupancy for the three facilities that are subject to Percentage Rent Leases
was 83.3% at September 30, 1997. Assuming revenues per bed remain constant, a
1% increase or decrease in the weighted average occupancy for these three
facilities would increase or decrease the yield on the Percentage Rent Leases
by approximately 13 basis points. The Term Loans and Construction Loans to be
made by the Company will have fixed rates of interest based on a spread (350 or
400 basis points) over the three-year U.S. Treasury Note rate in effect as of
the closing of the Offering, except for two Term Loans and two Construction
Loans which will have fixed rates of interest of 10.5%. See "Risk Factors --
Dependence on Genesis for the Company's Revenues and Ability to Make
Distributions," "-- Operating Risks Interest in Highly Regulated Healthcare
Industry may Adversely Affect the Operations of the Company's Lessees and
Borrowers" "Business and Properties -- Term Loans, Construction Loans, Penn
Mortgage and Florida Facilities Note.

Upon completion of the Offering, approximately 50.5% of the Company's
total assets will consist of properties leased to and loans made to
consolidated subsidiaries of Genesis. In addition, ten of the Initial
Properties or interests therein, the Penn Mortgage and the Florida Facilities
Note will be purchased from Genesis, and Genesis or entities in which it has an
interest will be the borrower under all but two of the Term and Construction
Loans, and entities in which it has an interest. In addition, Michael R.
Walker, who will serve both as the Company's Chairman of the Board and as
Chairman of the Board and Chief Executive Officer of Genesis has interests in
five of the Initial Properties. Subsidiaries of Genesis will operate or manage
substantially all of the Initial Properties, as well as properties that secure
loans made by the Company. Approximately $106.3 million of the net proceeds
from the Offering, including initial draws under the Credit Facility, will be
paid to Genesis and entities in which it has an interest, and approximately
$1.9 million will be paid to Mr. Walker, as the purchase price for Initial
Properties or interests therein and certain other assets being acquired by the
Company, as repayment of indebtedness, as repayment of certain expenses
incurred by the Company in its formation and as the purchase prize of or
initial draws under Term and Construction Loans being made to or acquired from
Genesis. See "Risk Factors -- Dependence on Genesis for the Company's Revenues
and Ability to Make Distributions," "Conflicts of Interest" and "Benefits to
Related Parties."

34
<PAGE>

Genesis will operate each of the facilities leased to it. In addition,
Genesis will manage the four skilled nursing facilities leased to
Crozer/Genesis and the skilled nursing facility leased to a subsidiary of the
Age Institute of Florida. Beginning upon completion of the Offering, Genesis
will receive a management fee equal to 5.4% of the net operating revenues
generated by the skilled nursing facilities leased to Crozer/Genesis. Up to 30%
of the management fee payable to Genesis with respect to each such facility
will be subordinated to lease payments due to the Company with respect to such
facility. In addition, Genesis will make available to Crozer/Genesis a line of
credit, and Crozer/Genesis will enter into Network Services Agreements with
Genesis for the four facilities. Any amounts payable to Genesis by
Crozer/Genesis under this line of credit and fees payable to Genesis under the
Network Services Agreement will not be subordinated to the lease payment
obligations of Crozer/Genesis under its Minimum Rent Lease with the Company.
Similarly, all but 3 1/2% of the 6% management fee payable to Genesis by the
Age Institute of Florida will be subordinated to the lease payment obligations
under the Minimum Rent Lease entered into by the Age Institute of Florida
subsidiary and the Company. See "Business and Properties."

The Operating Partnership is the vehicle through which the Company will
own the Initial Properties, the Term Loans and the Construction Loans and the
Penn Mortgage. The Florida Facilities Note will be owned by ET Capital Corp.,
an entity in which the Operating Partnership will hold all of the non-voting
stock representing 95% of the economic interest in ET Capital Corp. The
ownership and management structure of the Company is intended to enable the
Company to acquire assets in transactions that may defer some or all of the
sellers' tax consequences, including those acquired in connection with the
Company's formation.

The principal executive offices of the Company and the Operating
Partnership are located at ElderTrust, 415 McFarlan Road, Suite 202, Kennett
Square, PA 19348 and its telephone number is (610) 925-0808.

BUSINESS AND GROWTH STRATEGIES

The Company believes its strategy of investing in facilities that are
operated or managed by established operators, such as Genesis, and that are
located near other complementary healthcare services and faciltiies will result
in a marketing advantage for operators of its facilities, which may result in
higher occupancy rates and revenues. Substantially all of the initial assisted
and independent living facilities and development projects are located in close
proximity to complementary healthcare services and facilities, such as skilled
nursing facilities operated by Genesis and other healthcare providers. Genesis
intends for residents of assisted living facilities owned by the Company to
have access to long-term care at a Genesis owned skilled nursing facility
located near the assisted living facility. In addition, complementary
healthcare providers, such as Genesis, will be available to provide ancillary
services (such as pharmacy, physical therapy, nursing and physician services)
needed from time to time by residents of the facilities leased or managed by
Genesis through the Genesis ElderCareTM Networks. See "Business and Properties
- -- Lessees -- Genesis Initial Properties."

The Company expects to achieve growth as follows:

Internal Growth. Management believes the Company's future internal growth
will come from (i) potentially higher occupancy and associated increased rental
income from facilities not previously operated or managed by Genesis due, in
part, to the ability of facility residents to participate in the Genesis
ElderCareTM Networks; (ii) future price increases to facility residents and
resulting increases in rental income payable under the Percentage Rent Leases
and Minimum Rent Leases and (iii) adjustments to rents under certain of the
Fixed Rent Leases.

35
<PAGE>

Growth from Draws Under Construction Loans, Construction Loan Commitments
and Facility Purchase Contracts and Options. The Company anticipates additional
growth from (i) increasing draws under the Construction Loans, which are
expected to increase from an initial $8.2 million to approximately $28.8
million in 18 months, (ii) funding of the Construction Loan Commitments, which
is expected to total approximately $45.1 million in 18 months and (iii) the
purchase and leaseback to Genesis, pursuant to purchase contracts that will be
in place as of the closing of the Offering, of the five Lease-up Assisted
Living Facilities and two of the four Initial Assisted Living Development
Projects upon the earlier of the maturity of the related Term Loan or
Construction Loan or at such time as the facility reaches Stabilized Occupancy.
The Company has an option to purchase the two remaining Initial Assisted Living
Development Projects for which Construction Loans will be made at the closing
of the Offering. In addition, the Company has agreed to purchase or has the
option to purchase eight of the nine assisted living development and expansion
projects, currently in the preliminary planning phase. See "Business and
Properties."

Possible Subordinated CMBS Investments

The Company and Genesis are currently discussing a possible transaction
involving the purchase by the Company in the first half of 1998 of up to $30
million in CMBSs issued by REMICs and secured by skilled nursing facilities
currently owned by Genesis. Any such transaction would be subject to, among
other things, the approvals of the Board of Trustees of the Company and the
Board of Directors of Genesis, availability of financing, negotiation of the
transaction documents, receipt of necessary third party consents and regulatory
approvals. There can be no assurance that any such transaction will be
consummated. See "Risk Factors -- Possible Subordinated CMBS Investments,"
"Business and Properties -- Possible Subordinated CMBS Investments" and
"Policies with Respect to Certain Activities."

Right of First Refusal Agreement

The Company and Genesis have entered into the Right of First Refusal
Agreement, pursuant to which Genesis has granted the Company a right of first
refusal to purchase and leaseback to Genesis any assisted or independent living
facility which Genesis determines to sell and leaseback. The Right of First
Refusal Agreement also provides the Company with a right to offer financing to
Genesis and other developers of assisted and independent living facilities
which, once developed, will be operated by Genesis. The Company believes that
its agreement with Genesis will provide it with opportunities to acquire, and
finance the development of, additional assisted and independent living
facilities within the Genesis ElderCareSM healthcare network. In turn, the
Company has provided Genesis a right of first refusal to lease or manage any
assisted or independent living facility financed or acquired by the Company
within Genesis' markets unless the facility will be leased or managed by the
developing or selling company or an affiliate. See "Risk Factors -- Conflicts
of Interest Between the Company and Genesis and Mr. Walker in Connection with
the Formation and Operation of the Company."

36
<PAGE>

CONFLICTS OF INTEREST

Conflicts of interest exist on the part of the Company and Genesis and Mr.
Walker. Such conflicts include: (i) Mr. Walker's serving simultaneously as
Chairman of the Board of the Company and Chairman of the Board and Chief
Executive Officer of Genesis; (ii) the lack of arm's length negotiations and
the absence of independent valuations or appraisals with respect to the
purchase prices of, and, as applicable, the leaseback provisions for, the
Initial Properties and other assets or interests therein being acquired by the
Company, or which the Company has contracted to purchase, from Genesis and
entities in which it has an interest and from Mr. Walker, as well as with
respect to the terms of the Term Loans, Construction Loans and Construction
Loan Commitments being made by the Company; (iii) the fact that ten of the
Initial Properties or interests therein will be purchased from Genesis and
entities in which it has an interest, and that Genesis or entities in which it
has an interest will be the borrower under all but two of the Term and
Construction Loans; (iv) the fact that interests in five of the Initial
Properties will be acquired from Mr. Walker; and (v) the potential for future
conflicts arising from any failure by the Company to enforce the terms of the
leases, Term Loans, Construction Loans and Construction Loan Commitments and
other agreements to be entered into between the Company and Genesis and Mr.
Walker and three executive officers of Genesis transferring property interests
to the Company. In addition, Mr. Romanov, President and Chief Executive Officer
and a trustee of the Company, previously served as Senior Vice President of
Genesis. He will resign as an employee of Genesis upon completion of the
Offering. Following the Offering, the Company will be prohibited by the terms
of its Bylaws from acquiring additional properties from Genesis or the
Company's trustees and officers or affiliates thereof without the approval of a
majority of the disinterested trustees (other than pursuant to agreements
entered into in connection with the Formation Transactions). Genesis, Mr.
Walker, Mr. Romanov and certain other executive officers of Genesis, will
receive certain benefits in the formation transactions. See "Benefits to
Related Parties."

37
<PAGE>

USE OF PROCEEDS

The net cash proceeds to the Company from the Offering, after deducting
the estimated underwriting discount and estimated Offering expenses of
approximately $10.1 million, are estimated to be approximately $110.9 million
(approximately $127.8 million if the Underwriters' overallotment option is
exercised in full), based upon the assumed initial public offering price.

The net cash proceeds of the Offering, together with approximately $43.5
million of borrowings under the Credit Facility, will be used by the Company,
as follows: (i) approximately $101.4 million to acquire the Initial Properties
or interests therein; (ii) approximately $7.5 million to repay mortgage
indebtedness; (iii) approximately $8.2 million to acquire the Penn Mortgage and
substantially all of the economic interest in the Florida Facilities Note; (iv)
approximately $27.4 million to fund the Term Loans; (v) approximately $8.2
million to fund the Construction Loans; (vi) approximately $0.2 million for
costs associated with the Credit Facility and other organizational expenses;
and (vii) approximately $1.5 million for working capital and other general
corporate purposes. See "Structure and Formation of the Company" and "Business
and Properties -- Credit Facility and Tax-Exempt Financing."

If the Underwriters' overallotment option is exercised in full, the
Company expects to use the additional proceeds (which will be approximately
$16.9 million) to reduce the amounts initially borrowed under the Credit
Facility.

Pending application of the net proceeds of the Offering, the Company will
invest such portion of the net proceeds in interest-bearing accounts and/or
short-term, interest-bearing securities which are consistent with the Company's
intention to qualify for taxation as a REIT.

The Company will acquire certain properties for cash plus the assumption
of debt to which those properties were subject. The Company intends to repay a
portion of such debt. Certain information regarding the indebtedness to be
repaid is set forth as follows:

Debt to be Repaid with a Portion of the Offering Proceeds

<TABLE>
<CAPTION>
Amount to be
Property Maturity Date Interest Rate (1) Repaid (1) (2)
- ------------------------------------------------------- ----------------- ------------------- ---------------
(in thousands)
<S> <C> <C> <C>
Silverlake NRC ....................................... July 1, 1998 7.50% $ 5,356
Windsor Off. Bldg. and Windsor Clinic/Trg. Fac. ...... May 1, 2005 10.25 1,144
Salisbury Med. Off. Bldg. ........................... July 30, 2000 10.25 718
Highgate at Paoli Pointe .............................. January 1, 2001 11.00 250
Total ............................................. $ 7,468
=======
</TABLE>

- ------------
(1) The Company estimates that the indebtedness to be repaid with a portion of
the proceeds of the Offering will have a weighted average interest rate of
approximately 8.3% and a weighted average maturity of approximately 1.9
years as of December 1, 1997. Repayment amounts assume that the
indebtedness is repaid on December 1, 1997. Exact repayment amounts may
differ due to amortization.
(2) Represents prepayment of principal only.

DISTRIBUTIONS

Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Shares. The
initial distribution, covering a partial quarter commencing on the date of
completion of the Offering and ending on March 31, 1998, is expected to be
$____ per share, which represents a pro rata distribution based on a full
quarterly distribution of $0.365 per share and an annual distribution of $1.46
per share (or an annual distribution rate of 7.3%). The Company does not intend
to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised. The following discussion and the information
set forth in the table and footnotes below should be read in conjunction with
the Pro Forma Statements of Operations and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

38
<PAGE>

The Company intends initially to distribute annually approximately 93.5%
of estimated Cash Available for Distribution based upon the assumed initial
public offering price of $20.00 per share. The estimate of Cash Available for
Distribution for the 12 months following the closing of the Offering is based
upon pro forma Funds from Operations for the 12 months ended September 30,
1997, adjusted for certain known events and/or contractual commitments that
either have occurred or will occur as of the date of closing of the Offering
(including giving effect to the use of the net proceeds from the Offering
described elsewhere herein as of such date) and (ii) for certain non-GAAP items
consisting of (A) revisions to estimated rent revenues from a GAAP basis to
amounts currently being paid or due from lessees or tenants, (B) pro forma
amortization of financing costs and (C) pro forma amortization of organization
costs. No effect was given to any changes in working capital resulting from
changes in current assets and current liabilities (which changes are not
anticipated to be material) or the amount of cash estimated to be used for (i)
investing activities (other than for medical office building tenant
improvements and purchases of office equipment) and (ii) financing activities
(other than scheduled loan principal payments on existing indebtedness). The
estimate of Cash Available for Distribution is being made solely for the
purpose of setting the initial distribution and is not intended to be a
projection or forecast of the Company's results of operations or its liquidity,
nor is the methodology upon which such estimate was made necessarily intended
to be a basis for determining future distributions. Future distributions by the
Company will be at the discretion of the Board of Trustees. There can be no
assurance that any distributions will be made or that the estimated level of
distributions will be maintained by the Company.

The Company anticipates that its distributions will exceed earnings and
profits for federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that up to 10% of the distributions anticipated to be
paid by the Company for the 12-month period following the completion of the
Offering will represent a return of capital for federal income tax purposes and
in such event will not be subject to federal income tax under current law to
the extent such distributions do not exceed a shareholder's basis in his Common
Shares. The nontaxable distributions will reduce the shareholder's tax basis in
the Common Shares and, therefore, the gain (or loss) recognized on the sale of
such Common Shares or upon liquidation of the Company will be increased (or
decreased) accordingly. The percentage of shareholder distributions that
represents a nontaxable return of capital may vary substantially from year to
year.

The Code generally requires that a REIT distribute annually at least 95%
of its net taxable income (excluding any net capital gain). See "Federal Income
Tax Consequences -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements." The estimated Cash Available for Distribution is
anticipated to be in excess of the annual distribution requirements applicable
to REITs under the Code. Under certain circumstances, the Company may be
required to make distributions in excess of Cash Available for Distribution in
order to meet such distribution requirements. For a discussion of the tax
treatment of distributions to holders of Common Shares, see "Federal Income Tax
Considerations."

The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company intends to maintain its initial distribution rate for the 12-month
period following the completion of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. The Company's actual results of operations
will be affected by a number of factors, including the revenue and interest
income received from its properties and loans, interest and dividend income
from ET Capital Corp., the operating expenses of the Company, interest expense,
the ability of lessees, tenants and borrowers to meet their financial
obligations and unanticipated capital expenditures. Variations in the net
proceeds from the Offering as a result of a change in the initial public
offering price or the exercise of the Underwriters' overallotment option may
affect Cash Available for Distribution, the payout ratio based on Cash
Available for Distribution and available reserves. No assurance can be given
that the Company's estimate will prove accurate. Actual results may vary
substantially from the estimate.

39
<PAGE>

The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended September 30, 1997 and the adjustments to
pro forma Funds from Operations for the 12 months ended September 30, 1997 in
estimating initial Cash Available for Distribution for the 12 months following
the closing of the Offering:

<TABLE>
<CAPTION>
(in thousands, except
per share data)
----------------------
<S> <C> <C>
Pro forma net income for the year ended December 31, 1996 ........................ $ 1,567
Plus: Pro forma net income for the nine months ended September 30, 1997 ......... 3,330
Less: Pro forma net income for the nine months ended September 30, 1996 ......... (914)
--------
Pro forma operating income before minority interest for the 12 months ended
September 30, 1997 ............................................................... $ 3,983
Plus: Pro forma real estate depreciation for the 12 months ended September 30, 1997
(1) .............................................................................. 4,152
Plus: Pro forma minority interest relating to Operating Partnership Units for the 12
months ended September 30, 1997 ................................................... 295
--------
Pro forma Funds from Operations for the 12 months ended September 30, 1997 (2) . $ 8,430
Adjustments:
Net increases in rental income (3) ................................................ 742
Net increase in interest income (4) ............................................. 2,213
Interest expense adjustment (5) ................................................... 61
--------
Estimated adjusted pro forma Funds from Operations for the 12 months following the
completion of the Offering ...................................................... $ 11,446
Net effect of straight-line rents (6) ............................................. 84
Pro forma amortization of financing costs for the 12 months ended September 30,
1997 (7) ........................................................................ (234)
Non-real estate amortization (8) ................................................ 5
--------
Estimated pro forma Cash Flow from Operating Activities for the 12 months follow-
ing completion of the Offering $ 11,301
Investment Activities:
Estimated recurring tenant improvements and purchases of office equipment (9) . (111)
Financing Activities:
Scheduled borrowings under Credit Facility (10) ................................. 313
Scheduled loan principal payments (11) .......................................... (630)
--------
Estimated Cash Available for Distribution for the 12 months following the closing of
the Offering . .................................................................. $ 10,873
========
Company's share of estimated Cash Available for Distribution (12) ............... 10,123
======
Minority interest's share of estimated Cash Available for Distribution ......... $ 750
=======
Total estimated initial annual cash distributions ................................. $ 10,168
========
Estimated initial annual distribution per share (13) .............................. $ 1.46
========
Payout ratio based on estimated Cash Available for Distribution (14) ............... 93.5 %
========
</TABLE>

- ------------
(1) Pro forma real estate depreciation for the year ended December 31, 1996 of
$3.9 million plus pro forma real estate depreciation for the nine months
ended September 30, 1997 of $3.1 million minus pro forma real estate
depreciation for the nine months ended September 30, 1996 of $2.8 million.

40
<PAGE>

an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and should not
be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to
cash flow from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
cash distributions.

(3) Represents the increase in rental income from Minimum Rent and Fixed Rent
Leases for the 12-month period following the closing of the Offering.
Rental income from properties under development during the pro forma
periods was not recognized until such property was placed in service. This
amount reflects the adjustment necessary to reflect rental income from all
Minimum Rent and Fixed Rent Leases to that which will be recognized for
one year in accordance with leases to be executed in conjunction with the
acquisition of the properties.
(4) Represents the increase in interest income resulting from Term and
Construction Loans for the 12-month period following the closing of the
Offering. Interest income from loans on properties under development
during the pro forma periods was recognized based upon the development
costs incurred. This calculation was performed on a monthly basis over the
pro forma period. The adjustment is the amount necessary to reflect the
annual interest income, based upon the terms of the underlying loan
commitment agreements, on the balance of the Term and Construction Loans
expected to be funded at the date of the Offering at the interest rate
which would have been applied had the Offering occurred at September 30,
1997. The interest rate on Term Loan and Construction Loans will be fixed
at the time of closing of the Offering based on a spread of 350 or 400
basis points over the then applicable three-year U.S. Treasury Note rate,
except for the Construction Loan on the Montchanin development project
will have a fixed rate of interest equal to 10.5%. The net increase in
interest income included in the table was calculated based on the
applicable spread of 350 to 400 basis points over the three-year U.S.
Treasury Note rate in effect on September 30, 1997 for the loans whose
interest rate will be fixed at the time of closing of the Offering and
10.5% for the Construction Loan for the Montchanin facility. No effect is
given for additional Construction Loan draws of approximately $18.2
million which are expected to be drawn by borrowers during the 12-month
period immediately following the closing of the Offering. Additionally,
the adjustment includes the annualization of interest income as well as an
adjustment of interest rates based on the three-year U.S. Treasury Note
rate as of September 30, 1997.
(5) Represents a reduction in interest expense due to amortization of the
related indebtedness over the 12-month period following the closing of the
Offering.
(6) Represents the effect of adjusting straight-line rental revenue included
in pro forma revenues from the straight-line accrual basis to amounts
currently being paid or due from tenants.
(7) Represents financing costs associated with the Credit Facility. See
"Business and Properties -- Credit Facility and Tax-Exempt Financing."
(8) Represents pro forma amortization of $25,000 of organization costs on a
straight-line basis over five years.
(9) Represents recurring medical office building tenant improvements and
office equipment purchases estimated at $1.00 per square foot of total
square footage.
(10) Represents scheduled borrowings under the Credit Facility for Credit
Facility acquisition costs expensed in computing ProForma Cash Flow from
Operating Activities for the 12-months following completion of the
Offering.

(11) Represents scheduled loan principal payments for the 12 months following
the closing of the Offering.

(12) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distribution to shareholders of the Company
is based on its approximate 93.1% aggregate partnership interest in the
Operating Partnership.
(13) Based on a total of 6,482,600 Common Shares to be outstanding after the
Offering (6,050,000 shares to be sold in the Offering, assuming no
exercise of the Underwriters' overallotment option, and 432,600 additional
Common Shares to be issued in the Formation Transactions.)
(14) Calculated as estimated initial annual cash distributions to shareholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months following the closing of the Offering.
The payout ratio based on estimated adjusted pro forma Funds from
Operations is 88.8%.

41
<PAGE>

CAPITALIZATION

The following table sets forth the historical capitalization of the
Company as of September 30, 1997, and on a pro forma basis, as adjusted to give
effect to the Formation Transactions, the Offering and use of the net proceeds
from the Offering as set forth under "Use of Proceeds." The information set
forth in the table should be read in conjunction with the financial statements
and notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

<TABLE>
<CAPTION>
September 30, 1997
---------------------------
Pro Forma,
Historical As Adjusted
------------ ------------
(in thousands)
<S> <C> <C>
Debt:
Mortgages payable (1) ....................................... $ -- $ 34,239
Credit Facility (1) .......................................... -- 43,471
Minority interest in Operating Partnership .................. -- 9,641
Shareholders' equity:
Preferred Shares, $.01 par value per share, 20,000,000 shares
authorized; none issued and outstanding .................. -- --
Common Shares, $.01 par value per share, 100,000,000 shares
authorized; 100 issued and outstanding; 6,482,600 issued and
outstanding, as adjusted (2) .............................. -- 65
Additional Paid-In Capital ................................. -- 112,591
---------- --------
Shareholders' Equity ....................................... -- 113,181
---------- --------
Total Capitalization .................................... $ -- $203,545
========== ========
</TABLE>

- ------------

(1) See notes 7 and 8 of the notes to the pro forma financial statements for
additional information.

(2) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 225,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued to
Mr. Romanov in a private placement and (iv) Common Share awards totaling
2,500 shares each to be made upon completion of the Offering to the
Company's three trustee nominees under the Company's 1998 Share Option and
Incentive Plan. See "Benefits to Related Parties." Does not include (i)
482,030 Common Shares that may be issued upon the exchange of Units issued
in connection with the Formation Transactions, (ii) 907,500 Common Shares
subject to the Underwriters' overallotment option or (iii) 497,500 Common
Shares subject to options to be granted under the Company's 1998 Share
Option and Incentive Plan.

42
<PAGE>

DILUTION

As of September 30, 1997, the Company had 100 Common Shares issued and
outstanding. After giving effect to the sale of the Common Shares offered
hereby (at an assumed initial public offering price of $20.00 per Common Share)
and the receipt by the Company of approximately $110.9 million in net proceeds
from the Offering (after deducting the Underwriters' discounts and commissions
and other estimated expenses of the Offering), the pro forma net tangible book
value at September 30, 1997 would have been approximately $126.5 million, or
$18.17 per Common Share. This amount represents an immediate increase in net
tangible book value of $5.84 per Common Share to the holders of restricted
Common Shares and Units to be issued in connection with the Formation
Transactions and an immediate dilution in pro forma net tangible book value of
$1.83 per Common Share to new investors. The following table illustrates this
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .............................. $20.00
Net tangible book value per share prior to the Offering (1) .................. $12.33
------
Increase in net tangible book value per share attributable to the Offering (2) 5.84
------
Pro forma net tangible book value after the Offering (3) ..................... $18.17
------
Dilution in net tangible book value per Common Share to purchasers in the
Offering (4) ............................................................... $ 1.83
======
</TABLE>

- ------------
(1) Tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Operating Partnership (based on
the September 30, 1997 net book value of the tangible net assets) by the
sum of the number of Common Shares (i) issued and outstanding and (ii)
issuable (including upon the exchange of all Units to be issued) to
investors in the Formation Transactions.

(2) Based upon the assumed initial public offering price of $20.00 per Common
Share and after deducting Underwriters' discounts and commissions and
estimated expenses of the Offering and the Formation Transactions.

(3) Based on total pro forma net tangible book value of $126.5 million divided
by the total number of Common Shares outstanding after the completion of
the Offering (6,482,600 Common Shares) and Common Shares issuable in
exchange for Units (482,030 Common Shares), and excluding Common Shares
that may be issuable upon exercise of share options. There is no dilution
attributable to the issuance of Common Shares in exchange for Units to be
issued to the Continuing Investors in the Formation Transactions because
such Units would be exchanged for Common Shares on a one-for-one basis.

(4) Dilution is determined by subtracting net tangible book value per Common
Share after the Offering from the assumed initial public offering price of
$20.00 per Common Share.

43
<PAGE>

The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of Common Shares to be sold
by the Company in the Offering and the number of restricted Common Shares and
Units to be outstanding upon completion of the Formation Transactions, the net
tangible book value as of September 30, 1997 of the assets contributed by the
investors in the Formation Transactions and the net tangible book value of the
average contribution per share based on total contributions.

<TABLE>
<CAPTION>
Cash/
Common Shares/ Book Value of
Units Issued Contributions Book Value
---------------------- ----------------------------------- of
Average
Common Contribution
Shares/ Per Share/
Units Percent $ Percent Unit
----------- --------- ------------------ --------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Purchasers in the Offering ..................... 6,050,000 86.9% $ 121,000(1) 88.6%(1) $ 20.00
Common Shares issued in the Formation
Transactions ................................. 432,600 6.2 8,500(2) 6.3%(2) 19.65
Units issued in the Formation Transactions . 482,030 6.9 7,026 5.1 % 14.57
--------- ----- ------------- ---------- -------
Total ....................................... 6,964,630 100.0% $ 136,526 100.0 % $ 19.60
========= ===== ============= ========== =======
</TABLE>

- ------------
(1) Before deducting Underwriters' discounts and commissions and other
estimated expenses of the Offering.

(2) Based on the September 30, 1997 net book value of the assets, adjusted for
the Formation Transactions.

44
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

Pro forma operating data is presented for the year ended December 31,
1996, and the nine months ended September 30, 1997, as if the Offering and the
acquisitions of the Initial Investments and related transactions had occurred,
and as if the respective leases had been in effect at January 1, 1996. The pro
forma balance sheet data is presented as of September 30, 1997, as if the
Offering and the acquisitions of the Initial Investments and related
transactions had occurred, and as if the respective leases had been in effect
at that date. The pro forma information incorporates certain assumptions that
are included in the notes to the Pro Forma Balance Sheet and Statements of
Operations included elsewhere in this Prospectus. See "Pro Forma Balance Sheet
and Statements of Operations." The pro forma information does not purport to
represent what the actual financial position or results of operations of the
Company would have been as of or for the periods indicated nor does it purport
to represent the financial position or results of operations for any future
period.

<TABLE>
<CAPTION>
Pro Forma at Pro Forma at
or for the Nine or for the
Months Ended Year Ended
Historical(1) September 30, 1997 December 31, 1996
--------------- -------------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma operating data:
Revenues ....................................... $ -- $ 13,040 $ 14,484
Net income ....................................... -- 3,330 1,567
Earnings per share .............................. -- 0.51 0.24
Common shares outstanding ........................ 100 6,482,600 6,482,600
Pro forma balance sheet data:
Initial Properties .............................. $ -- $ 155,838 N/A
Investment in ET Capital Corp. .................. -- 7,406 N/A
Loans receivable ................................. -- 30,629 N/A
Other assets .................................... -- 2,406 N/A
Total assets .................................... -- 203,545 N/A
Mortgages payable .............................. -- 34,239 N/A
Credit Facility ................................. -- 43,471 N/A
Minority interest in Operating Partnership ...... -- 9,641 N/A
Total shareholders' equity ..................... 100 112,806 N/A
Other data:
Funds from Operations (2) ........................ $ -- $ 6,722 $ 5,548
Weighted average number of Common Shares
and Units outstanding ........................ 100 6,964,630 6,964,630
</TABLE>

- ------------

(1) The Company was formed on September 23, 1997 and was capitalized with the
issuance of 100 Common Shares for a purchase price of $100.

(2) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions.

45
<PAGE>

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

Overview

The Company was formed in Maryland on September 23, 1997, and intends to
make an election and to qualify under the Code as a REIT commencing with its
taxable year ending December 31, 1997.

Substantially all of the Company's revenues are expected to be derived
from: (i) rents received under Percentage, Minimum and Fixed Rent Leases of
healthcare-related real estate; (ii) interest earned from Term and Construction
Loans, the Penn Mortgage and the Florida Facilities Note; and (iii) interest
earned from the temporary investment of funds in short-term instruments. The
Percentage Rent Leases provide for rents based on a specified percentage of
facility operating revenues with no required minimum rent. The Minimum Rent
Leases provide for (i) base rent (increasing each year by 1.5%) and additional
rent based upon a specified percentage of annual revenues over revenues for the
first year of the lease, (ii) base rent, increasing each year by the lesser of
5% of the increase in facility revenues for the immediately preceding year or
one-half of the increase in the Consumer Price Index for the immediately
preceding year, or (iii) base rent, increasing each year by 2.5%. Both types of
leases are triple net leases that require the lessees to pay all operating
expenses, taxes, insurance and other costs (including a portion of capitalized
expenditures). The Fixed Rent Leases are with existing tenants in the medical
office and other buildings included in the Initial Properties and provide for
specified annual rents, subject to increase in certain of the leases. Interest
on the Term and Construction Loans will be at a fixed rate of 10.5% or at rates
based on the three-year U.S. Treasury Note rate plus 350 or 400 basis points.
The Company has agreed to or has options to purchase the assisted living
facilities securing the Term and Construction Loans included in the Initial
Investments, and these facilities also will be leased back to the sellers (or
to Genesis in the case of the Lease-up Assisted Living Facility in which
Genesis holds a 49% interest) pursuant to Percentage Rent Leases or Minimum
Rent Leases.

The Company will incur operating and administrative expenses, including
principally compensation expense for its executive officers and other
employees, office rental and related occupancy costs. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company will engage legal, accounting, tax
and financial advisors as needed from time to time.

The Company also expects to leverage its portfolio of real estate equity
investments and will incur long and short-term indebtedness, and related
interest expense, from time to time. The Board of Trustees will consider a
number of factors when evaluating the Company's level of indebtedness and when
making decisions regarding the incurrence of indebtedness. See "Risk Factors --
The Company's Use of Debt Financing, the Absence of a Limitation on Debt,
Increases in Interest Rates and Requirements of Tax-Exempt Bond Financing Could
Have Adverse Effects on the Company."

The Company intends to declare and pay distributions to its shareholders
in amounts not less than the amounts required to maintain REIT status under the
Code and, in general, in amounts exceeding taxable income. The Company's
ability to pay distributions will depend upon its cash available for
distribution.

Nonrecurring Compensation Expense

With respect to the issuance of Units to certain officers of the Company
in connection with the formation of the Company (see "Benefits to Related
Parties"), the Company has recognized compensation expense of
approximately $2.6 million based on the estimated value of such Units, which
will be reported in the Company's statement of operations for the period from
September 23, 1997 (the date of its formation) to December 31, 1997. This
expense is a nonrecurring item and, accordingly, has not been reflected in the
pro forma statements of operations.

46
<PAGE>

Results of Operations

The Company has had no operations prior to September 23, 1997 (the date of
its formation) through the date of this Prospectus. The Company's future
results of operations will depend upon the acquisition of the Initial
Investments and the terms of any subsequent investments the Company may make.

Pro Forma Statements of Operations

Year Ended December 31, 1996

The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Investments and related transactions, revenues would
have been $14.5 million and net income would have been $1.6 million, or $0.24
per share, for the year ended December 31, 1996. Depreciation, amortization and
other non-cash expenses would have been $4.1 million.

Nine Months Ended September 30, 1997

The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Investments and related transactions, revenues would
have been $13.0 million and net income would have been $3.3 million, or $0.51
per share, for the nine months ended September 30, 1997. Depreciation,
amortization and other non-cash expenses would have been $3.3 million.

Certain of the Initial Properties were under development or in the
lease-up phase during the year ended December 31, 1996 and/or the nine months
ended September 30, 1997. The pro forma statements of operations have been
prepared assuming the Company made Term or Construction Loans on these
properties; however, these properties are now operational and will be acquired
at the time of the Offering and leased back to the sellers under Minimum Rent
Leases or Percentage Rent Leases. In addition, the Term and Construction Loans
the Company will fund either would not have been in existence during part of
the periods or would have been funded at lower levels (due to the earlier stage
of development of the related facilities) than will be the case upon closing of
the Offering, and the Florida Facilities Note was not in existence until
September 1, 1996. For these and other reasons, the pro forma statements of
operations do not purport to present what the Company's results of operations
or cash available for distribution would actually have been if the Offering and
related transactions had occurred on January 1, 1996 or to project the
Company's results of operations for any future period.

Liquidity and Capital Resources

Management believes that the net proceeds of this Offering, together with
the Credit Facility, will be sufficient to consummate the purchase of the
Initial Properties and the other assets being acquired by the Company, to fund
the Term Loans, to fund the initial and subsequent draws under the Construction
Loans and to fund the Construction Loan Commitments. Management believes the
Company will have adequate remaining credit under the Bank Credit Facility to
meet its liquidity needs for the twelve-month period following the Offering.
See "Business and Properties."

The Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of its Initial Properties, the
acquisition of additional properties or funding of additional loans, or, as
necessary, to meet certain distribution requirements imposed on REITs under the
Code. See "Policies with Respect to Certain Activities -- Investment Policies"
and "-- Financing Policies." The Company may raise additional capital by
issuing, in public or private transactions, equity or debt securities, but the
availability and terms of any such issuance will depend upon market and other
conditions. There can be no assurance that such additional financing or capital
will be available on terms acceptable to the Company.

Under the terms of the Percentage Rent and Minimum Rent Leases, the
lessees are responsible for all operating expenses taxes, property and casualty
insurance and other costs (including certain required capital expenditures
during the term of the applicable lease). See "Business and Properties --
Leases." As a result of these arrangements, the Company does not believe it
will be responsible for any major expenses in connection with the Initial
Properties subject to Percentage Rent Leases or Minimum Rent Leases during the
terms of the

47
<PAGE>

respective leases. The Company anticipates entering into similar leases with
respect to additional properties. After the expiration or termination of the
terms of the respective leases, or in the event a lessee is unable to meet its
obligations, the Company anticipates that any expenditures it might become
responsible for in maintaining the Initial Properties subject to Percentage
Rent Leases or Minimum Rent Leases will be funded by cash from operations and,
in the case of major expenditures, possibly by borrowings. To the extent that
unanticipated expenditures or significant borrowings are required, the
Company's cash available for distribution and liquidity may be adversely
affected.

The Company is negotiating with an affiliate of a commercial bank to
obtain the Credit Facility which would be used to pay a portion of the purchase
price for the Initial Properties, the Term Loans and the initial draws under
the Construction Loans and which would be available to fund the remaining draws
under the Construction Loans, to fund the Construction Loan Commitments, to
facilitate possible acquisitions or future developments, to repay indebtedness
and for working capital needs and other general corporate purposes. Based on
the Company's expected needs, management is seeking a secured facility for up
to $140 million on terms and conditions that are customary in the industry for
such arrangements and considered appropriate based on the Company's anticipated
capital structure and operations. Management believes that the Company will be
able to obtain the necessary Credit Facility on acceptable terms and that the
full amount of the Credit Facility will be available upon closing of the
Offering. While the terms of the facility will not be determined until
negotiations are completed and a commitment is obtained, it is expected that
interest under the Credit Facility will be based on one-month LIBOR rates, plus
a margin that will be determined by the Company's debt to asset ratio at
certain times. In addition, it is expected that the Company will pay an annual
fee on the unused portion of funds available for borrowing under the Credit
Facility and that the Bank Credit Facility will have a term of 12 months. The
Company intends to renew the Credit Facility or to repay the outstanding
balance at maturity from the proceeds of a refinancing or from the sale of debt
or equity securities. There can be no assurance, however, that the lenders will
renew the Credit Facility on terms favorable to the Company or that the Company
will be able to sell debt or equity securities at that time. See "Risk Factors
- -- The Company's Use of Debt Financing, the Absence of a Limitation on Debt,
Increases in Interest Rates and Requirements of Tax-Exempt Bond Financing could
have Adverse Effects on the Company." The Company may enter into interest rate
swaps in order to mitigate the effect of a rising interest rate environment on
the cost of the Credit Facility.

In addition to the purchase of the Initial Investments, the Company has
agreements or options to purchase the nine assisted living facilities in
lease-up or in development, as well as eight of the nine assisted living
development and expansion projects currently in the planning stage for which
the Company will make Construction Loan Commitments totaling $53.3 million. The
Company expects to use draws on the Credit Facility to fund these commitments,
as well as subsequent draws under the Construction Loans which are expected to
increase by approximately $65.6 million to approximately $73.8 million in 18
months after the Offering. There can be no assurance that the nine development
and expansion projects in the planning stage will be completed on a timely
basis or at all or that the Company will be able to purchase or make
construction loans on any additional properties.

Management believes that inflation should not have a material adverse
effect on the operating expenses of the Company because such expenses are
relatively insignificant as a percentage of revenues.

Funds from Operations

The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in March 1995 defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of properties, plus real estate related
depreciation and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition

48
<PAGE>

differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.

On a pro forma basis after giving effect to the Offering, pro forma Funds
from Operations for the nine months ended September 30, 1997 and for the year
ended December 31, 1996, respectively, are as follows:

<TABLE>
<CAPTION>
Pro Forma
----------------------------------------
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
-------------------- ------------------
(in thousands)
<S> <C> <C>
Pro forma net income .................................. $3,330 $1,567
Pro forma minority interest ........................... 248 117
Pro forma operating income before minority interest ... 3,578 1,684
Add:
Pro forma real estate depreciation .................. 3,144 3,864
------ ------
Pro forma Funds from Operations ........................ $6,722 $5,548
====== ======
</TABLE>

49
<PAGE>

BUSINESS AND PROPERTIES

General

The Company has been formed to invest in a diversified portfolio of
healthcare-related real estate and mortgages. As part of the Formation
Transactions, the Company will acquire or fund the 21 Initial Properties, the
Term Loans, the Construction Loans, the Penn Mortgage and substantially all of
the economic interest in the Florida Facilities Note. The Initial Properties
(other than the medical office and other buildings, which will each be acquired
subject to existing leases) will each be leased to Genesis, SLC, Crozer/Genesis
or the Age Institute of Florida, directly or through one or more subsidiaries,
pursuant to long-term, triple net leases. The Company also has agreed or has
the option to purchase the nine assisted living facilities in lease-up or
development, as well as eight of the nine assisted living development and
expansion projects currently in the planning phase for which the Company will
make Construction Loan Commitments totaling $53.3 million.

50
<PAGE>

Initial Properties

The Initial Investments consist of the Initial Properties, the Term Loans
and Construction Loans, the Construction Loan Commitments and substantially all
of the Florida Facilities Note. The following table sets forth certain
information regarding the Initial Properties. All of the Initial Properties
will be leased to or managed by Genesis except for The Woodbridge and the
medical office and other buildings. The Company will hold a fee interest in
each of the Initial Properties except for the land underlying the Windsor
Clinic and Training Facility which will be a leasehold interest subject to a
long-term ground lease from Genesis and the land underlying the Professional
Office Building I which will be a leasehold interest subject to a long-term
ground lease from an affiliate of CKHS. In the opinion of management, each of
the Initial Properties is adequately covered by insurance.

<TABLE>
<CAPTION>
Number Year Built/
Property Location of Beds(1) Occupancy(2) Renovated
- ------------------------------- ------------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods Agawam, MA 122 13.5% 1997
Willowbrook Clarks Summit, PA 65 74.6 1996
Riverview Ridge Wilkes-Barre, PA 105 94.1 1993
Highgate at Paoli Pointe Paoli, PA 82 92.7 1995
The Woodbridge Kimberton, PA 90 66.1 1996
--- ----
Subtotal/Avg. 464 63.9%(8)
=== =======
Independent Living Facility:
Pleasant View Concord, NH 72 93.8% 1926
Skilled Nursing Facilities(9):
Rittenhouse CC Philadelphia, PA 183 96.6% 1930/1993(10)
Lopatcong CC Phillipsburg, NJ 153 95.2 1984/1992(12)
Phillipsburg CC Phillipsburg, NJ 92(13) 86.8 1930/1993(14)
Wayne NRC Wayne, PA 118 91.8 1920/1989(15)
Belvedere NRC Chester, PA 147(16) 92.5 1960/1983(17)
Chapel Manor NRC Philadelphia, PA 240 84.3 1973
Harston Hall NCH Flourtown, PA 196(18) 89.4 1977/1991(19)
Pennsburg Manor NRC Pennsburg, PA 120 89.7 1982
Silverlake NRC Bristol, PA 174 97.9 1969/1988(20)
------- -------
Subtotal/Avg. 1,423 93.2%
========= =======
Rentable Year Built/
Property Location Sq. Feet Occupancy Renovated
- ------------------------------- ------------------- ----------------- -------------- -----------------
Medical Office and Other Buildings:
Professional Off. Bldg. I Upland, PA 39,972 100.0% 1977
DCMH Med. Off. Bldg.(23) Drexel Hill, PA 60,706(24) 100.0 1984/1987/1997(25)
Salisbury Med. Off. Bldg. Salisbury, MD 10,961 100.0 1984
Windsor Off. Bldg. Windsor, CT 2,100 100.0 1934/1965(27)
Windsor Clinic/Trg. Fac.(29) Windsor, CT 9,662 100.0 1996
Lacey Branch Off. Bldg. Forked River, NJ 4,100 100.0 1996
----------------- --------------
Subtotal/Avg. 127,501 100.0%
================= ==============
Total Initial Properties

<CAPTION>
% of
Purchase Initial Initial Rent
Property Price(3) Investments Lease Term(4) Type(5) Lessee
- ------------------------------- ------------------ ------------- -------------------- ------------ ---------------------
(in thousands) (Years)
<S> <C> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods $ 11,536 6.0% 10.0 (6) Genesis(7)
Willowbrook 5,894 3.1 10.0 Percentage Genesis(7)
Riverview Ridge 5,720 3.0 10.0 Percentage Genesis(7)
Highgate at Paoli Pointe 11,115 5.8 10.0 Minimum Genesis(7)
The Woodbridge 11,668 6.1 10.0 Minimum SLC(7)
---------- --- ------
Subtotal/Avg. $ 45,933 24.0% 10.0
---------- ---- ======
Independent Living Facility:
Pleasant View $ 3,742 1.9% 10.0 Percentage Genesis(7)
---------- ---- ------
Skilled Nursing Facilities(9):
Rittenhouse CC $ 8,855 4.6% 10.0 Minimum Genesis(11)
Lopatcong CC 13,778 7.2 10.0 Minimum Genesis(11)
Phillipsburg CC 6,266 3.3 10.0 Minimum Genesis(11)
Wayne NRC 6,065 3.2 10.0 Minimum Genesis(11)
Belvedere NRC 10,413 5.5 12.0 Minimum Crozer/Genesis
Chapel Manor NRC 11,334 5.9 12.0 Minimum Crozer/Genesis
Harston Hall NCH 7,300 3.8 12.0 Minimum Crozer/Genesis
Pennsburg Manor NRC 10,000 5.2 12.0 Minimum Crozer/Genesis
Silverlake NRC 8,000 4.2 10.0 Minimum Age Inst. of Fl.(21)
---------- ---- ------
Subtotal/Avg. $ 82,011 42.9% 11.0
---------- ---- ------
% of
Purchase Initial Remaining Rent
Property Price(3) Investments Lease Term(22) Type(5) Lessee
- ------------------------------- ---------- ---- --------------- ------ ----------
(in thousands) (Years)
Medical Office and Other Buildings:
Professional Off. Bldg. I $ 4,000 2.1% 1.2 Fixed Physicians
DCMH Med. Off. Bldg.(23) 7,923 4.1 3.9 Fixed Physicians
Salisbury Med. Off. Bldg. 1,349 0.7 1.0(26) Fixed Genesis(26)
Windsor Off. Bldg. 325 0.2 5.0(28) Fixed Genesis
Windsor Clinic/Trg. Fac.(29) 1,493 0.8 5.0(28) Fixed Genesis
Lacey Branch Off. Bldg. 545 0.3 18.0 Fixed Ocean FSB
------------ ---- -------
Subtotal/Avg. $ 15,635 8.2% 3.6
------------ ---- =======
Total Initial Properties $ 147,321 77.0%
============ ====
</TABLE>

51
<PAGE>

- --------
(1) Based on the number of private and semi-private beds currently available.
(2) Represents the average occupancy for the month ended September 30, 1997
determined by dividing total patient days by the number of days in the
month.
(3) Does not include estimated net capitalized acquisition costs aggregating
approximately $1.4 million. Includes, for certain of the Initial
Properties, mortgage indebtedness being repaid at the closing of the
Offering and assumed mortgage indebtedness totaling $34.2 million as of
December 1, 1997. See "Use of Proceeds" and -- Mortgage Debt."
(4) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering. The weighted average initial lease term for each facility type
is based on the purchase prices for the facilities.
(5) For the nine months ended September 30, 1997, on a pro forma basis, the
lease coverage ratios, which are a measure of the ability of a facility's
revenues to cover required lease payments (net operating income before
interest, depreciation, rent and the subordinated portion of management
fees (if any) divided by rent payments) for the assisted living facility
and four skilled nursing facilities to be leased to Genesis under Minimum
Rent Leases was 0.83x, 2.31x, 1.64x, 1.70x and 0.96x, respectively; the
lease coverage ratio for the facility to be leased to SLC under a Minimum
Rent Lease was 0.24x; the lease coverage ratios for the four facilities to
be leased to Crozer/Genesis under Minimum Rent Leases were 1.29x, 1.25x,
1.67x and 1.35x, respectively; and the lease coverage ratio for the
facility to be leased to the Age Institute of Florida under a Minimum Rent
Lease was 1.54x. Lease coverage ratios are not provided for facilities
that will be subject to Percentage Rent Leases because rental revenues for
those facilities are based on a fixed percentage of the facility's
revenues. See "-- Leases" and "Risk Factors -- Operating Risks Inherent in
the Highly Regulated Healthcare Industry may Adversely Affect the
Operations of the Company's Lessees and Borrowers."
(6) Initially, rent equals a fixed base rent with no revenue participation. At
the time the facility reaches Stabilized Occupancy, the lease will
automatically convert into a Percentage Rent Lease.
(7) Genesis will guarantee the performance of its subsidiaries under the
Genesis leases. The Highgate facility initially may be leased by SLC. If
subsequently leased by a subsidiary of SLC, SLC will guarantee the
performance of its subsidiary under such lease.
(8) At September 30, 1997, Heritage Woods, Willowbrook and The Woodbridge were
in the initial lease-up phase. Excluding these facilities, the assisted
living facilities included in the Initial Properties had an average
occupancy of 93.5%.
(9) "NRC" means a nursing and rehabilitation center, "NCH" means a nursing and
convalescent home and "CC" means a care center.
(10) The facility was originally built in the 1930's with two expansions in the
1970's. A renovation of interior finishes was completed in 1993. The
Company has agreed to finance an expansion of this facility to be
undertaken by Genesis. See "-- Construction Loan Commitments and Related
Purchase Contracts."
(11) These facilities initially will be leased by wholly owned subsidiaries of
Genesis, and Genesis will guarantee the obligations of its wholly owned
subsidiaries under these Minimum Rent Leases. However, in the event
Genesis assigns one or more of the leases to a non-wholly owned subsidiary
or a third party, Genesis may not continue to guarantee the applicable
leases. Any such assignment of a Minimum Rent Lease would require the
consent of the Company which may not be unreasonably withheld. The Company
will evaluate the creditworthiness of any assignee in determining whether
to provide its consent. Genesis is currently negotiating an arrangement
with a Philadelphia-based hospital system. If the arrangement is
negotiated successfully, the hospital system would lease-back the Wayne
skilled nursing facility following its sale to the Company and Genesis
would manage the facility. In addition, Genesis would not guarantee the
lease. See "Risk Factors -- Conflicts of Interest Between the Company and
Genesis and Mr. Walker in Connection with the Formation and Operation of
the Company -- No assurance that Genesis will continue to guarantee
Minimum Rate Leases of its wholly owned subsidiaries."
(12) This facility was originally built in 1984 with an addition of three
skilled nursing beds in 1992. The Company has agreed to finance an
expansion of this facility to be undertaken by Genesis. See "--
Construction Loan Commitments and Related Purchase Contracts."
(13) Includes 32 assisted living units.
(14) This facility was originally built during the 1930's with an addition in
1988. A renovation of interior finishes was completed in 1993. (15) This
facility is estimated to have been built circa 1920. Additions were
completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building.
(16) Includes 27 assisted living units.
(17) This facility was built in 1960 and was expanded in 1983.
(18) Includes 76 assisted living units.
(19) This facility was built in 1977 and was expanded in 1991.
(20) This facility opened in 1969, was expanded in 1977 and was renovated in
1988.
(21) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
(22) For each building, represents the weighted average remaining lease term
for all rentable space in the applicable building as of September 30, 1997.
(23) The property consists of a condominium unit containing six of the eight
floors in the building which is located on the campus of the Delaware
County Memorial Hospital ("DCMH").
(24) The DCMH Medical Office Building is currently undergoing expansion,
including an expansion of two of the six floors included in the
condominium unit which the Company will acquire. This expansion is
expected to be completed in the first quarter of 1998 and will increase
the rentable square feet in the Company's condominium unit to 65,740
square feet. All of the rentable space to be added to the Company's
condominium unit has been pre-leased.
(25) This building was built in 1984, and a renovation of interior finishes was
completed in 1987. This building is currently undergoing expansion.
(26) Two subsidiaries of Genesis lease approximately 83% of the rentable space
in the Salisbury Medical Office Building. The remaining approximately 17%
of the rentable space in the building is leased by Quest Diagnostics,
Inc., a corporation unaffiliated with Genesis or the Company. At the
closing of the Offering, Genesis will enter into a new lease with the
Company with respect to the space leased by Genesis in the building. Each
of these leases will have an initial term of five years, subject to
renewals. The lease with Quest Diagnostics, Inc. expired on November 30,
1997. The Company expects to enter into a new two-year lease with Quest
Diagnostics.
(27) This building was originally constructed in 1934 with an addition in 1965.

52
<PAGE>

Lessees

The following is a description of the lessees of the Initial Properties to
be acquired by the Company. Unless otherwise indicated, all information is
given as of September 30, 1997. Genesis is subject to the reporting
requirements of the Securities and Exchange Commission (the "SEC") and files
annual reports containing audited financial information and quarterly reports
for the first three quarters of each fiscal year containing unaudited financial
information with the SEC. The information provided with respect to Genesis is
derived, for the limited purposes of this Prospectus, from filings made with
the SEC or has been furnished to the Company by Genesis. Privately held
companies have provided the Company with the information contained herein about
each company. The Company has evaluated the creditworthiness of the lessees
based on a review of financial and other information made available to it.
While the Company believes the information has been provided in good faith and
has no reason to believe that any of such information is inaccurate in any
material respect, the Company has not made and will not make an independent
investigation of such information.

Genesis Initial Properties

Genesis, headquartered in Kennett Square, Pennsylvania, is a leading
provider of healthcare and support services to the elderly. Genesis has
developed the Genesis ElderCareSM delivery model of integrated healthcare
networks to provide cost-effective, outcomes-oriented services to the elderly.
Through these integrated healthcare networks, Genesis provides basic healthcare
and specialty medical services to more than 100,000 customers in five regional
markets in the eastern United States in which over 3 million people over the
age of 65 reside. As of September 30, 1997, the networks included: 155 skilled
nursing facilities with approximately 21,600 beds; 16 primary care physician
clinics; approximately 96 physicians, physician assistants and nurse
practitioners; 12 institutional pharmacies and five medical supply distribution
centers serving over 52,000 beds; 28 community based pharmacies; certified
rehabilitation agencies providing services through over 375 contracts; and
eight home healthcare agencies. Genesis ElderCareTM services focus on the
central medical and physical issues facing the more medically demanding
elderly. By integrating the talents of physicians with case management,
comprehensive discharge planning and, where necessary, home support services,
Genesis provides cost-effective care management to achieve superior outcomes
and return customers to the community. Genesis believes that its orientation
toward achieving improved customer outcomes through its eldercare networks has
resulted in increased utilization of specialty medical services, high occupancy
of available beds, enhanced quality payor mix and a broader base of repeat
customers.

Genesis will operate 14 of the Initial Properties. These facilities will
become part of the Genesis ElderCareTM Networks which are comprised primarily
of assisted living, independent living and skilled nursing facilities;
pharmacy, therapy, medical supplies, home health and physician service
providers; and an expanding array of community-based initiatives, all located
within its primary geographic market concentrations. As part of its
community-based initiatives, Genesis is developing and introducing a
proprietary information technology system known as Netlink, Genesis ElderCareTM
toll-free telephone lines, adult day care and resource centers and marketing
campaigns. The Genesis ElderCareTM Networks are designed to assist elderly
individuals to lead a Full LifeSM through care coordination and the delivery of
an array of healthcare services. The Company believes that its association with
the array of services provided by the Genesis ElderCareTM Networks, along with
Genesis' marketing efforts, may result in higher occupancy rates and revenues
at its facilities.

Of the total 21 Initial Properties, two assisted living facilities and one
independent living facility are being acquired from and will be leased-back to
wholly owned subsidiaries of Genesis pursuant to Percentage Rent Leases, and
four skilled nursing facilities are being acquired from and leased-back to
wholly owned subsidiaries of Genesis pursuant to Minimum Rent Leases. The lease
for the remaining assisted living facility being acquired from and leased-back
to a wholly owned subsidiary of Genesis will provide for the payment of minimum
rent until such facility reaches Stabilized Occupancy, at which time the lease
will convert automatically to a Percentage Rent Lease. The Highgate facility
will be acquired from Senior LifeChoice Corp. and leased to Genesis pursuant to
a Minimum Rent Lease. Genesis initially will guarantee the performance of its
wholly owned subsidiaries under these leases. However, in the event Genesis
assigns one

53
<PAGE>

or more of the leases to a non-wholly owned subsidiary or a third party,
Genesis will not continue to guarantee the applicable lease. Any such
assignment would require the consent of the Company which may not be
unreasonably withheld. The Company will evaluate the creditworthiness of any
assignee in determining whether to provide its consent. Genesis is currently
negotiating an arrangement with a Philadelphia-based hospital system. If such
arrangement is negotiated successfully, the hospital would lease-back the Wayne
skilled nursing facility following its sale to the Company and Genesis would
manage the facility. In addition, Genesis would not guarantee the lease. The
obligations of Genesis under the guarantees are not subordinated to any
indebtedness of Genesis, but the guarantees are unsecured and may be
structurally subordinated to secured indebtedness of Genesis to the extent of
the assets securing such indebtedness. In addition, the guarantees do not limit
Genesis' ability to incur additional secured indebtedness. The Company also
will lease back to Crozer/Genesis four skilled nursing facilities being
acquired from CKHS. These leases will not be guaranteed by Genesis. See " --
Leases." The Company will acquire the Lacey Branch Office Building and
Professional Office Building I from Genesis. Genesis also is the principal
tenant of three of the office buildings being acquired by the Company.

54
<PAGE>

Summary Consolidated Financial Data of Genesis

The following table sets forth certain summary consolidated financial data
for Genesis at and for the periods indicated.

<TABLE>
<CAPTION>
At or For the
Nine Months Ended At or For the
June 30, Year Ended September 30,
----------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- -------------- ------------- -------------
(in thousands, except ratio, per share and operating data)
<S> <C> <C> <C> <C> <C>
Summary of Operations Data
Net revenues ........................ $ 816,270 $ 460,354 $ 671,469 $ 486,393 $ 388,616
Income from operations before
depreciation, amortization, lease
expense, interest and debenture
conversion expense .................. 145,500 87,313 128,269 93,253 69,373
Depreciation and amortization ...... 31,618 17,883 25,374 18,793 14,982
Lease expense ........................ 21,506 11,948 18,638 13,798 11,376
Interest expense, net ............... 28,506 19,104 24,926 20,366 15,305
Debenture conversion expense ......... -- 1,245 1,245 -- --
Earnings before extraordinary
items, cumulative effect of an
accounting change and
debenture conversion expense ...... 40,558 24,556 37,966 25,531 17,691
Net income ........................... $ 40,005 $ 23,759 $ 37,169 $ 23,608 $ 17,673
Per common share data (fully diluted): (1)
Earnings before extraordinary
items, cumulative effect of an
accounting change and
debenture conversion expense ...... $ 1.13 $ 0.91 $ 1.31 $ 1.03 $ 0.84
Net income ........................... $ 1.11 $ 0.88 $ 1.29 $ 0.97 $ 0.84
Weighted average shares of
common stock and equivalents . 36,275 29,359 31,130 28,452 24,820
Other Financial Data
Operating income before capital
costs as a percent of revenue (2) 17.8 % 19.0 % 19.1 % 19.2 % 17.8 %
Earnings before income taxes,
extraordinary items, cumulative
effect of an accounting change
and debenture conversion
expense as a percent of revenue 7.8 % 8.3 % 8.8 % 8.3 % 7.1 %
Long-term debt to equity ratio ...... 1.08 .59 .66 1.4 1.3
Capital Expenditures ............... $ 47,138 $ 26,151 $ 38,645 $ 24,719 $ 18,784
Operating Data
Payor mix (as a percent of patient service revenue):
Private and other .................. 39% 39% 39% 38% 41%
Medicare ........................... 24 23 25 21 16
Medicaid ........................... 37 38 36 41 43
Average owned/leased health
center beds ........................ 15,168 9,062 9,429 8,268 7,530
Occupancy percentage in owned /
leased eldercare centers ............ 90.9 % 92.5 % 92.6 % 91.9 % 91.9 %
Average managed life care units
and health center beds ............ 6,101 5,195 5,030 10,374 9,922
Balance Sheet Data
Working capital ..................... $ 220,827 $ 227,599 $ 155,491 $ 132,274 $ 66,854
Total assets ........................ 1,375,151 878,348 950,669 600,389 511,698
Long-term debt ..................... 644,725 295,897 338,933 308,052 250,807
Shareholders' equity ............... 599,530 500,238 514,608 221,548 195,466
</TABLE>

- ------------
(1) Reflects a three for two stock split on the common stock effective March
29, 1996.
(2) Capital costs include depreciation and amortization, lease expense,
interest expense and debenture conversion expense.

55
<PAGE>

The consolidated financial statements of Genesis as of September 30, 1996
and 1995 and for each of the years in the three-year period ended September 30,
1996, appear in Genesis' 1996 Annual Report to Shareholders which is
incorporated by reference in its Annual Report on Form 10-K for the year ended
September 30, 1996. The unaudited consolidated financial statements of Genesis
as of June 30, 1997, and for the three-and nine-month periods ended June 30,
1997 and 1996 appear Genesis' quarterly report on Form 10-Q for the quarterly
period ended June 30, 1997. The Company will provide without charge to each
person to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of the financial statements of Genesis referred
to above. Written requests for such copies should be directed to ElderTrust,
Attention: D. Lee McCreary, Jr., Vice President and Chief Financial Officer,
415 McFarlan Road, Suite 202, Kennett Square, PA 19348.

In June 1997, Genesis ElderCare Acquisition Corp. ("Acquisition Corp."), a
wholly owned subsidiary of Genesis ElderCare Corp. which, in turn, is owned 44%
by Genesis and owned 56% by The Cypress Group L.L.C. and TPG Partners II, L.P.,
commenced a tender offer for all of the outstanding shares of common stock of
Multicare. As of June 30, 1997, Multicare operated, among other assets, 124
skilled nursing facilities, 19 hospital-based subacute units and 11 assisted
living facilities. In October 1997 following completion of the tender offer,
Acquisition Corp. was merged into Multicare and Multicare, as the surviving
entity in the merger, became a wholly owned subsidiary of Genesis ElderCare
Corp. All of the Multicare facilities are now managed by Genesis and have
become part of the Genesis ElderCareSM Networks, which added a sixth principal
geographic market (Ohio/Western Pennsylvania). The total net revenues and net
income of Genesis for the nine months ended June 30, 1997 adjusted on a pro
forma basis for the merger of Acquisition Corp. and Multicare, are
approximately $1.3 billion and $38.0 million, respectively.

Set forth below is information regarding the Initial Properties being
acquired from Genesis.

Genesis -- Assisted Living Facilities

Heritage Woods. Heritage Woods is a two-story, apartment style 78,226
square foot assisted living facility located on 16.7 acres of land in Agawam,
Massachusetts. The Heritage Woods facility was developed by Genesis and has an
operational configuration for 122 residents. The Heritage Woods facility is
located on the Genesis "Heritage Campus" containing four skilled nursing
facilities, each of which is owned and operated by Genesis and which include in
excess of 500 beds for skilled nursing patients. The facility also is located
within approximately 10 miles of the Chapin Center, Willimansett Centers and
Governors Center skilled nursing facilities which, along with the Heritage
Campus, form part of the Genesis ElderCareTM Network which includes the
Heritage Woods facility. The facility opened in May 1997 and is in the initial
lease-up phase.

Willowbrook. Willowbrook is a three-story, apartment style 39,300 square
foot assisted living facility located on approximately two acres of land in
Clarks Summit, Pennsylvania. The Willowbrook facility was developed by Genesis
and has an operational configuration for 65 residents. The facility is located
on a campus with the Abington Manor skilled nursing facility which contains 120
beds and forms part of the Genesis ElderCareTM Network which includes the
Willowbrook facility. The facility opened in June 1996.

Riverview Ridge. Riverview Ridge is a two-story, apartment style
approximately 33,000 square foot assisted living facility located on 2.2 acres
of land in Wilkes-Barre, Pennsylvania. The facility is located on a campus with
the Riverstreet Manor skilled nursing facility which contains 122 beds. The
facility also is located approximately one mile from the Dorrance Manor skilled
nursing facility which, along with Riverstreet Manor, forms part of the Genesis
ElderCareTM Network which includes the Riverview Ridge facility. The facility
is currently leased by a partnership which is owned 51% by Genesis and 49% by a
third party, which third party also owns the fee interest in the land on which
the Riverview Ridge facility is located. Prior to the closing of the Offering,
Genesis will acquire the remaining 49% interest in the partnership which holds
the leasehold interest in the land and the facility, and the Company will
purchase the entire leasehold interest from Genesis and will purchase the fee
interest from the third party. The facility has an operational configuration
for 105 residents and opened in 1993.

Each of these assisted living facilities is part of a Genesis ElderCareTM
Network which provides the residents of such facilities with access to pharmacy
and rehabilitation services. Residents of the Heritage Woods facility also have
access to physician services through a Genesis ElderCareTM Network.

56
<PAGE>

Genesis -- Independent Living Facility

Pleasant View. Pleasant View is a four-story, 93,724 square foot
independent living facility located on approximately 12 acres of land in
Concord, New Hampshire. The facility is adjacent to the Pleasant View Center
skilled nursing facility which contains 180 beds. The facility also is located
approximately one mile from the Harris Hall skilled nursing facility which,
along with Pleasant View Center, forms part of the Genesis ElderCareTM Network
which includes the Pleasant View facility. Residents of the facility also have
access to pharmacy, rehabilitation and physician services through this Genesis
ElderCareTM Network. The Pleasant View facility is a converted mansion built in
1926, and the property includes a 3,284 square foot carriage house. The
facility has an operational configuration for 72 residents and was acquired by
Genesis in 1995.

Genesis -- Skilled Nursing Facilities

Rittenhouse Care Center. The Rittenhouse Care Center is a five-story, 183
bed, 88,450 square foot skilled nursing facility located on 0.4 acres of land
in Philadelphia, Pennsylvania. This facility was originally constructed during
the 1930's with two expansions in the 1970's. A renovation of interior finishes
was completed in 1993. The Company has agreed, pursuant to one of the
Construction Loan Commitments, to finance a renovation and expansion of the
Rittenhouse Care Center. Upon completion of this renovation and expansion, the
Rittenhouse facility will have 150 skilled nursing beds which will be leased to
Genesis pursuant to a Minimum Rent Lease and 45 assisted living units which
will be leased to Genesis pursuant to a Percentage Rent Lease. See "--
Construction Loan Commitments and Related Purchase Contracts." At September 30,
1997, the payor mix for this facility was approximately 8% Medicare, 89%
Medicaid and 3% private and other. This facility competes for patients with
other facilities in the Philadelphia metropolitan area including several
skilled nursing facilities operated by Genesis and not owned by the Company.

Lopatcong Care Center. Lopatcong Care Center is a two-story, 57,152 square
foot skilled nursing facility located on 2.5 acres of land in Phillipsburg, New
Jersey. This facility was built in 1984 and has 153 beds. At September 30,
1997, the payor mix for this facility was approximately 5% Medicare, 80%
Medicaid and 15% private and other. The Lopatcong Care Center competes for
patients with several other facilities including the Phillipsburg Care Center
as well as with two other Genesis skilled nursing facilities in Phillipsburg,
New Jersey.

Phillipsburg Care Center. Phillipsburg Care Center is a three-story,
46,741 square foot skilled nursing facility located on 1.4 acres of land in
Phillipsburg, New Jersey. This facility was built in the 1930's with an
addition in 1988 and has 92 beds, including 32 beds licensed for assisted
living. A renovation of interior finishes was completed in 1993. At September
30, 1997, the payor mix for this facility was approximately 12% Medicare, 50%
Medicaid, 5% SSI and 33% private pay and other. The Phillipsburg Care Center
competes for patients with several other facilities including the Lopatcong
Care Center and two other Genesis skilled nursing facilities located in
Phillipsburg, New Jersey.

Wayne Nursing and Rehabilitation Center. Wayne Nursing and Rehabilitation
Center is a one-story, 118 bed, skilled nursing facility located in Wayne,
Pennsylvania. The facility is estimated to have been built circa 1920 with
additions completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building. At September 30, 1997, the payor mix of this
facility was approximately 5% Medicare, 64% Medicaid and 31% private pay or
other. The Wayne facility competes for patients with the Harston Hall Nursing
and Convalescent Center and several other facilities in its market area
including at least five other skilled nursing facilities operated by Genesis
and not owned by the Company.

57
<PAGE>

Each of these skilled nursing facilities is part of a Genesis ElderCareTM
Network which provides the residents of such facilities with access to pharmacy
services, rehabilitation services and (except for the Lopatcong and
Phillipsburg facilities) physician services.

Genesis -- Medical Office and Bank Buildings

Professional Office Building I. Professional Office Building I ("POB I")
is a 39,972 square foot medical office building located on 0.7 acres of land in
Upland, Pennsylvania adjacent to the Crozer-Chester Medical Center, an acute
care hospital. POB I is 100% leased and its primary tenants consist of resident
physicians with Crozer-Chester Medical Center.

The Company will acquire the building and a leasehold interests in the
land on which POB I is located from Genesis for $4.0 million in cash. Genesis
acquired the building in June 1997 from CKHS for $4.0 million and entered into
a 40-year ground lease with Crozer-Chester Medical Center, a Pennsylvania
nonprofit organization ("CCMC") which is an affiliate of CKHS and which owns
the land on which POB I is located as well as the adjacent hospital.

Annual rent under the ground lease with CCMC is fixed at $75,000 per year,
net to CCMC. Pursuant to its terms, the ground lease will be automatically
extended for an additional 40 years, unless the Company gives at least 12
months prior written notice that it does not wish to extend the term. CCMC and
the Company also may mutually agree to extend the term of the ground lease for
an additional 40 years. If the term is not so extended and the ground lease
expires, CCMC is obligated to pay the Operating Partnership the then book value
(i.e., cost less depreciation) of all improvements then existing on the
property.

POB I will be managed by CKHS pursuant to a ten-year management agreement
between the Company and CKHS (subject to renewal). CCMC has a right of first
refusal, exercisable for 30 days, if the Company receives and pursues a
written, bona fide offer from a third party to purchase its interest in the
building and leasehold. If CCMC receives and pursues an offer to purchase the
land or any portion of the overall tract which includes not more than POB I,
POB II (which is adjacent to POB I) and/or the parking garage adjacent to POB
II, the Company has the right to elect to purchase such property within 30 days
of receipt of such offer from CCMC upon the same terms and conditions as
offered by the third party.

Lacey Branch Office Building. The Lacey branch office building is a 4,100
square foot building located on 2.0 acres of land in Forked River, New Jersey.
Ocean Federal Savings Bank, a federally chartered savings bank, is the sole
tenant of the building which was constructed in 1996. The Lacey branch office
building is subject to a mortgage held by Ocean Federal Savings Bank, which
will be assumed by the Company.

Senior LifeChoice Corp. Initial Properties

Senior LifeChoice Corp. ("Senior LifeChoice") is a privately held
Pennsylvania corporation whose principal stockholders include Michael R. Walker
and Gregory M. Stevens, who served as chief financial officer of Genesis from
1989 to 1992. Because of his stock ownership, Senior LifeChoice may be deemed
an affiliate of Mr. Walker. Three other executive officers of Genesis also hold
interests in Senior LifeChoice. Senior LifeChoice currently owns an 88%
interest in the Highgate at Paoli Pointe assisted living facility and a 97.5%
interest in The Woodbridge assisted living facility. The Company will acquire
100% of the interests in these two facilities. The Highgate facility will be
leased to Genesis pursuant to a Minimum Rent Lease, and the Woodbridge facility
will be leased-back to and operated by SLC, which is an affiliate of Senior
LifeChoice and of which Mr. Stevens is the managing member, pursuant to a
Minimum Rent Lease. See "-- Leases." None of Genesis' current directors or
executive officers has an interest in SLC. At September 30, 1997, SLC had total
assets of approximately $18.6 million and members' equity of approximately $1.0
million. For the nine months ended September 30, 1997, SLC had a net loss of
approximately $1.1 million.

Set forth below is certain information regarding the Initial Properties
being acquired from Senior LifeChoice.

58
<PAGE>

Genesis -- Assisted Living Facility

Highgate at Paoli Pointe. Highgate at Paoli Pointe is a four-story,
apartment style assisted living facility located on 2.0 acres of land in Paoli,
Pennsylvania. The facility is located adjacent to a condominium retirement
community and is located within approximately three miles of a Genesis skilled
nursing facility. The facility is recently constructed, has an operational
configuration for 82 residents and opened in 1995. Pursuant to the terms of a
regulatory agreement entered into between the partnership which currently owns
Highgate at Paoli Point and the Chester County Industrial Development
Authority, Genesis will be required to lease at least 20% of the residential
units in the facility to persons whose adjusted family income does not exceed
50% of the median gross income for families in the geographic region
surrounding the facility. Upon completion of the Offering, the Highgate
facility will be leased to and operated by Genesis and will become part of a
Genesis ElderCareTM Network. Residents of the facility will have access to
pharmacy, rehabilitation and physician services through this Genesis
ElderCareTM Network.

SLC -- Assisted Living Facility

The Woodbridge. The Woodbridge is a four-story, apartment style assisted
living facility located on 8.5 acres of land in Kimberton, Pennsylvania. The
facility is located adjacent to a condominium retirement community and is
located within fifteen miles of a Genesis skilled nursing facility. The
facility is recently constructed and has an operational configuration for 90
residents. The facility opened in 1996 and is in the initial lease-up phase.
Pursuant to the terms of a regulatory agreement entered into between the
partnership which owns Highgate at Paoli Point and the Chester County
Industrial Development Authority, SLC will be required to lease at least 20% of
the residential units in the facility to persons whose adjusted family income
does not exceed 50% of the median gross income for families in the geographic
region surrounding the facility.

CKHS Initial Properties

Set forth below is certain information regarding the Initial Properties
being acquired from CKHS.

Crozer/Genesis -- Skilled Nursing Facilities

In August 1997, Genesis and CKHS formed Crozer/Genesis, which is 50% owned
by each of Genesis and CKHS. As part of the Formation Transactions, the Company
will purchase from CKHS and lease back to Crozer/Genesis four skilled nursing
facilities included in the Initial Properties pursuant to a single Minimum Rent
Lease covering all four facilities.

Belvedere Nursing and Rehabilitation Center. The Belvedere Nursing and
Rehabilitation Center is a two-story, 53,000 square foot skilled nursing
facility located on 4.4 acres of land in Chester, Pennsylvania. This facility
was built in 1960 and expanded in 1983 and has 147 beds, including 27 beds
licensed for assisted living. This facility competes for patients with other
facilities in the Philadelphia metropolitan area including several skilled
nursing facilities operated by Genesis and not owned by the Company. At
September 30, 1997, the payor mix for this facility was approximately 1%
Medicare, 61% Medicaid and 38% private pay and other.

Chapel Manor Nursing and Rehabilitation Center. Chapel Manor Nursing and
Rehabilitation Center is a three-story, 88,000 square foot skilled nursing
facility located on 3.7 acres of land in Philadelphia, Pennsylvania. This
facility was built in 1973 and has 240 beds. This facility competes for
patients with other facilities in the Philadelphia metropolitan area including
several skilled nursing facilities operated by Genesis and not owned by the
Company. At September 30, 1997, the payor mix for this facility was
approximately 9% Medicare, 71% Medicaid and 20% private pay and other.

Harston Hall Nursing and Convalescent Home. Harston Hall Nursing and
Convalescent Home is a three-story, 58,600 square foot skilled nursing facility
located on 9.9 acres of land in Flourtown, Pennsylvania. This facility was
built in 1977 and expanded in 1991 and has 196 beds, including 76 beds licensed
for assisted living. The Harston Hall facility competes for patients with the
Wayne Nursing and Rehabilitation

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<PAGE>

Center and several other facilities in its market including at least one other
skilled nursing facilities operated by Genesis and not owned by the Company. At
September 30, 1997, the payor mix for this facility was approximately 2%
Medicare, 47% Medicaid, 16% SSI and 35% private pay and other.

Pennsburg Manor Nursing and Rehabilitation Center. Pennsburg Manor Nursing
and Rehabilitation Center is a three-story, 42,831 square foot skilled nursing
facility located on 6.1 acres of land in Pennsburg, Pennsylvania. This facility
was built in 1982 and has 120 beds. The Pennsburg Manor facility competes for
patients with several other facilities in its market area including at least
six skilled nursing facilities operated by Genesis and not owned by the
Company. At September 30, 1997, the payor mix for this facility was
approximately 3% Medicare, 76% Medicaid and 21% private pay and other.

Genesis will operate these facilities pursuant to a 12-year management
contract (with renewal if Crozer/Genesis continues to lease the facilities)
between Genesis and Crozer/Genesis. Commencing on September 1, 1997, Genesis
will receive a management fee with respect to the Chapel Manor and Harston Hall
facilities equal to 2.5% of the net revenues from such facilities. Following
completion of the Offering, Genesis will receive a fee equal to 5.4% of the net
operating revenues generated by all four of the facilities leased to
Crozer/Genesis. Commencing in the sixth year of the term, the management fee
will equal 5% of the net operating revenues generated by all four of the
facilities leased by Crozer/Genesis. Commencing on September 1, 1997 with
respect to the Chapel Manor and Harston Hall facilities and on the date of the
closing of the Offering with respect to the Belvedere and Pennsburg Manor
facilities, and continuing for a period of 24 months from such date for each
such facility, up to 30% of the management fee payable to Genesis with respect
to each such facility will be subordinated to lease payments due to the Company
with respect to such facility. In the event that certain financial covenants
for any facility are not met or satisfied at the end of the 24-month period
applicable to such facility, then up to 30% of the management fee payable with
respect to such facility shall continue to be subordinated to lease payments
due to the Company with respect to such facility, and such subordination shall
continue until such time as the financial covenants for the applicable facility
are met or satisfied. See "-- Leases -- Crozer/Genesis Minimum Rent Lease." Any
management fees deferred pursuant to the subordination provisions of the
management agreement between Crozer/Genesis and Genesis shall thereafter be
paid monthly from monies generated by the applicable facility (provided that
following such payments, the financial covenants for such facility will be met
or satisfied) until the deferred fees are paid in full.

Pursuant to an agreement between Genesis and CKHS, Genesis will make
available to Crozer/Genesis a line of credit of up to $5 million until such
time as Crozer/Genesis receives new licenses for the four facilities to be
leased by Crozer/Genesis from the Company, at which time the obligation of
Genesis to fund such line of credit will be reduced to $3 million. Any amounts
payable to Genesis by Crozer/Genesis under this line of credit will not be
subordinated to the lease payment obligations of Crozer/Genesis under its
Minimum Rent Lease with the Company and will be secured by a first lien on
accounts receivable.

Crozer/Genesis also will enter into a Network Services Agreement with
Genesis for the four facilities for a term of 12 years (with renewal if
Crozer/Genesis continues to lease the facilities). Genesis will receive a fee
equal to $50 per month (subject to adjustment for inflation) for each bed in
these facilities, provided that the total amount of such fees together with the
amount payable to Genesis under the management agreement between Crozer/Genesis
and Genesis may not exceed 6% of the total net operating revenues for the four
facilities. Fees payable to Genesis under the Network Services Agreement will
not be subordinated to lease payments payable to the Company. Pursuant to the
Network Services Agreement, the four facilities leased to Crozer/Genesis will
become part of a Genesis ElderCareTM Network. Residents of the facilities will
have access to pharmacy, rehabilitation and physician services through this
Genesis ElderCareTM Network.

CKHS -- Medical Office Building Condominium Unit

Delaware County Memorial Office Building. The Company will acquire a
condominium unit containing six of the eight floors of a medical office
building located on the campus of DCMH. The condominium unit initially will
contain 60,740 square feet of rentable office space and will increase to 65,700
rentable square feet upon completion of the current expansion of the DCMH
medical office building in the first quarter of 1998 In addition to the
expansion project, a portion of the rentable space in the planned condominium
unit is

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currently undergoing renovation, and all such renovations are expected be
completed within 18 months. All of the office space in the planned condominium
unit which is currently rentable is leased, primarily to resident physicians
with DCMH, and it is expected that all additional space that becomes available
in the DCMH medical office building upon completion of the expansion and the
renovations will be fully leased to new or existing tenants as such space
becomes available.

Pursuant to the condominium declaration and bylaws, the Company, as the
owner of approximately 65% of the space in the condominium building, will
control the DCMH medical office building condominium association, subject to
certain rights of CKHS, as the minority owner in the condominium, to approve
certain major transactions. The DCMH medical office building (including the
Company's condominium unit) will be managed by CKHS pursuant to a ten-year
management agreement between the condominium association (subject to renewals).
CKHS has a right of first refusal, exercisable for 30 days, if the Company
receives and pursues a written, bona fide offer from a third party to purchase
the condominium unit. If CKHS receives and pursues an offer to purchase the
land or any part of the DCMH medical office building not included in the
Company's condominium unit, the Company has the right to elect to purchase such
property within 30 days of receipt of such offer from CKHS upon the same terms
and conditions as offered by the third party.

Other Initial Properties

The Initial Properties also include one skilled nursing facility, two
medical office buildings and a clinic being acquired from third parties other
than Genesis. Each of the medical office buildings and clinic will be acquired
by the Company subject to the existing leases. Genesis is the principal tenant
in each of these buildings. Messrs. Walker and Stevens and one other current
executive officer of Genesis each own a one-sixth interest in the Salisbury
Medical Office Building and Mr. Walker owns a 50% managing partner interest in
the entity which owns the Windsor Office Building and the Windsor Clinic. Set
forth below is certain information regarding these properties.

Age Institute of Florida -- Skilled Nursing Facility

Silverlake Nursing and Rehabilitation Center. Silverlake Nursing and
Rehabilitation Center is a two-story, 174 bed skilled nursing facility located
in Bristol, Pennsylvania. This facility was built in 1969, expanded in 1977 and
renovated in 1988. The Silverlake facility competes for patients with several
other facilities in its market area, including at least five skilled nursing
facilities operated by Genesis and not owned by the Company. At September 30,
1997, the payor mix for this facility was approximately 7% Medicare, 81%
Medicaid and 12% private pay and other.

This facility is owned by a wholly-owned subsidiary of The AGE Institute,
a Pennsylvania nonprofit corporation, with which Genesis has had a
long-standing relationship. The Company will purchase the stock of The AGE
Institute subsidiary that owns the Silverlake Facility and lease the facility
to a newly formed subsidiary of The Age Institute of Florida, which is also a
subsidiary of The AGE Institute, under a Minimum Rent Lease. The facility will
continue to be managed by Genesis pursuant to a long-term management contract
between Genesis and the Age Institute of Florida. All but 3 1/2% of the 6%
management fee payable to Genesis will be subordinated to the lease payment
obligations under the Minimum Rent Lease entered into by the Age Institute of
Florida subsidiary and the Company. Pursuant to the management agreement
between Genesis and the Age Institute of Florida, the Silverlake facility will
continue to be part of a Genesis ElderCareTM Network. Residents of the facility
will have access to pharmacy services and rehabilitation services (but not
physician services) through this Genesis ElderCareTM Network.

Other Initial Properties -- Medical Office Buildings

Salisbury Medical Office Building. The Salisbury Medical Office Building
is a 10,961 square foot office building located on 1.4 acres of land in
Salisbury, Maryland. Messrs. Walker and Stevens and one other current executive
officer of Genesis each own a one-sixth interest in the Salisbury Medical
Office Building, which was built in 1984. Mr. Walker holds a note which is
secured by the Salisbury Medical Office Building Property in the amount of
approximately $733,000. This note will be paid off by the Operating Partnership
in connection with the acquisition of the property. In addition, the entity
which owns the Salisbury Medical Office Building made two loans to Mr. Romanov
totaling $450,000. One of these loans was previously repaid by Mr. Romanov and
the other will be repaid by Mr. Romanov at or prior to the closing of the
Offering. See "Certain Relationships and Related Transactions."

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<PAGE>

Windsor Office Building. The Windsor Office Building is a 2,100 square
foot office building located on 0.3 acres of land in Windsor, Connecticut which
serves as a regional headquarters office of Genesis. The office building was
built in 1934. Mr. Walker owns a 50% managing partner interest in the Windsor
Office Building. In addition, Mr. Walker is the lender under a $1.2 million
loan secured by the Windsor Office Building and Windsor Clinic properties. This
loan will be repaid by the Operating Partnership in connection with the
acquisition of these properties.

Windsor Clinic and Training Facility. The Windsor Clinic and Training
Facility are connected buildings located on a piece of land adjacent to the
Windsor Office Building. The Windsor Clinic and Training Facility include 9,662
rentable square feet and were built in 1996. Mr. Walker owns a 50% managing
partner interest in the Windsor Clinic and Training Facility. The lessees in
these buildings are two subsidiaries of Genesis. The land on which the Windsor
Clinic and Training Facility buildings are situated is leased from Genesis
pursuant to a long-term, triple net ground lease at an annual rent of $1.00,
and the Company will acquire this leasehold interest and assume the ground
lease obligations.

Initial Property Acquisition Agreements

The Company will acquire each of the Initial Properties pursuant to an
acquisition agreement between the Company and the current owner of an Initial
Property or one or more acquisition agreements among the Company and the
holders of all interests in the current owner of an Initial Property (each an
"Initial Property Acquisition Agreement"). These acquisitions are subject to
all of the terms and conditions of such agreements. The following is a summary
of certain provisions of such agreements, does not purport to be complete and
is qualified in its entirety by reference to such agreements. Copies of the
forms of the Initial Property Acquisition Agreements, along with the Initial
Property Acquisition Agreements entered into with Genesis, have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.

The transfer of the ownership of each Initial Property is subject to the
completion of the Offering as well as the normal and customary conditions to
the closing of business transactions. In the case of the six Initial Properties
with respect to which the Company will assume outstanding mortgage
indebtedness, the consents of the mortgagees are also required. The Company
believes that all such consents will be obtained prior to the consummation of
the Offering. However, there is a possibility that the transfer of title to
such properties may have to be delayed for a short period while documents are
finalized. The Operating Partnership will assume certain debt obligations
relating to specific Initial Properties and all obligations relating to each
Initial Property which arise after the transfer thereof to the Company. The
acquisition of the ownership of three of the Initial Properties is structured
as a purchase by the Operating Partnership of ownership interests in the
current owners thereof, rather than the transfer of assets by such owners. As a
result of this structure, the Operating Partnership will succeed to all
liabilities, whether known or unknown, contingent or otherwise, of the current
owners.

The Initial Property Acquisition Agreements contain representations and
warranties from each transferor of an Initial Property or an interest in an
Initial Property, as applicable, regarding matters such as title to the
applicable Initial Property and, where applicable, the interest being
transferred, the absence of liens and encumbrances thereon, title to personal
property utilized at the Initial Property, leases or other occupancy agreements
and the rents payable thereunder, environmental matters and other
representations and warranties customarily found in similar documents. In
general, these representations and warranties will survive the closing of the
Offering for a period of at least one year except for representations and
warranties relating to environmental matters which will survive the closing of
the Offering for a period of at least two years. With respect to the Property
Acquisition Agreement between the Company and CKHS relating to the four skilled
nursing facilites to be leased to Crozer/Genesis, all representations and
warranties (including representations and warranties relating to environmental
matters) will survive the closing of the Offering for one year. With respect to
those Initial Properties to be acquired from Genesis, Genesis will indemnify
the Company against a breach of a representation and warranty contained in the
Initial Property Acquisition Agreements relating to such Initial Properties,
provided that Genesis' indemnification obligations will be limited, on an
aggregate basis, to 20% of the purchase price of such properties. With respect
to the Initial Property known as Salisbury Medical Office Building, the
liability of the six current holders of equity interests in this Initial
Property for a

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breach of a representation and warranty will be several and not joint and will
also be limited to 20% of the aggregate purchase price of such property. With
respect to the Initial Properties known as Windsor Office Building and Windsor
Clinical Training Facility, the current owner of these properties will be
liable for a breach of a representation and warranty; this liability will be
limited to 20% of the purchase price of each such property on a property by
property basis. The Company believes that the foregoing limitations on
indemnification are comparable to those in other real estate transactions.

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Term Loans, Construction Loans, Penn Mortgage and Florida Facilities Note

The following table sets forth certain information regarding the Term
Loans, the Construction Loans, the Penn Mortgage and the Florida Facilities
Note. Facilities under development are subject to various risks and
uncertainties, including zoning, construction and related development risks.
See "Risk Factors -- Making Loans on Development Projects." The project/owner
borrowers include subsidiaries of Genesis, Lake Washington, subsidiaries of
SLC, a subsidiary of the Age Institute of Florida and Philadelphia Suburban
Development Corporation. There can be no assurance that any of the Initial
Assisted Living Development Facilities that secure the Construction Loans will
be completed on a timely basis or at all. The Company has agreed or has the
option to purchase the nine facilities that secure the Term Loans and the
Construction Loans at the end of the loan terms or at such time as each
facility achieves Stabilized Occupancy. See "-- Purchase Contracts and Options
for Term Loan and Construction Loan Properties."

<TABLE>
<CAPTION>
Loan Amount
Expected to be
Number of Funded at % of Initial Interest
Security Property Location Beds(1) Closing Investments Rate
- ------------------------------------- ------------------ ----------- ---------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities
Harbor Place Melbourne, FL 120 $ 4,728 2.5% (3)
Mifflin Shillington, PA 67 5,164 2.7 (3)
Coquina Center Ormond Beach, FL 80 4,577 2.4 (3)
Lehigh Macungie, PA 70 6,665 3.5 10.50%
Berkshire Reading, PA 64 6,269 3.3 10.50%
--- -------- -----
Subtotal/Avg. 401 $ 27,403 14.4%
=== -------- -----
Construction Loans - Initial Assisted Living Development Projects:
Oaks Wyncote, PA 52 $ 1,500 0.8% (3)
Montchanin Wilmington, DE 92 2,000 1.0 10.50%
Mallard Landing Salisbury, MD 60 1,702 0.9 (3)
Sanatoga Pottstown, PA 70 3,000 1.6 10.50%
--- -------- -----
Subtotal/Avg. 274 $ 8,202 4.3%
=== -------- -----
Penn Mortgage:
Personal Care Facility (Unoccupied) Philadelphia, PA 180 800 0.4 10.25%
-------- -----
Florida Facilities Note(7):
11 skilled nursing facilities Florida 1,219 7,406 3.9% 13.00%
-------- -----
Total Loan Investments 43,811 23.0%
-------- -----
Total Initial Investments $191,132 100.0%
======== =====

<CAPTION>
Purchase
Initial Development Contract/ Project/Owner
Security Property Maturity Loan Amount(2) Status Option Borrower
- ------------------------------------- ---------- ---------------- ------------- ----------- ----------------------
(years) (in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities
Harbor Place 2 $ 4,728 Lease-up Contract Lake Washington
Mifflin 2 5,164 Lease-up Contract Genesis (4)
Coquina Center 2 4,577 Lease-up Contract Genesis (4)
Lehigh 2 6,665 Lease-up Contract Multicare (5)
Berkshire 2 6,269 Lease-up Contract Multicare (5)
-------
Subtotal/Avg. 27,403
-------
Construction Loans - Initial Assisted Living Development Projects:
Oaks 3 5,380 Constr. Contract Genesis (4)
Montchanin 3 9,500 Constr. Option SLC (6)
Mallard Landing 3 7,564 Zoned Option SLC (6)
Sanatoga 3 6,511 Constr. Contract Multicare (5)
-------
Subtotal/Avg. 28,955
-------
Penn Mortgage:
Personal Care Facility (Unoccupied) 1 800 N/A N/A Phil. Sub. Dev. Corp.
-------
Florida Facilities Note(7):
11 skilled nursing facilities 10 7,406 N/A N/A Age Inst. of Fl. (8)
-------
Total Loan Investments $64,564
-------
Total Initial Investments
</TABLE>

- --------
(1) Based on the number of private and semi-private beds currently available.
(2) Represents the total committed loan amount under the applicable Term Loan
or Construction Loan.
(3) The interest rates on these loans will be set at the closing of the
Offering at a fixed rate of interest equal to 400 basis points over the
then applicable three-year U.S. Treasury Note rate, except for the
Construction Loan for the Oaks development project which will have a fixed
interest rate equal to 350 basis points over the then applicable
three-year U.S. Treasury Note rate.
(4) The project owner/borrower of these projects will be a wholly owned
subsidiary of Genesis. Genesis will guarantee the loans made to such
subsidiaries.
(5) The project owner/borrower of these projects are subsidiaries of Multicare.
Multicare will guarantee 20% of the principal amount of the loans.
(6) The project owner/borrower of these projects will be wholly owned
subsidiaries of SLC. SLC will guarantee the loans made to such
subsidiaries.
(7) See "Business and Properties -- The Florida Facilities Note" for additional
information. The amount shown in the table represents the Company's
economic interest in the Florida Facilities Note on a pre-tax basis.
(8) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.

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Term Loans

The Company will make the Term Loans with respect to the three Lease-up
Assisted Living Facilities owned by Genesis or in which Genesis has an interest
upon completion of the Offering. The three Lease-up Assisted Living Facilities
are recently completed or nearly complete development projects. The notes
relating to the Term Loans will bear interest at fixed rates equal to the rate
on three-year U.S. Treasury Notes in effect at the closing of the Offering plus
400 basis points. The Term Loans will be fully secured by the real estate, as
improved, as well as by related collateral. Each Term Loan will be due and
payable upon the maturity of the Term Loan (which will occur two years from the
date of the Term Loan, subject to the right of Genesis, upon payment of a 0.5%
fee, to extend the term in each case for up to one additional year) or at such
time as the facility reaches Stabilized Occupancy. The Company has agreed to
purchase from and leaseback to Genesis the three properties securing the Term
Loans. See "-- Purchase Contracts and Options for Term Loan and Construction
Loan Properties." Genesis will guarantee these loans.

Set forth below is information regarding the Lease-up Assisted Living
Facilities that secure the Term Loans.

Genesis - Lease-up Assisted Living Facilities

Harbor Place. Harbor Place is a two-story, apartment style 40,000 square
foot assisted living facility located on 6.0 acres of land in Melbourne,
Florida. The facility is located within approximately three miles of a 179 bed
skilled nursing facility owned and operated by Genesis. The Harbor Place
facility is 49% owned by Genesis and 51% owned by a third party who developed
the property. The facility has an operational configuration for 120 residents
and opened in December 1996.

Mifflin. Mifflin is a three-story, apartment style approximately 43,000
square foot assisted living facility located on approximately 12 acres of land
in Shillington, Pennsylvania. The facility is adjacent to an existing Genesis
skilled nursing facility containing 136 beds. The facility is currently located
on the same parcel of land as the adjacent skilled nursing facility, which
parcel will be subdivided by Genesis prior to the purchase of the Mifflin
facility by the Company. The Mifflin facility is being developed by Genesis.
The facility has an operational configuration for 67 residents and opened in
October 1997.

Coquina Center. Coquina Center is a two-story, apartment style 44,716
square foot assisted living facility located on 6.9 acres of land in Ormond
Beach, Florida. The facility is located adjacent to a 120-bed skilled nursing
facility owned and operated by Genesis. The Coquina Center facility is being
developed by Genesis. The facility, which has an operational configuration for
80 residents, is scheduled to open in January 1998.

Multicare - Lease-up Assisted Living Facilities

Each of the Term Loans made to Multicare will have a fixed annual rate of
interest of 10.5% and will mature two years from the date of the loan for the
facility, subject to the right of Multicare to extend the term for up to four
one-year extension periods in the event the facility has not reached Stabilized
Occupancy as of the second anniversary of the loan (or at the end of the first
one-year extension period, if applicable). Multicare will guarantee 20% of the
principal amount of these Term Loans. The Company will have the obligation to
acquire each assisted living facility from Multicare during the term of the
applicable Term Loan at such time as the applicable facility reaches Stabilized
Occupancy. See "-- Purchase Contracts and Options for Term Loan and
Construction Loan Properties."

Genesis will manage all Multicare assisted living facilities, including
the two facilities which secure the Term Loans made to Multicare, pursuant to a
management agreement between Multicare and Genesis. Genesis will receive a fee
in the amount of 6% of the net operating revenues generated by all the
Multicare facilities managed by it, subject to certain subordination provisions
in favor of creditors of Multicare other than the Company. The management fee
will not be subordinated to lease payments or loan payments payable by
Multicare to the Company.

Set forth below is information regarding the assisted living facilities
owned by subsidiaries of Multicare that will secure the Term Loans.

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<PAGE>

Lehigh Manor. Lehigh Manor is a two-story, apartment style 58,618 square
foot assisted living facility located on 8.5 acres of land in Macungie,
Pennsylvania. The facility will have an operational configuration for 70 units,
including 14 beds in an Alzheimer's unit. The facility is located adjacent to a
130-bed skilled nursing facility owned by Multicare. The Lehigh Manor facility
is being developed by Multicare and opened in September 1997.

Berkshire Manor. Berkshire Manor is a two-story, apartment style 54,554
square foot assisted living facility located on 9.8 acres of land in Reading,
Pennsylvania. The facility will have an operational configuration for 64 units,
including 14 beds in an Alzheimer's unit. The facility is located adjacent to a
130-bed skilled nursing facility owned by Multicare. The Berkshire Manor
facility is being developed by Multicare and opened in September 1997.

Construction Loans

The Company through the Operating Partnership will make Construction Loans
to develop three assisted living facilities, one of which the Company has
agreed to acquire from Genesis and two of which the Company has an option to
purchase from SLC. In each case, the Construction Loan will be in the amount of
90% of the total project costs, based on an approved budget for each project.
The remaining 10% of the budgeted costs will be covered by an owner's equity
contribution in land, cash or other form acceptable to the Company. Each
Construction Loan will be evidenced by a Construction Mortgage Note, and will
be secured by the property, as improved, as well as by other assets of the
borrower in connection with the project, such as, but not limited to,
assignments of agreements affecting real estate as well as an assignment of the
Residential Living Agreements entered into in connection with the project.

Genesis - Initial Assisted Living Development Project

Genesis formed its own development group in 1990. The development group
currently has four project managers who provide various development services in
the areas of land acquisition, zoning, oversight of design, bidding and
construction management. The Genesis development group has developed over $170
million of construction projects, including eight assisted living facilities,
three continuing care retirement communities, the Genesis corporate
headquarters currently under construction, two regional, institutional pharmacy
buildings and certain capital improvements at Genesis' facilities. Genesis'
construction of assisted living facilities has generally focused on locations
in close proximity to Genesis' skilled nursing facilities. In developing
assisted living facilities, Genesis considers various factors, including
population, income and age demographics, the estimated level of market need,
the breadth of Genesis' existing strategic relationships in the primary market
area, target site visibility, proximity to complementary healthcare services,
availability of adequately trained personnel and probability of acquiring an
acceptable site and receiving zoning approval. The primary milestones in the
development process are (i) marketing study and financial feasibility analysis,
(ii) site acquisition, (iii) subdivision and/or zoning and site plan approval
and (iv) completion of construction and licensing approval. Following site
acquisition, subdivision and zoning approvals generally take six months to nine
months to receive, and facility construction and licensing generally take one
year. Depending on the size of a facility and market conditions a facility
should reach Stabilized Occupancy within 12 to 24 months following opening. The
timing and cost of a facility varies considerably based on a variety of
site-specific and regional cost factors.

The Company will make one Construction Loan to Genesis to fund
construction of the Initial Assisted Living Development Project owned by
Genesis. The note will bear interest at a fixed rate equal to the rate on
three-year U.S. Treasury Notes in effect as of the closing of the Offering plus
350 basis points, and will mature on the third anniversary of the Construction
Loan, subject to the right of Genesis, upon payment of a 0.5% fee, to extend
the term for up to two one-year extension periods in the event the facility has
not reached Stabilized Occupancy as of such third anniversary (or at the end of
the first one-year extension period, if applicable). Payment of all sums due
under the Construction Loan, as well as the full and timely performance of the
borrower's obligations and completion of the improvements on the property will
be guaranteed by Genesis.

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<PAGE>

Pursuant to the Construction Loan, the Company will be obligated to
acquire the Initial Assisted Living Development Project owned by Genesis upon
the earlier of the maturity of the Construction Loan (as extended if Genesis
elects to extend the maturity of the Construction Loan as described above) or
at such time as the facility reaches Stabilized Occupancy. See "-- Purchase
Contracts and Options for Term Loan and Construction Loan Properties."

Set forth below is information regarding the Initial Assisted Living
Development Project owned by Genesis.

The Oaks. The Oaks assisted living development project consists of two,
two-story, 27 foot high wings which are being added to an existing three-story
mansion located on 4.5 acres of land in Wyncote, Pennsylvania. Upon completion,
the Oaks facility will include approximately 40,400 square feet of space and
will have an operational configuration for 52 residents, including residents
with Alzheimer's disease or other forms of memory impairment. The mansion will
be used as the main entrance and will be renovated to include common living
areas and staff offices. The Oaks is located within ten miles of three skilled
nursing facilities owned and operated by Genesis. Construction of this project
commenced in August 1997 and is expected to be completed in July 1998. The
estimated cost of this project is $6.0 million, and the Company's loan
commitment is $5.4 million.

Multicare - Initial Assisted Living Development Project

The Company will make one Construction Loan to Multicare to fund
construction of an assisted living facility being developed by Multicare. The
note will bear interest at a fixed annual rate of 10.5%, and will mature on the
third anniversary of the loan, subject to the right of Multicare to extend the
term for up to three one-year extension periods in the event the facility has
not reached Stabilized Occupancy as of such third anniversary (or at the end of
the first one-year extension period, if applicable). Multicare will guarantee
20% of the principal amount of such Construction Loan. Pursuant to this
Construction Loan, the Company will have the obligation to acquire the assisted
living facility being developed by a subsidiary of Multicare at any time prior
to maturity of the Construction Loan (as extended if the subsidiary of
Multicare elects to extend the maturity of the loan as described above) after
the facility reaches Stabilized Occupancy. See "-- Purchase Contracts and
Options for Term Loan and Construction Loan Properties."

Genesis will manage all Multicare assisted living facilities, including
the facility securing this Construction Loan, pursuant to a management
agreement between Multicare and Genesis. Genesis will receive a fee in the
amount of 6% of the net operating revenues generated by all the Multicare
facilities managed by Genesis, subject to certain subordination provisions in
favor of creditors of Multicare other than the Company. The management fee will
not be subordinated to lease payments or loan payments payable by Multicare to
the Company.

Set forth below is information regarding the assisted living facility
being developed by a subsidiary of Multicare.

Sanatoga Manor. Sanatoga Manor will be a two-story, apartment style 58,618
square foot assisted living facility located on 4.09 acres of land in
Pottstown, Pennsylvania. The facility will have an operational configuration
for 70 residents, including 14 beds in an Alzheimer's unit. The facility is
located adjacent to a 130-bed skilled nursing facility owned by Multicare.
Construction of this project commenced in the second quarter of 1997 and is
expected to be completed in the second quarter of 1998. The estimated cost of
this project is $7.2 million, and the Company's loan commitment is $6.5
million.

SLC - Initial Assisted Living Development Projects

To date, SLC or affiliated entities have developed and completed
construction of two assisted living development projects, both of which are
being acquired by the Company as Initial Properties.

Genesis recently made a construction loan to a subsidiary of SLC to fund
the construction of the Montchanin Initial Assisted Living Development Project.
At the closing of the Offering, the Company will make a Construction Loan to
this subsidiary of SLC which will use the funds provided in the initial draw
under such Construction Loan to repay the loan made by Genesis, and the Company
also will make a

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Construction Loan to another subsidiary of SLC to fund construction of the
Mallard Landing Initial Assisted Living Development Project. The notes for the
Construction Loans will bear interest at a fixed rate equal to 10 1/2%, in the
case of the Montchanin facility, and at a fixed rate of interest equal to the
rate on three-year U.S. Treasury Notes in effect as of the closing of the
Offering plus 400 basis points, in the case of the Mallard Landing facility,
and each of these notes will mature on the third anniversary of each
Construction Loan, subject to the right of the applicable subsidiary of SLC,
upon payment of a 0.5% fee, to extend the term for up to two one-year extension
periods in the event the applicable facility has not reached Stabilized
Occupancy as of such third anniversary (or at the end of the first one-year
extension period, if applicable). Payment of all sums due under the
Construction Loans, as well as the full and timely performance of the
borrowers' obligations and completion of the improvements on the properties,
will be guaranteed by SLC.

Pursuant to the Construction Loans, the Company will have the option to
acquire each of the two Initial Assisted Living Development Projects owned by
subsidiaries of SLC upon the maturity of the applicable Construction Loan for
the project (as extended if the applicable subsidiary of SLC elects to extend
the maturity of such Construction Loan as described above) or at any time prior
to such maturity after the facility reaches Stabilized Occupancy. In the event
the Company exercises its option to acquire either of these facilities during
an extension period, the Company will rebate to the applicable subsidiary of
SLC a pro rata portion of the 0.5% extension fee for such extension period.
Upon acquisition of either of the Initial Living Development Projects owned by
subsidiaries of SLC, the Company will leaseback the facility to SLC or a
subsidiary of SLC under a Minimum Rent Lease and SLC will manage the facility.
All management fees payable to SLC with respect to these facilities will be
subordinated to the obligations of such subsidiaries of SLC under the leases
with the Company. See "-- Leases -- SLC Minimum Rent Leases."

Certain of the funds used by SLC to pursue these Initial Assisted Living
Development Projects were provided by Genesis pursuant to one or more loans to
SLC. Sources of funds available to SLC to make payments on or to repay these
loans will be its operating income from the two Initial Properties that it will
lease from the Company and the gain after repayment of a portion of the Genesis
loan, if any, realized by SLC upon the sale to the Company of the two Initial
Assisted Living Development Projects owned by SLC and any other assisted living
development projects sold by SLC in the future. In addition, the Minimum Rent
Leases with subsidiaries of SLC will include covenants requiring SLC to
maintain a net worth equal to at least $5 million, including any Units received
by SLC from its members and any subordinated loans outstanding to SLC from
Genesis for development purposes under the subordinated loans and valuing SLC's
assets at fair market value net of taxes.

Set forth below is information regarding the Initial Assisted Living
Development Projects owned by subsidiaries of SLC.

Montchanin. This assisted living development project, located on 6.1 acres
of land in Wilmington, Delaware, consists of a three-story, apartment style
facility with an operational configuration for 92 residents, including
residents with Alzheimer's disease or other forms of memory impairment. The
facility is located adjacent to a condominium retirement community which is
under construction and is located within ten miles of a Genesis skilled nursing
facility. Construction of this project commenced in June 1997 and is expected
to be completed in the second quarter of 1998. The estimated cost of this
project is $10.5 million, and the Company's loan commitment is $9.5 million.

Mallard Landing. The Mallard Landing assisted living development project
is an apartment style assisted living facility, together with a 15,000 square
foot attached community center, to be located on 8.7 acres of land in
Salisbury, Maryland. The facility will have an operational configuration for 60
residents. The Mallard Landing facility is located within three miles of a
Genesis skilled nursing facility containing approximately 300 beds. The Company
has committed to finance the development of the assisted living facility and
the community center, which will be used by residents of the assisted living
facility and an independent living condominium project to be located on an
adjoining 20 acre tract of land. The independent living condominium project, as
well as a medical office building to be constructed on two acres to be
subdivided from the original 30 acre parcel and occupied by Genesis following
completion of construction, will be financed by a third party lender. Zoning
approvals for this project were obtained in July 1997 and

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construction of the assisted living facility and the attached community center
are expected to commence in the first or second quarter of 1998. The estimated
cost of the assisted living facility and the community center is $8.4 million,
and the Company's loan commitment is $7.6 million.

Purchase Contracts and Options for Term Loan and Construction Loan Properties

The Company has agreed to purchase and leaseback the four assisted living
facilities that will secure Term and Construction Loans made to Genesis and to
Lake Washington in which Genesis owns a 49% interest (i) upon the earlier of
the maturity of the applicable Term Loan (which maturity shall occur on the
second anniversary of the date of such Term Loan, subject to the right of
Genesis, upon payment of a 0.5% fee, to extend the term for one additional year
in the event the applicable Lease-up Assisted Living Facility has not reached
Stabilized Occupancy as of such second anniversary of the date of such Term
Loan), or at such time as the applicable Lease-up Assisted Living Facility
reaches Stabilized Occupancy, for the Lease-up Assisted Living Facilities, and
(ii) upon the earlier of the maturity of the Construction Loan for the Initial
Assisted Living Development Project (which maturity shall occur on the third
anniversary of the date of the Construction Loan for such project, subject to
the right of Genesis, upon payment of a 0.5% fee, to extend the term for up to
one-year extension periods in the event the project has not reached Stabilized
Occupancy as of such third anniversary of the date of the Construction Loan (or
at the end of the first one-year extension period, if applicable)) or at such
time as the facility reaches Stabilized Occupancy, for the Initial Assisted
Living Development Project. The cash purchase price for each Lease-up Assisted
Living Facility will be an amount which will result in an initial annual yield
of 12.0% to the Company (determined by capitalizing at such rate either (i) in
the case of a facility which has reached Stabilized Occupancy as of the date of
purchase by the Company, an assumed net operating income for such facility,
based on actual gross revenues and operating expenses for such facility during
the three months ended immediately prior to the purchase of such facility by
the Company, annualized and adjusted to reflect a long-term occupancy of 92%,
less an assumed 5% management fee, or (ii) in the case of a facility which has
not reached Stabilized Occupancy as of the date of purchase by the Company, the
actual net operating income for such facility for the three months ended
immediately prior to the purchase of such facility by the Company, annualized,
less an assumed 5% management fee). The cash purchase price for the Initial
Assisted Living Development Project to be acquired by the Company from Genesis
will be an amount which will result in an annual yield to the Company equal to
the rate on ten-year U.S. Treasury Notes as of the date of the purchase of such
Initial Assisted Living Development Project plus 525 basis points (determined
by capitalizing at such rate either (i) if the facility has reached Stabilized
Occupancy as of the date of purchase by the Company, an assumed net operating
income for the facility, based on actual gross revenues and operating expenses
for the facility for the three months ended immediately prior to the purchase
of the facility by the Company, annualized and adjusted to reflect a long-term
occupancy of 92%, less an assumed 5% management fee, or (ii) if the facility
has not reached Stabilized Occupancy as of the date of purchase by the Company,
the actual net operating income for such facility for the three months ended
immediately prior to the purchase of the facility by the Company, annualized,
less an assumed 5% management fee). The purchase agreements for each of these
facilities will be substantially similar to the purchase agreements entered
into by the Company and Genesis with respect to the assisted living facilities
being acquired from Genesis which are Initial Properties. See "-- Initial
Property Acquisition Agreements." The facility leases for each of the
facilities leased-back to Genesis will be Percentage Rent Leases. See "--
Leases -- Genesis Percentage Rent Leases."

The Company will have an obligation to purchase from and leaseback the
three facilities that will secure the Term and Construction Loans being made to
Multicare, (i) for the facilities in lease-up, at or prior to the maturity of
the Term Loan for the applicable facility (which maturity shall occur on the
third anniversary of the date of the Term Loan for such facility, subject to
the right of the applicable subsidiaries of Multicare to extend the term for up
to three one-year extension periods in the event the applicable facility has
not reached Stabilized Occupancy as of such third anniversary of the date of
the Term Loan (or the end of the first one-year extension period, if
applicable), but not earlier than such time as the applicable facility reaches
Stabilized Occupancy, and (ii) for the project under development, at or prior
to the maturity of the Construction Loan for the project (which maturity shall
occur on the third anniversary of the date of the Construction Loan for such
project, subject to the right of the applicable subsidiary of Multicare to
extend the

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term for up to three one-year extension periods in the event the project has
not reached Stabilized Occupancy as of such third anniversary of the date of
the Construction Loan (or the end of the first one-year extension period if
applicable), but not earlier than such time as the facility reaches Stabilized
Occupancy; provided, however, that Multicare will not be obligated to sell any
facility if the purchase price for the facility would be less than the
applicable loan amount. The purchase agreements provide for a cash purchase
price in an amount which will result in an annual yield of 10.5% to the Company
(based on actual gross revenues and operating expenses for such facility during
the three months ended immediately prior to the purchase of such facility by
the Company, annualized and adjusted to reflect a long-term occupancy of 92%,
less an assumed 5% management fee). Other terms of the purchase agreements for
each of these facilities will be substantially similar to the purchase
agreements entered into by the Company and Genesis with respect to the assisted
living facilities being acquired from Genesis which are Initial Properties. See
"-- Initial Property Acquisition Agreements." If acquired by the Company, these
facilities would be leased to Multicare under Minimum Rent Leases. See "--
Leases -- Multicare Minimum Rent Leases."

The Company also has an option to purchase from and leaseback the two
facilities that will secure Construction Loans made to subsidiaries of SLC on
the maturity of the applicable Construction Loan (which maturity shall occur on
the third anniversary of the date of such Construction Loan, subject to the
right of such subsidiaries of SLC, upon payment of a 0.5% fee, to extend the
term for up to two one-year extension periods in the event the applicable
Initial Assisted Living Development Project has not reached Stabilized
Occupancy as of such third anniversary of the date of such Construction Loan
(or at the end of the first one-year extension period, if applicable)) or at
such time prior to maturity of the Construction Loan for the project (as
extended as described above, if applicable) as the facility reaches Stabilized
Occupancy. The option agreements provide for a cash purchase price of $13.0
million for the Montchanin facility and $9.0 million for the Mallard Landing
facility. The option agreements for each of these facilities will be
substantially similar to the purchase agreements entered into by the Company
and Senior LifeChoice with respect to the assisted living facilities being
acquired from Senior LifeChoice which are Initial Properties. See "-- Initial
Property Acquisition Agreements." If acquired by the Company, these facilities
would be leased to subsidiaries of SLC under Minimum Rent Leases. See "--
Leases -- SLC Minimum Rent Leases."

Penn Mortgage

Upon completion of the Offering, the Company will purchase the Penn
Mortgage, which is an $800,000 mortgage note, from Genesis. The Penn Mortgage
is a recourse obligation of Philadelphia Suburban Development Corporation,
secured by a first lien on an unoccupied 180 bed personal care facility located
at 600 University Avenue, Philadelphia, Pennsylvania. The Penn Mortgage matures
on December 1, 1998. Payment of interest only, at a fixed annual rate of 10
1/4% is due monthly until maturity. There is a 1% prepayment premium in the
event of prepayment of the note.

The Florida Facilities Note

Upon completion of the Offering, ET Capital Corp. will purchase the
Florida Facilities Note, which is a $7.5 million working capital term note,
from Genesis. The maker of the Florida Facilities Note is the Age Institute of
Florida. ET Capital Corp. will borrow 75% of the funds to purchase the Florida
Facilities Note from the Operating Partnership, and will execute a term note in
favor of the Operating Partnership in the original principal amount of $5.625
million. The remaining funds required to purchase the Florida Facilities Note
will be contributed to ET Capital Corp. by the Operating Partnership and Mr.
Romanov in exchange for nonvoting stock (representing 95% of the equity in ET
Capital Corp.) and voting stock (representing 5% of the equity in ET Capital
Corp.), respectively. ET Capital Corp.'s note to the Company will bear interest
at a rate of 13% per annum with interest only payable quarterly until the note
is paid in full.

The Florida Facilities Note is a non-recourse obligation of the Age
Institute of Florida, secured by a second lien on 11 Florida skilled nursing
facilities owned by the Age Institute of Florida and a second lien on accounts
receivable and other working capital assets. These lien positions will be
shared, pari passu, by Genesis with respect to a separate, $2.5 million working
capital term note made by the Age Institute of Florida and retained by Genesis
(the "Retained Note"). The Florida Facilities Note matures on November 1,

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2007. Payments of interest only, at a fixed annual rate of 13% are due
quarterly from the Age Institute of Florida until the Florida Facilities Note
is paid in full. The Florida Facilities Note contains a yield maintenance
provision in the event of prepayment. ET Capital Corp. and its assignees will
have an option to purchase the Retained Note from Genesis, at par, for one year
following the closing of the Offering.

The first lien on the 11 skilled nursing facilities is held by Genesis to
secure a $45.0 million loan made by Genesis in August 1996 to finance the Age
Institute of Florida's acquisition of 11 skilled nursing facilities (the
"Acquisition Loan"), which Genesis manages pursuant to a long-term management
contract. The Acquisition Loan matures on August 31, 2001 (subject to extension
by the Age Institute of Florida for five years). Interest only is payable until
maturity, with interest and a portion of principal payable during any extension
period. Effective as of the closing of the Offering, the principal amount of
the Acquisition Loan will be reduced from $45.0 million to $40.0 million and
the interest rate will be reduced from 10 1/4% (subject to cost-of-living
adjustment) to a fixed rate of 8 1/4%. Genesis then intends to sell the $40.0
million Acquisition Loan to a third party. After giving effect to the
foregoing, the debt service coverage ratio on the Florida Facilities Note and
the Retained Note for the nine months ended September 30, 1997 (after debt
service on the $40.0 million Acquisition Loan and the subordination of 2 1/2%
of the 6% management fee) would have been 1.51x. After giving effect to the
full 6% management fee, the debt service coverage ratio would have been 0.82x,
or a short-fall of $618,000. Genesis has agreed not to terminate its management
agreement as long as at least 3 1/2% of its 6% management fee is being paid on
a current basis. Any portion of the management fee not paid would accrue and be
payable in full at such time as the Age Institute of Florida is current on both
the Florida Facilities Note and the Retained Note. For the month ended
September 30, 1997, the payor mix for the 11 Age Institute of Florida owned
skilled nursing facilities was approximately 12.5% Medicare, 72.4% Medicaid and
15.1% private pay and other, and such facilities had a weighted average
occupancy of 89.8%. See "Risk Factors."

Construction Loan Commitments and Related Purchase Contracts

In addition to the current Term and Construction Loans, the Company has
entered into the Construction Loan Commitments totaling $42.9 million with
Genesis and $10.4 million with SLC to provide financing for an additional nine
assisted living development or expansion projects which are in the planning
phase. The estimated cost of completion of these projects is $59.1 million. Of
these nine assisted living development or expansion projects, four are located
in Pennsylvania, two are located in New Jersey, two are located in Florida and
one is located in New Hampshire. The resident capacity of these facilities is
expected to total approximately 700 to 800. One of the projects involves the
addition of assisted living units to an existing skilled nursing facility owned
by the Company and operated by Genesis. Six of these projects are located
adjacent to existing skilled nursing facilities owned and operated by Genesis.
The remaining two projects are located within five miles of one or more Genesis
skilled nursing facilities. The Construction Loan Commitments provide for a
fixed rate of interest equal to 350 basis points over the three-year U.S.
Treasury Note rate in effect at the time the closing of the loan occurs.

One of the projects for which Construction Loan Commitments will be made
consists of an $8.2 million renovation and expansion of the 183 bed Rittenhouse
skilled nursing facility, which is one of the Initial Properties. Upon
completion of the planned renovation and expansion, the Rittenhouse facility
will contain 150 skilled nursing beds and 45 assisted living units. The
assisted living units will be located on the top two floors of the facility,
segregated from the skilled nursing beds. During construction, Genesis will
continue to operate the facility as a skilled nursing facility pursuant to a
Minimum Rent Lease entered into by the Company and Genesis. During the term of
the construction loan made by the Company pursuant to the Construction Loan
Commitment, the minimum rent payable by Genesis under such Minimum Rent Lease
will increase by 1.5% each year without regard to the revenues for such
facility. Upon completion of the renovation and expansion of Rittenhouse, the
Company will be obligated to purchase the improvements. The purchase price of
the improvements relating to the assisted living units will result in an
initial annual yield on the Company's investment equal to 525 basis points over
the ten-year U.S. Treasury Note rate as of the date the Company becomes
obligated to acquire such improvements. The purchase agreement for these
improvements will be substantially similar to the purchase agreements entered
into by the Company and Genesis with respect to the assisted living facilities
being acquired from Genesis which are Initial Properties.

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See "-- Initial Properties Acquisition Agreements." After the Company purchases
the improvements, it will enter into two new, separate leases with Genesis with
respect to the Rittenhouse facility. One of these leases will be a Percentage
Rent Lease with respect to the assisted living units which will provide for the
payment of percentage rent by Genesis at a rate based on the purchase price
paid by the Company for the improvements. The second lease will be a new
Minimum Rent Lease with respect to the skilled nursing beds.

In addition to Rittenhouse, seven of the projects will be new assisted
living facilities developed by Genesis and one will be a new assisted living
facility developed by SLC. Upon completion of development, the Company will be
obligated to purchase the seven facilities being developed by Genesis. The
purchase price for each of these facilities will be an amount which will result
in an annual yield on the Company's investment equal to 525 basis points over
the ten-year U.S. Treasury Note rate as of the date the Company becomes
obligated to acquire such facility (determined by capitalizing at such rate
either (i) in the case of a facility which has reached Stabilized Occupancy as
of the date of purchase by the Company, an assumed net operating income for
such facility, based on actual gross revenues for such facility during the
three months ended immediately prior to the purchase of such facility by the
Company, annualized and adjusted to reflect a long-term average occupancy level
of 92%, less an assumed 5% management fee, or (ii) in the case of a facility
which has not reached Stabilized Occupancy as of the date of purchase by the
Company, the actual net operating revenues for such facility for the three
months ended immediately prior to the purchase of such facility by the Company,
annualized less an assumed 5% management fee). The purchase agreements for each
of the facilities to be acquired from Genesis will be substantially similar to
the purchase agreements entered into by the Company and Genesis with respect to
the assisted living facilities being acquired from Genesis which are Initial
Properties. See "-- Initial Properties Acquisition Agreements." Upon
acquisition of any such project from Genesis, the Company will leaseback the
facility to a subsidiary of Genesis under a Percentage Rent Lease at a
percentage rate based on the purchase price paid by the Company for the
facility. See "-- Leases -- Genesis Percentage Rent Leases." The Company does
not have a contract to acquire the assisted living project being developed by
SLC.

The Company's obligation to fund the Construction Loan Commitments for
these projects is subject to a number of conditions, including approval of
project budgets and operating projections, approval of acceptable contracts for
Construction and receipt by Genesis or SLC of all necessary zoning, land use,
building, occupancy, licensing and other required governmental approvals and
authorizations. See "Risk Factors -- Making Loans on Development Projects."

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<PAGE>

Mortgage Debt

The following table sets forth certain information regarding the debt
obligations that will be assumed by the Company upon completion of the
Offering.

<TABLE>
<CAPTION>
Interest Rate as Principal
of September 30, Balance as of Annual Debt Balance Due
Property 1997 (1) September 30, 1997 Service Maturity Date on Maturity
- -------------------------- ------------------ -------------------- ---------------- ------------------- ---------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
The Woodbridge (2)
Bonds Due 2005 ......... 8.00 %(F) $ 885 $ 71 September 1, 2005 $ 170
Bonds Due 2025 ......... 8.50 (F) 9,060 770 September 1, 2025 880
Belvedere NRC/
Chapel NRC (3) ......... 11.00 (F) 11,392 1,524 August 1, 2009 --
Highgate at Paoli Pointe
Series A Bonds (4) ...... 8.05 (F) 9,680 823 January 1, 2024 840
Riverview Ridge (5) ...... 9.00 (F) 2,739 248 December 31, 2002 2,540
Lacey Branch Off. Bldg.
(6) ..................... 8.25 (V)(7) 483 -- July 1, 2017 --
-------- ------- ------- -------
Total/Weighted Avg. . 9.23%(8) $34,239 $ 3,436 $ 4,430
======= ======= =======
</TABLE>

- ------------
(1) "F" denotes fixed rate and "V" denotes variable rate.

(2) The bonds may be redeemed with the bond issuer's approval upon payment of a
3%, 2% and 1% redemption premium of the balance prepaid during the years
ending August 31, 2006, 2007 and 2008, respectively, and no premium
thereafter. The bonds due 2025 are subject to sinking fund redemption
prior to maturity at a redemption price equal to certain specified
principal amounts (commencing on September 1, 1999 at $50,000 increasing
to $880,000 on September 1, 2025) plus accrued interest.

(3) The loan may be prepaid upon payment of a prepayment penalty calculated
under yield maintenance agreement based upon the rate payable on U.S.
Treasury obligations due closest to the maturity date.

(4) The Series A bonds may be redeemed with the bond issuer's approval upon
payment of a 3%, 2% and 1% redemption premium of the balance prepaid
during the years ending July, 2005, 2006 and 2007, respectively, and no
premium thereafter. The Series A Bonds are subject to sinking fund
redemption prior to maturity at a redemption price equal to certain
specified principal amounts (commencing on January 1, 2000 at $130,000
increasing to $840,000 on January 1, 2024) plus accrued interest.
(5) The note may be prepaid in full upon payment of a prepayment penalty.
During the period ending October 18, 2005, a prepayment penalty will be
assessed equal to the greater of 1% of the outstanding balance or a yield
maintenance amount based upon the U.S. Treasury securities bearing
interest at 9 3/9% due February 2006. A penalty equal to 3%, 2% and 1% of
the prepaid balance will be payable if prepayment occurs in the years
ending October 18, 2006, 2007 and 2008, respectively.

(6) The note may be prepaid upon payment of a penalty equal to 3%, 2% and 1% of
the original balance if prepayment occurs in the first through
twenty-fourth, twenty-fifth through thirty-sixth and thirty seventh
through sixtieth months, respectively, from June 7, 1996.

(7) The interest rate on the note is adjusted after each 60 month period. The
new rate is made by reference to the weekly 5-year U.S. Treasury Constant
Maturities Index. The maximum rate adjustment is 3% at any change date
with a maximum rate adjustment of 6% over the loan term.
(8) Based on the currently applicable interest rate for the variable rate loan
secured by the Lacey Branch Office Building.

Leases

The leases for three of the four assisted living facilities and the one
independent living facility being acquired from and leased-back to wholly owned
subsidiaries of Genesis will be Percentage Rent Leases with no minimum rent.
The lease for the remaining assisted living facility being acquired from and
leased-back to a wholly owned subsidiary of Genesis will provide for the
payment of minimum rent until such facility reaches Stabilized Occupancy, at
which time the lease will convert automatically into a Percentage Rent Lease
with no minimum rent. The leases to be entered into with subsidiaries of
Genesis for the two Lease-up Assisted Living Facilities and the Initial
Assisted Living Development Projects that the Company has agreed to acquire
from Genesis also will be Percentage Rent Leases. The leases for the four
skilled nursing facilities being acquired from and leased-back to wholly owned
subsidiaries of Genesis will be Minimum Rent Leases, as well as the lease for
the Highgate facility which will be acquired from Senior LifeChoice and leased
to Genesis. The leases to be entered into with wholly owned subsidiaries of
Multicare for the two Lease-up Assisted Living Facilities and the Initial
Assisted Living Development Project that the Company has agreed to acquire from
Multicare will be Minimum Rent Leases. The leases for the remaining seven
Initial Properties (other than the medical office and other buildings) being
leased to third parties other than Genesis, as well as the remaining Initial
Assisted Living Development Projects, if the Company elects to purchase such
facilities, also will be Minimum Rent Leases. The medical office and other
buildings included in the Initial Properties

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<PAGE>

will be acquired by the Company subject to the existing leases with various
tenants. Copies of the forms of the Percentage Rent Leases and Minimum Rent
Leases have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The following is a summary of certain provisions of
such agreements, does not purport to be complete and is qualified in its
entirety by reference to such agreements.

Genesis Percentage Rent Leases

The initial terms of the Percentage Rent Leases are ten years, and Genesis
(through one or more wholly owned subsidiaries), as the tenant under each such
Percentage Rent Lease, has the option to extend the term for up to two
consecutive five-year periods, provided that Genesis must exercise its option
to extend with respect to all, but not less than all, of the facilities which
are subject to Percentage Rent Leases or Minimum Rent Leases with the Company
and which commence on the same date. No assurance can be given that the options
to extend the lease terms will be exercised by Genesis. Genesis also will have
a right of first refusal with respect to any facility, on a
facility-by-facility basis, which is subject to a Percentage Rent Lease or a
Minimum Rent Lease and for which the Company receives an offer to purchase or
lease which the Company is prepared to accept during the term of the lease (as
extended) and for one year thereafter.

The Percentage Rent Leases provide for the payment of Percentage Rent at a
rate equal to between approximately 21% and 42% of gross revenues derived from
each property (excluding any revenues derived from ancillary healthcare
services provided by Genesis or its affiliates to residents of the applicable
facility) subject to a Percentage Rent Lease. Genesis is required to use
reasonable efforts to produce maximum revenues at each facility subject to a
Percentage Rent Lease by designing and implementing a comprehensive marketing
strategy program to attain the highest occupancy level compatible with a
competitive rate structure.

Each Percentage Rent Lease is a "triple net" lease, and Genesis, directly
or indirectly, is responsible thereunder, in addition to the Percentage Rent,
for all additional charges, including every fine, penalty, interest and cost
which may be added for non-payment or late payment thereof, all taxes,
assessments, levies, fees, water and sewer rents and charges, all governmental
charges with respect to the applicable property and all utility and other
charges incurred in the operation of the applicable property. Each Percentage
Rent Lease requires the Genesis subsidiary to maintain adequate insurance on
the applicable leased property, naming the Company or its affiliates and any
mortgagees as additional insureds. In addition, each Percentage Rent Lease
requires the Genesis subsidiary to indemnify the Company and its affiliates
against certain liabilities in connection with the applicable leased property.
The Percentage Rent Leases with Genesis will include default provisions
customary for leases for facilities of the types to be leased by Genesis,
including defaults for the failure to pay rent or otherwise satisfy all
obligations under the applicable Percentage Rent Lease. The Percentage Rent
Leases also will include a default for any failure by the lessee to maintain an
average occupancy of 78% or greater for four consecutive quarters. Certain of
the Percentage Rent Leases and Minimum Rent Leases with Genesis will be
cross-defaulted with respect to monetary defaults.

Each Genesis subsidiary is required, at its expense, to maintain each
property leased by it in good order and repair, in accordance with standards
promulgated in each Percentage Rent Lease. In addition, during the last four
years of the term (as extended, if applicable), each Genesis subsidiary is
required to expend a minimum of $3,000 per residential unit in each assisted
living or independent living facility covered by a Percentage Rent Lease as
capital expenditures to maintain the applicable property. The Company is not
required to repair, rebuild or maintain any leased property or to pay for any
addition, modification or improvement.

The obligations of each Genesis subsidiary under the Percentage Rent
Leases and the Highgate Minimum Rent Lease are guaranteed by Genesis. The
Genesis guarantees are unsecured and may be structurally subordinated to
secured indebtedness of Genesis. The guarantees do not limit Genesis' ability
to incur additional secured indebtedness. In addition, Genesis will deposit
with the Company as a security deposit an amount equal to one-sixth of the
estimated Percentage Rent payable with respect to the first year under each
Percentage Rent Lease based on the operating budget for such year. Interest on
the security deposit will be paid quarterly to Genesis at rate equal to the
rate on 90-day U.S. Treasury Bills for the applicable period. A Percentage Rent
Lease may not be assigned by Genesis without the consent of the Company, which
the Company may withhold in its sole discretion. Genesis will operate and
self-manage each of the facilities it leases from the Company.

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Genesis Minimum Rent Leases

The initial term of each of the Minimum Rent Leases with Genesis is ten
years, and Genesis (through one or more wholly owned subsidiaries), as the
tenant under each such Minimum Rent Lease, has the option to extend the term
for up to two consecutive five-year periods, provided that Genesis must
exercise its option to extend with respect to all, but not less than all, of
the facilities which are subject to Minimum Rent Leases or Percentage Rent
Leases with the Company and which commence on the same date. No assurance can
be given that the options to extend the lease terms will be exercised by
Genesis. Genesis also will have a right of first refusal with respect to any
facility, on facility-by-facility basis which is subject to a Minimum Rent
Lease or a Percentage Rent Lease and for which the Company receives an offer to
purchase or lease which the Company is prepared to accept during the term of
the lease (as extended) and for one year thereafter.

Each Minimum Rent Leases with Genesis (other than with respect to Highgate
at Paoli Pointe) provides for the payment of Minimum Rent during the first
lease year at an amount based on an annual yield for the Company equal to the
rate on ten-year U.S. Treasury Notes as of the first day of such Minimum Rent
Lease plus 350 basis points for each facility. The Minimum Rent Lease for
Highgate provides for the payment of minimum rent during the first lease year
of $1.2 million. Minimum Rent for each facility will increase each year by an
amount equal to the lesser of (i) 5% of the increase in the gross revenues for
such facility (excluding any revenues derived from ancillary healthcare
services provided by Genesis or its affiliates to residents of the applicable
facility) during the immediately preceding year or (ii) one-half of the
increase in the Consumer Price Index during the immediately preceding year. The
Minimum Rent Leases with Genesis do not provide for any Incremental Percentage
Rent (as hereinafter defined).

Each Minimum Rent Lease is a "triple net" lease, and Genesis, directly or
indirectly, is responsible thereunder, in addition to the Minimum Rent, for all
additional charges, including every fine, penalty, interest and cost which may
be added for non-payment or late payment thereof, all taxes, assessments,
levies, fees, water and sewer rents and charges, all governmental charges with
respect to the applicable property and all utility and other charges incurred
in the operation of the applicable property. Each Minimum Rent Lease requires
the Genesis subsidiary to maintain adequate insurance on the applicable leased
property, naming the Company or its affiliates and any mortgagees as additional
insureds. In addition, each Minimum Rent Lease requires the Genesis subsidiary
to indemnify the Company and its affiliates against certain liabilities in
connection with the applicable leased property. The Minimum Rent Leases with
Genesis will include default provisions customary for leases of skilled nursing
facilities, including defaults for the failure to pay rent or otherwise satisfy
all obligations under the applicable Minimum Rent Lease. Certain of the Minimum
Rent Leases and Percentage Rent Leases with Genesis will be cross-defaulted
with respect to monetary defaults.

Each Genesis subsidiary is required, at its expense, to maintain each
property leased by it in good order and repair, in accordance with standards
promulgated in each Minimum Rent Lease. In addition, during the last four years
of the term (as extended, if applicable), each Genesis subsidiary is required
to expend a minimum of $2,000 per skilled nursing bed and $3,000 per assisted
living unit in each skilled nursing facility covered by a Minimum Rent Lease as
capital expenditures to maintain the applicable property. The Company is not
required to repair, rebuild or maintain any leased property or to pay for any
addition, modification or improvement.

The obligations of each Genesis subsidiary under the Minimum Rent Leases
are guaranteed by Genesis. However, in the event Genesis assigns one or more of
its Minimum Rent Leases to a non-wholly owned subsidiary or a third party,
Genesis may not continue to guarantee the applicable lease. Any such assignment
of a Minimum Rent Lease by Genesis would require the consent of the Company
which may not be unreasonably withheld. Genesis is currently negotiating an
arrangement with a Philadelphia-based hospital system. If the arrangement is
negotiated successfully, the hospital system would lease-back the Wayne skilled
nursing facility following its sale to the Company and Genesis would manage the
facility. In addition, Genesis would not guarantee the lease. The Genesis
guarantees are unsecured and may be structurally subordinated to secured
indebtedness of Genesis. The guarantees do not limit Genesis' ability to incur
additional secured indebtedness. In addition, Genesis will deposit with the
Company as a security deposit an amount equal to one-sixth of the estimated
Minimum Rent payable with respect to the first year under each Minimum Rent
Lease. Interest on the security deposit will be paid quarterly to Genesis at
rate equal to the rate on 90-day U.S. Treasury Bills for the applicable period.
Genesis will operate and self-manage each of the facilities it leases from the
Company.

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For the nine months ended September 30, 1997, on a pro forma basis, the
lease coverage ratios (net operating income before interest, depreciation and
rent divided by rent payments) for the skilled nursing facilities to be leased
to Genesis under Minimum Rent Leases (Rittenhouse CC, Lopatcong CC,
Phillipsburg CC and Wayne NRC) were 2.31x, 1.64x 1.70x and 0.96x, respectively.
For such period, the lease coverage ratio for Highgate was 0.83x.

Multicare Minimum Rent Leases

The initial term of any Minimum Rent Lease with Multicare will be ten
years, and Multicare will have the option to extend the term for up to two
five-year extension periods upon 12 months notice to the Company. No assurance
can be given that Multicare will exercise the option to extend the lease terms.
Minimum Rent for the first lease year under any Minimum Rent Lease with
Multicare will be established by multiplying the purchase price for the
applicable facility times 10.5%, and Minimum Rent under each of the Minimum
Rent Leases with Multicare will increase by 2.5% annually. The Minimum Rent
Leases with Multicare will not provide for any Incremental Percentage Rent.
During each of the last four years of the term (as extended, if applicable),
the applicable subsidiary of Multicare is required to make minimum capital
expenditures equal to $3,000 per residential unit in each assisted living
facility covered by a Minimum Rent Lease. The remaining terms of the Minimum
Rent Lease with Multicare will be substantially similar to the terms of the
Minimum Rent Leases with Genesis.

SLC Minimum Rent Leases

The initial term of the Minimum Rent Lease for the Woodbridge facility
with the subsidiary of SLC that will lease the facility is ten years, and the
lessee, under such Minimum Rent Lease, has the option to extend the term for an
additional ten-year term, provided that such lessee exercises its option by
giving notice to the Company during the eighth lease year. No assurance can be
given that the lessee will exercise its option to extend the lease term. The
Minimum Rent Lease for the Woodbridge facility provides for the payment of
minimum rent during the first lease year of $1.2 million, which will increase
by 1.5% annually. The Minimum Rent Lease for the Woodbridge facility also
provides for the payment of incremental percentage rent beginning in the second
lease year at a rate equal to 5% of increased gross revenues during any lease
year over the gross revenues during the first lease year for each facility
("Incremental Percentage Rent"). The Minimum Rent Lease for the Woodbridge
facility will include default provisions customary for leases of assisted
living facilities, including defaults for the failure to pay rent or otherwise
satisfy all obligations under the applicable Minimum Rent Lease.

Under the Minimum Rent Lease for The Woodbridge, the lessee is required,
at its expense, to maintain each leased property in good order and repair, in
accordance with standards set forth in each Minimum Rent Lease. In addition, in
the event that the terms of such Minimum Rent Lease are not extended, then,
during each of the last two years of the term, the lessee will be required to
make minimum capital expenditures equal to the greater of (i) the average of
capital expenditures made during the sixth through eighth lease years and (ii)
$750 per residential unit in the facility to maintain the property or to
restore such property to the condition in which it was leased to such lessee at
the beginning of the term. The lessee, at its expense and subject to certain
approval rights of the Company, may make additions, modifications or
improvements to each property covered by the Minimum Rent Lease. Any such
addition, modification or improvement will become the property of the Company
upon expiration or termination of the Minimum Rent Lease. The Company may, in
certain circumstances, require the lessee to remove any such addition,
modification or improvement and restore the applicable property to the
condition in which it was leased to such lessee at the beginning of the term.
The Company and its affiliates are not required to repair, rebuild or maintain
any leased property or to pay for any addition, modification or improvement
proposed by any lessee.

The Minimum Rent Lease for the Woodbridge facility provides that SLC must
maintain a net worth equal to at least $5 million, including any Units
contributed to SLC by its members and the amounts under the subordinated loans
made by Genesis to SLC to fund development activities by SLC. SLC will deposit
with the Company as a security deposit an amount equal to six months of the
Minimum Rent payable with respect to the first year under each Minimum Rent
Lease. This amount may be reduced to an amount equal to three months of the
then-applicable Minimum Rent at such time as the operating income (after
deducting an

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assumed 6% management fee) produced by the Woodbridge facility for four
consecutive quarters exceeds 120% of the Minimum Rent payable with respect to
each quarter for the first lease year for such facility. The remaining terms of
the Minimum Rent Leases with SLC will be substantially similar to the terms of
the Minimum Rent Leases with Genesis.

For the nine months ended September 30, 1997, on a pro forma basis, the
lease coverage ratio (net operating income before interest, depreciation and
rent divided by rent payments) for the Woodbridge facility was 0.24x.

The Company has an option to acquire the Mallard Landing and Montchanin
facilities for which the Company will make Construction Loans as of the closing
of the Offering. If the Company exercises its option to purchase these
facilities, the Company will lease-back the facilities to subsidiaries of SLC
under Minimum Rent Leases. The minimum rent payable during the first year of
each lease will be fixed to yield the Company a return on its investment equal
to 400 basis points over the ten-year U.S. Treasury Note rate in effect at the
time each lease is entered into. The rent payment will increase by 1.5% per
year. The Minimum Rent Leases also will provide for the payment of Incremental
Percentage Rent beginning in the second lease year at a rate equal to 5% of
incremental gross revenues over the gross revenues during the first lease year
for each facility. Other terms of the Minimum Rent Leases for the Mallard
Landing and Montchanin facilities would be substantially the same as those
contained in the Minimum Rent Lease for the Woodbridge facility.

Crozer/Genesis Minimum Rent Lease

The initial term of the Minimum Rent Lease with Crozer/Genesis is 12
years, which term may be extended for one or more additional five-year terms by
the mutual agreement of the Company and Crozer/Genesis made at least ten months
prior to the expiration of the then-existing term. No assurance can be given
that Crozer/Genesis will agree to extend the lease term for the facilities.

The Minimum Rent Lease with Crozer/Genesis provides for the payment of
Minimum Rent during the first lease year of $4.2 million. Minimum Rent will
increase each year by an amount equal to the lesser of (i) 5% of the increase
in the aggregate gross revenues for the facilities during the immediately
preceding year or (ii) one-half of the increase in the Consumer Price Index
during the immediately preceding year. Crozer/Genesis will deposit with the
Company as a security deposit an amount equal to one-fourth of the Minimum Rent
payable with respect to the first year under each Minimum Rent Lease, which
security deposit will bear interest at rate equal to the rate on 90-day U.S.
Treasury Bills. During the last four years of the lease term (as extended) the
lessee is required to make capital expenditures of at least $2,000 per skilled
nursing bed and $3,000 per assisted living unit to maintain the applicable
property or to restore such property to the condition in which it was leased to
the tenant at the beginning of the term. The remaining terms of the Minimum
Rent Lease with Crozer/Genesis will be substantially similar to the terms of
the Minimum Rent Leases with Genesis. Each facility leased to Crozer/Genesis
will be managed by Genesis. See "-- CKHS Initial Properties -- Crozer/Genesis
Skilled Nursing Facilities."

For the nine months ended September 30, 1997, on a pro forma basis, the
lease coverage ratios (net operating income before interest, depreciation, rent
and the subordinated portion of management agreements to be entered into with
Genesis as of the closing of the Offering divided by rent payments) for the
facilities to be leased to Crozer/Genesis under the Minimum Rent Lease
(Belvedere NRC, Chapel Manor NRC, Harston Hall NCH and Pennsburg Manor NRC)
were 1.29x, 1.25x, 1.67x and 1.35x, respectively.

Age Institute of Florida Minimum Rent Lease

The initial term of the Minimum Rent Lease with the Age Institute of
Florida is ten years, and the Age Institute of Florida has the option to extend
the term for up to two consecutive five-year periods. No assurance can be given
that the options to extend the lease terms will be exercised by the Age
Institute of Florida. The Age Institute of Florida also will have a right of
first refusal with respect to the facility in the event the Company receives an
offer to purchase or lease the facility which the Company is prepared to accept
during the term of the lease (as extended) and for one year thereafter.

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The Minimum Rent Lease with the Age Institute of Florida provides for the
payment of Minimum Rent during the first lease year at an amount based on
achieving an annual yield for the Company equal to the rate on ten-year U.S.
Treasury Notes as of the first day of such Minimum Rent Lease plus 400 basis
points. Minimum Rent will increase each year by an amount equal to the lesser
of (i) 5% of the increase in the gross revenues for the facility during the
immediately preceding year or (ii) one-half of the increase in the Consumer
Price Index during the immediately preceding year. The remaining terms of the
Minimum Rent Lease with the Age Institute of Florida will be substantially
similar to the terms of the Minimum Rent Leases with Genesis.

For the nine months ended September 30, 1997, on a pro forma basis, the
lease coverage ratio (net operating income before interest, depreciation, rent
and the subordinated portion of management agreement to be entered into with
Genesis as of the closing of the Offering divided by rent payments) for the
facility to be leased to a subsidiary of the Age Institute of Florida under a
Minimum Rent Lease (Silverlake NRC) was 1.54x.

Medical Office and Other Building Leases

The Company will acquire each of the medical office and other buildings
included in the Initial Properties subject to existing leases. The existing
leases generally provide for the payment of a fixed amount as base rent during
each year, subject to increases in rent in certain of the leases. Genesis is
the principal tenant of three of the medical office and other buildings
included in the Initial Properties.

Credit Facility and Tax-Exempt Financing

The Credit Facility. Concurrently with the completion of the Offering, the
Company expects to have in place a revolving line of credit of up to $140
million from an affiliate of Deutsche Morgan Grenfell (the "Lender"). The
Credit Facility is expected to be a senior secured obligation of the Company
and to have a term of 364 days subject to extension options which may be
granted by the Lender on 60 days' notice. The Credit Facility would be
available to fund the acquisition of certain of the Initial Properties or
interests therein and additional growth opportunities, to refinance existing
indebtedness, to fund the Term Loans and the Construction Loans and for working
capital and other general corporate purposes. At the closing of the Offering,
the Company expects to draw down approximately $43.5 million under the Credit
Facility.

The Credit Facility would be secured by all of the unencumbered properties
owned or acquired by the Company, all leases and management agreements relating
to such properties and all of the loans made or acquired by the Company. The
aggregate amount of advances under the Credit Facility would be limited to 60%
(or 80% in the case of properties subject to leases guaranteed by Genesis or
Multicare) of the market values of the property providing security for such
advances.

The Credit Facility would bear interest at a floating rate at specified
spreads over the one-month LIBOR rate based on the loan to value ratio in
effect at any time. The Company would have the ability to cause properties
securing the Credit Facility to be released upon any sale or refinancing
thereof by payment of a portion of the loan amount allocated to such property
together with, in the case of property refinancings with a lender other than
the Lender, a prepayment fee of 1%. The Credit Facility would be subject to the
Company's compliance with a number of customary financial and other covenants
on an ongoing basis, including a minimum tangible net worth requirement, a
maximum leverage ratio and a ratio of earnings to interest expense. The Credit
Facility would also contain customary defaults, and would include
cross-defaults to other debt in excess of $10 million.

Closing under the Credit Facility is subject to final approval and
satisfactory completion of the Offering, completion by the Lender of its due
diligence and preparation and execution of an acceptable credit agreement and
related documentation.

Tax-Exempt Financing. The Company's indebtedness includes approximately
$19.6 million of Series 1994 Bonds and Series 1995 Bonds relating to the
Highgate and Woodbridge assisted living facilities. The underlying Series 1994
and Series 1995 Bonds are subject to various restrictions, conditions, and
requirements under the Code and its implementing regulations. In addition, the
Series 1994 and Series 1995 Bond financing

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documents impose certain requirements and restrictions in connection with the
operation of the facilities, including a requirement that at all times at least
20% of the rental units in the facilities will be occupied by tenants whose
adjusted gross family income does not exceed 50% of the median gross income for
the relevant geographic area. The Series 1994 and Series 1995 Bond financing
documents also contain other occupancy and debt service coverage requirements.
The bondholders have agreed to waive or modify certain of these occupancy and
debt service coverage requirements.

Possible Subordinated CMBS Investments

The Company is exploring providing subordinated CMBS financing in
connection with future investments by the Company in healthcare facilities,
including transactions that may involve Genesis in the future. In the prototype
transaction that the Company is considering, one or more Private Partnerships
would be formed to acquire skilled nursing facilities or other healthcare
facilities. The Private Partnership would finance up to 90% of the purchase
price of the facilities by means of a REMIC Loan to the Private Partnership and
the remainder of the purchase price of the facilities by means of an equity
investment by the partners in the Private Partnership, who may include Genesis
and one or more of the Company's officers and trustees. The Company likely
would not have an equity interest in the Private Partnership. The Company would
invest in Subordinated CMBS Interests, the principal balance of which would
represent approximately 15% to 20% of the purchase price of the properties and
would be subordinate to the payment of principal and interest on the Senior
CMBS Interests, which would be held by a third party institutional lender and
the principal balance of which would represent approximately 70% to 75% of the
purchase price of the properties. It is expected that the REMIC Loan would be
on terms substantially similar to the terms then available for first mortgage
loans secured by skilled nursing facilities made on a 90% loan-to-value basis.
The REMIC Loan would not include any equity participation or other similar
rights on behalf of the REMIC. It is expected that the Senior CMBS Interests
would have terms substantially similar to the terms then available for first
mortgage loans secured by skilled nursing facilities on a 70% to 75%
loan-to-value basis, and the Subordinated CMBS Interests would have terms
substantially similar to the terms available for second mortgage loans secured
by skilled nursing facilities where there is 10% equity and senior mortgage
indebtedness for 70% to 75% of the value of the property. The Private
Partnership would either operate the facilities that they acquire or net lease
the facilities to Genesis, a Genesis affiliate or another satisfactory operator
for the day-to-day operation of the properties. If the property were net leased
by the Private Partnership, the Company's investment would likely take the form
of a preferred partnership interest.

Government Regulation

Government Regulation of Healthcare Industry. The long-term care segment
of the healthcare industry is highly regulated. Operators of skilled nursing
facilities are subject to federal, state and local laws relating to the
delivery and adequacy of medical care, distribution of pharmaceuticals,
equipment, personnel, operating policies, fire prevention, rate-setting and
compliance with building and safety codes and environmental laws. Operators of
skilled nursing facilities also are subject to periodic inspection by
governmental and other authorities to assure continued compliance with various
standards, the continued licensing of the facility under state law,
certification under the Medicare and Medicaid programs and the ability to
participate in other third party payment programs. Many states have adopted
Certificate of Need or similar laws which generally require that the
appropriate state agency approve certain acquisitions of skilled nursing
facilities and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditures being undertaken. The failure to
obtain or maintain any required regulatory approvals or licenses could prevent
an operator from offering services or adversely affect its ability to receive
reimbursement for services and could result in the denial of reimbursement,
temporary suspension of admission of new patients, suspension or
decertification from the

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Medicaid or Medicare program, restrictions on the ability to acquire new
facilities or expand existing facilities and, in extreme cases, revocation of
the facility's license or closure of a facility. Federal law also imposes civil
and criminal penalties for submission of false or fraudulent claims, including
nursing home bills and cost reports, to Medicare or Medicaid. There can be no
assurance that lessees of skilled nursing facilities owned by the Company, or
the Age Institute of Florida as the obligor on the Florida Facilities Note, or
the provision of services and supplies by such lessees or the Age Institute of
Florida, will meet or continue to meet the requirements for participation in
the Medicaid or Medicare programs or state licensing authorities or that
regulatory authorities will not adopt changes or new interpretations of
existing regulations that would adversely affect the ability of lessees or
borrowers to make rental or loan payments to the Company.

Although not currently regulated at the federal level (except under laws
of general applicability to businesses, such as work place safety and income
tax requirements), assisted living facilities are increasingly becoming subject
to more stringent regulation and licensing by state and local health and social
service agencies and other regulatory authorities. In general, these assisted
living requirements address, among other things: personnel education, training
and records; facility services, including administration of medication,
assistance with self-administration of medication and limited nursing services;
monitoring of wellness; physical plant inspections; furnishing of resident
units; food and housekeeping services; emergency evacuation plans; and resident
rights and responsibilities, including in certain states the right to receive
certain healthcare services from providers of a resident's choice In several
states, assisted living facilities also require a Certificate of Need before
the facility can be opened, expand or reduce its resident capacity or make
other significant capital expenditures. Certain of the Initial Properties are
licensed to provide independent living services which generally involve lower
levels of resident assistance. Like skilled nursing facilities and other
healthcare facilities, assisted living facilities are subject to periodic
inspection by government authorities. In most states, assisted living
facilities, as well as skilled nursing and other healthcare facilities, also
are subject to state or local building code, fire code and food service
licensure or certification requirements. Any failure by the Company's lessees
or borrowers to meet applicable regulatory requirements may result in the
imposition of fines, imposition of a provisional or conditional license or
suspension or revocation of a license or other sanctions or adverse
consequences, including delays in opening or expanding a facility. Any failure
by the Company's lessees or borrowers to comply with such requirements could
have a material adverse effect on the Company.

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for the referral of Medicare and Medicaid patients or the purchasing, leasing,
ordering or arranging for any goods, facilities, services or items for which
payment can be made under Medicare or Medicaid. A violation of the federal
anti-kickback law could result in the loss of eligibility to participate in
Medicare or Medicaid, or in civil or criminal penalties. The federal
government, private insurers and various state enforcement agencies have
increased their scrutiny of providers, business practices and claims in an
effort to identify and prosecute fraudulent and abusive practices. In addition,
the federal government has issued fraud alerts concerning nursing services,
double billing, home health services and the provision of medical supplies to
nursing facilities; accordingly, these areas may come under closer scrutiny by
the government. Furthermore, some states restrict certain business corporations
from providing, or holding themselves out as a provider of, medical care.
Possible sanctions for violation of any of these restrictions or prohibitions
include loss of licensure or eligibility to participate in reimbursement
programs and civil and criminal penalties. State laws vary from state to state,
are often vague and have seldom been interpreted by the courts or regulatory
agencies. There can be no assurance that these federal and state laws will
ultimately be interpreted in a manner consistent with the practices of the
Company's lessees or the Age Institute of Florida.

Reliance on Government and Other Third Party Reimbursement. Assisted
living services currently are not generally reimbursable under government
reimbursement programs, such as Medicare and Medicaid. A significant portion of
the revenue derived from the nine skilled nursing facilities included in the
Initial Properties and the 11 skilled nursing facilities securing the Florida
Facilities Note, however, is attributable to government reimbursement programs
such as Medicare and Medicaid. Future budget reductions in government-financed
programs could significantly reduce reimbursement payments, and there can be no
assurance that future payment rates will be sufficient to cover the costs of
providing services to residents of such facilities. The Medicare program is
highly regulated and subject to frequent and substantial changes. In recent
years, changes in the Medicare program have resulted in reduced levels of
payment for a substantial portion of healthcare services. There can be no
assurance that reimbursement levels will not be further reduced in future
periods. The Medicaid program is a federally-mandated, state-run program
providing benefits to low income and other eligible persons and is funded
through a combination of state and federal funding. The method of reimbursement
for skilled nursing care under Medicaid varies from state to state, but is
typically based on rates set by the state. Under Medicare and many state
Medicaid programs, rates for skilled nursing facilities are based on facilities
costs as reported to the applicable federal or state agency. The facilities
costs for services purchased from an organization related by ownership or
control are limited to the costs (not charges) of the related organization. Any
failure to comply with these requirements could have a variety of adverse
consequences on the operator of the skilled nursing facility, including
recoupment of amounts overpaid and other sanctions under false claim laws.
Although lease and loan payments to the Company are not directly linked to the
level of government reimbursement, to the extent that changes in these programs
have a material adverse effect on the revenues from such facilities, such
changes could have a material adverse impact on the ability of the lessees of
the skilled nursing facilities included in the Initial Properties, and the Age
Institute of Florida as the borrower under the Florida Facilities Note, to make
lease and loan payments. Healthcare facilities also have experienced increasing
pressures from private payors attempting to control healthcare costs that in
some instances have reduced reimbursement to levels approaching that of
government payors. There can be no assurance that future actions by private
third party payors, including cost control measures adopted by managed care
organizations, will not result in further reductions in reimbursement levels,
or that future reimbursements from any payor will be sufficient to cover the
costs of the facilities operations.

Potential Delays in Substituting Lessees or Operators. A loss of license
or Medicare/Medicaid certification by a lessee of the Company or by the Age
Institute of Florida, or a default by lessees or borrowers under loans made by
the Company, could result in the Company having to obtain another lessee or
substitute operator for the affected facility or facilities. Because the
facility licenses for the Initial Properties will be held by lessees or
borrowers and not the Company and because under the REIT tax rules the Company
would have to find a new "unrelated" lessee to operate the properties, the
Company may encounter delays in exercising its remedies under leases and loans
made by the Company or substituting a new lessee or operator in the event of
any loss of licensure or Medical/Medicaid certification by a prior lessee or
operator.

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No assurances can be given that the Company could contract with a new lessee or
successor operator on a timely basis or on acceptable terms and a failure of
the Company to do so could have a material adverse effect on the Company's
financial condition and results of operations.

Limitation on Transfers and Alternative Uses of Healthcare
Facilities. Transfers of operations of certain healthcare facilities are
subject to regulatory approvals not required for transfers of other types of
commercial operations and other types of real estate. In addition,
substantially all of the Initial Properties are special purpose facilities that
may not be easily adaptable to non-healthcare-related uses.

Proximity to Hospitals or Other Healthcare Facilities. Many of the
assisted living facilities, skilled nursing facilities and medical office
buildings included in the Initial Properties are in close proximity to one or
more hospitals. The relocation or closure of a hospital could make the
Company's assisted living facilities, skilled nursing facility or medical
office building in such area less desirable and affect the Company's ability to
renew leases and attract new tenants. See "Risk Factors -- Operating Risks
Inherent in the Highly Regulated Healthcare Industry may Adversely Affect the
Operations of the Company's Lessees and Borrowers."

Competition

The Company will compete with other healthcare REITs, real estate
partnerships, healthcare providers and other investors, including but not
limited to banks and insurance companies, in the acquisition, leasing and
financing of healthcare facilities. Certain of these investors may have greater
resources than the Company. Genesis and other lessees operating properties the
Company will own or that secure loans to be made by the Company compete on a
local and regional basis with operators of other facilities that provide
comparable services. Operators compete for residents based on quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price. In general, regulatory and other
barriers to competitive entry in the assisted living industry are not
substantial. Moreover, if the development of new assisted living facilities
outpaces demand for these facilities in certain markets, such markets may
become saturated. Such an oversupply of facilities could cause operators to
experience decreased occupancy, depressed margins and lower operating results.
The Company will purchase, or make loans with an obligation to purchase, all of
the assisted living facilities owned by Genesis as of September 30, 1997
(except for a 32-bed facility as to which the Company will have an option to
purchase at fair market value in cash exercisable within one year after the
facility achieves Stabilized Occupancy). See "Risk Factors -- Conflicts of
Interest between the Company and Genesis and Mr. Walker in connection with the
Formation and Operation of the Company -- The Company will experience ongoing
competition from and conflicts with Genesis."

Legal Proceedings

Neither the Company nor any of the Initial Properties is presently subject
to any material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company, or any of the Initial Properties, other than
routine actions for negligence arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the
liquidity, results of operations, or business or financial condition of the
Company.

Office Lease

The Company has entered into a lease with an unaffiliated third party with
respect to certain office space occupied by the Company as its headquarters at
415 McFarlan Road, Suite 202, Kennett Square, Pennsylvania. This lease has a
term of one year and provides for a monthly rental payment by the Company equal
to $1,662.50 per month. The Company has the option to lease additional space in
the same building (which option may only be exercised for a lease to include at
least an additional 50% of space) for a term of three years. The lease provides
that the Company's landlord is responsible for all taxes, utilities and other
charges associated with the leased property, and the lease contains certain
other provisions which are standard for leases of its type.

Employees

Upon completion of the Offering, the Company expects to have five
employees.

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MANAGEMENT

Trustees, Trustee Nominees And Executive Officers

Pursuant to an amendment to the Company's Declaration of Trust to be
adopted immediately prior to the completion of the Offering, the Board of
Trustees of the Company will be expanded effective immediately following the
completion of the Offering to include the trustee nominees named below, each of
whom has been nominated for election and has consented to serve. Upon election
of the trustee nominees, a majority of trustees will not be employees or
affiliates of the Company or Genesis. In connection with the expansion of the
Board of Trustees, and upon completion of the offering, the Board of Trustees
will be divided into three classes of trustees. The initial terms of the first,
second and third classes will expire in 1999, 2000 and 2001, respectively.
Beginning in 1999, trustees of each class will be chosen for three-year terms
upon the expiration of their current terms and each year one class of trustees
will be elected by the shareholders. The Company believes that classification
of the Board of Trustees will help to assure the continuity and stability of
the Company's business strategies and policies as determined by the Board of
Trustees. Holders of Common Shares will have no right to cumulative voting in
the election of trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Common Shares will be able to elect all of the
successors of the class of trustees whose term expires at that meeting.

Information concerning the current trustees, trustee nominees and
executive officers of the Company is set forth below.

<TABLE>
<CAPTION>
Name Age Position Term
- ------------------------------- ----- ------------------------------------------------ -----
<S> <C> <C> <C>
Michael R. Walker ............ 49 Chairman of the Board of Trustees 2001
Edward B. Romanov, Jr. ...... 46 President, Chief Executive Officer and Trustee 2000
D. Lee McCreary, Jr. ......... 40 Vice President and Chief Financial Officer
Kent P. Dauten ............... 42 Trustee Nominee 1999
Rodman W. Moorhead, III ...... 54 Trustee Nominee 2000
Timothy T. Weglicki ......... 46 Trustee Nominee 2001
</TABLE>

Michael R. Walker is the Chairman of the Board of Trustees of the Company.
Mr. Walker currently serves as the Chairman and Chief Executive Officer of
Genesis, and he has served in those capacities since he founded Genesis in
1985. In 1981, Mr. Walker co-founded Health Group Care Centers ("HGCC"). At
HGCC, he served as Chief Financial Officer and, later, as President and Chief
Operating Officer. Prior to its sale in 1985, HGCC operated nursing homes with
4,500 nursing beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice
President and Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which
owned and operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as
the nursing home division of Hospital Affiliates International. Mr. Walker
holds a Master of Business Administration from Temple University and a Bachelor
of Arts in Business Administration from Franklin and Marshall College. Mr.
Walker serves on the Board of Directors of Renal Treatment Centers, Inc. and on
the Board of Trustees of Universal Health Realty Income Trust, a real estate
investment trust focused on healthcare-related investments.

Edward B. Romanov, Jr. is the President and Chief Executive Officer and a
Trustee of the Company. Mr. Romanov served as Senior Vice President,
Development of Genesis from June 1990 until August 1997. He will resign as an
employee of Genesis upon completion of the Offering. From January 1994 until
June 1997, Mr. Romanov also had responsibility for merger and acquisition
activity by Genesis. During such period, he successfully negotiated the
acquisition of several healthcare companies by Genesis with total assets in
excess of $500 million. From June 1990 through May 1995, Mr. Romanov was a
financial consultant to Genesis, pursuant to a consulting and services
agreement between Genesis and American Community Environments Corporation of
which he was an employee. Prior to joining Genesis, Mr. Romanov was founder and
President of WesTerra Construction, WesTerra Capital Company and WesTerra
Development, through which Mr. Romanov developed and financed real estate
projects. Mr. Romanov holds both a Master of Business Administration and a
Bachelor of Science degree from Lehigh University.

D. Lee McCreary, Jr. is Vice President and Chief Financial Officer of the
Company. From September 1994 until May 1997, Mr. McCreary was Vice
President-Tax Services at Siegfried Schieffer & Seitz, a Wilmington,
Delaware-based regional accounting firm ("Siegfried"). Prior to joining
Siegfried, he was a partner at Price Waterhouse LLP, where he worked for over
14 years providing tax consulting services for

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companies in the healthcare, real estate and financial services industries. Mr.
McCreary is a certified public accountant and a member of both the American
Institute of Certified Public Accountants and the Maryland Association of
Certified Public Accountants. He holds a Bachelor of Science degree from the
University of Delaware.

Kent P. Dauten has served as President of Keystone Capital, Inc., a
venture capital firm, since March 1994. In February 1995, Mr. Dauten founded
and served as President of HIMSCORP, Inc., a medical records company, and
continues to serve as its President following its merger with Iron Mountain
Incorporated in October 1997. From January 1993 to March 1994, he was Senior
Vice President of Madison Dearborn Partners, Inc. and from September 1979 to
December 1992, he served in various investment management positions, most
recently as Senior Vice President of First Chicago Venture Capital. Mr. Dauten
currently serves as a director of Health Management Associates, Inc. of Naples,
Florida, a NYSE-listed health management firm, and Iron Mountain Incorporated,
a NASDAQ listed records management company. Mr. Dauten formerly was a director
of Genesis. Mr. Dauten holds a Master of Business Administration from the
Harvard Business School and a Bachelor of Arts in Economics from Dartmouth
College.

Rodman W. Moorhead, III has been employed since 1973 by E. M. Warburg,
Pincus & Co., LLC, a specialized financial services firm in New York, where he
currently serves as Senior Managing Director. He is a director of Coventry
Corporation, a multi-market health maintenance organization, NeXstar
Pharmaceuticals, Inc., a novel human therapy and drug delivery company,
Transkaryotic Therapies, Inc., a gene therapy company, Xomed Surgical Products,
a surgical sponge and wound care products company and several private
companies. He is a Trustee of The Taft School and a member of the Overseers'
Committee on University Resources, Harvard College. Mr. Moorhead holds a Master
of Business Administration from the Harvard Business School and a Bachelor of
Arts in Economics from Harvard University.

Timothy T. Weglicki has been with ABS Partners, L.P., and ABS Capital
Partners, a private equity fund as a general partner since December 1993. Prior
to joining ABS Partners, he was a Managing Director of Alex. Brown & Sons Inc.,
where he established and headed its Capital Markets Group and prior thereto
headed the firm's Equity Division, Corporate Finance Department, and Health
Care Investment Banking Group. He is a director of VitalCom, Inc., a wireless
patient monitoring company, and several privately held companies. Mr. Weglicki
holds an M.B.A. from the Wharton Graduate School of Business and a Bachelor of
Arts degree from The Johns Hopkins University.

Committees of the Board of Trustees

Audit Committee. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls. The membership of the Audit Committee will consist of only
Independent Trustees as long as they continue in office. An individual is
deemed an "Independent Trustee" if such individual is not an affiliate of the
Company and is not an employee of the Company. Upon completion of the Offering,
the members of the Audit Committee will be Messrs. Dauten, Moorhead and
Weglicki.

Executive Committee. The Executive Committee will have the authority
within certain parameters to acquire, dispose of and finance investments for
the Company (including the issuance by the Operating Partnership of additional
Units or other equity interests) and approve the execution of contracts and
agreements, including those related to the borrowing of money by the Company,
and generally exercise all other powers of the Board of Trustees except as
prohibited by law. Upon completion of the Offering, the members of the
Executive Committee will be Messrs. Walker and Romanov.

Compensation Committee. The Compensation Committee will determine
compensation for the Company's executive officers. The Compensation Committee
will review and make recommendations concerning proposals by management with
respect to compensation, bonus, employment agreements and other benefits and
policies respecting such matters for the executive officers of the Company.
Upon completion of the Offering the members of the Compensation Committee will
be Messrs. Walker, Moorhead and Weglicki.

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Share Option Committee. The Share Option Committee will administer the
ElderTrust 1998 Share Option and Incentive Plan, including the grant of options
and bonus shares thereunder. Upon completion of the Offering, the members of
the Share Option Committee will be Messrs. Moorhead and Weglicki.

The Board of Trustees will not have a nominating committee and the entire
Board of Trustees will perform the function of such a committee.

Compensation of the Board of Trustees

The Company will reimburse the trustees for travel expenses incurred in
connection with attending meetings of the Board of Trustees and committee
meetings. In lieu of trustees' fees, each of the non-employee trustees of the
Company (other than the Chairman of the Board) will receive share bonus awards
of 2,500 Common Shares upon completion of the Offering. Each of the
non-employee trustees of the Company (other than the Chairman of the Board)
also will receive ten-year share option grants for 7,500 Common Shares at a per
share option exercise price equal to the initial public offering price,
effective upon completion of the Offering. These options will vest over three
years. The Chairman of the Board will be granted a ten-year share option for
150,000 Common Shares at a per share option exercise price equal to the initial
public offering price, effective upon completion of the Offering. The options
granted to the Company's chairman will vest over three years. Mr. Walker will
enter into a non-competition agreement with the Company. See "-- Employment and
Non-Competition Agreements."

Executive Compensation

The following table sets forth the annual base salary levels and other
compensation expected to be paid in 1997 to the Company's Chief Executive
Officer and to the Company's other executive officer (the "Named Executive
Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
-------------- ---------------
Share Unit All Other
Name Principal Position(s) Salary($)(1) Options(#)(2) Awards(#)(3) Compensation($)
- ------------------------------ ---------------------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Edward B. Romanov, Jr. ...... President, Chief Executive $ 164,000 300,000 118,750 $ 50,200(4)
Officer and Trustee
D. Lee McCreary, Jr. ......... Vice President and Chief 70,000 25,000 12,000 $ 24,100(4)
Financial Officer
</TABLE>

- ------------
(1) Represents the portion of the executive officer's salary allocable to the
Company that was paid by Genesis in 1997. The Company will reimburse
Genesis for such amounts using a portion of the net proceeds from the
Offering.

(2) Represents Units issued to Messrs. Romanov and McCreary in the Formation
Transactions.

(3) These options will be granted effective upon the closing of the Offering
under the Company's 1998 Share Option and Incentive Plan at an exercise
price equal to the initial public offering price. See "-- 1998 Share
Option and Incentive Plan."
(4) Represents the estimated amount of dividends to be credited to the
executive officer's account in 1998 on dividend equivalent rights to be
granted to the executive officer upon completion of the Offering under the
1998 Share Option and Incentive Plan for a number of Common Shares equal
to three times the executive officer's 1998 base salary divided by the
initial public offering price. See " -- 1998 Share Option and Incentive
Plan."

Option Grants in Fiscal Year 1998

<TABLE>
<CAPTION>
Potential Realizable
Value
At Assumed Annual Rates
Of
Individual Share Price Appreciation
Grants For Option Period
---------------- -------------------------
Percent Of
Shares of Total Options
Common Stock to be Granted Exercise or
Underlying Options To Employees Base Price Expiration
Name to be Granted(1) In Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- ------------------------------ -------------------- ---------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Edward B. Romanov, Jr. ...... 300,000 92.3% $20.00 (3) $3,773,500 $9,562,500
D. Lee McCreary, Jr. ......... 25,000 7.7 20.00 (3) 314,500 797,000
</TABLE>

- ------------
(1) Of the 300,000 options to be granted to Mr. Romanov, options for 150,000
shares will vest immediately and options for 150,000 shares will vest over
three years. The options to be granted to Mr. McCreary will vest over five
years.
(2) Based on the assumed initial public offering price. The exercise price per
share will equal the initial public offering price.
(3) The expiration date of the options is the ten year anniversary of the
closing date of the Offering.

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<PAGE>

1998 Share Option and Incentive Plan

Prior to the completion of the Offering, the Company will adopt the
ElderTrust 1998 Share Option and Incentive Plan (the "Plan") to provide
incentives to attract and retain executive officers, trustees, employees and
other key personnel. The Plan will be administered by the Share Option
Committee of the Board of Trustees (the "Committee"). The maximum number of
shares available for issuance under the Plan will be 9.9% of the total number
of Common Shares and Units (other than Units owned by the Company) outstanding
from time to time (initially, 689,498 shares).

Share Options. The Plan permits the granting of (i) options to purchase
Common Shares intended to qualify as incentive options ("Incentive Options")
under Section 422 of the Code and (ii) options that do not so qualify
("Non-Qualified Options"). The option exercise price of each option will be
determined by the Committee but may not be less than 100% of the fair market
value of the Common Shares on the date of grant in the case of Incentive
Options, and may not be less than 25% of the fair market value of the Common
Shares on the date of grant in the case of Non-Qualified Options. Plan
participants may elect, with the consent of the Committee, to receive
discounted Non-Qualified Options in lieu of cash compensation.

The term of each option will be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised
and, subject to the provisions of the Plan, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.

Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of Common Shares
already owned by the optionee or delivery of a promissory note. The exercise
price may also be delivered to the Company by a broker pursuant to irrevocable
instructions to the broker from the optionee.

At the discretion of the Committee, options granted under the Plan may
include a "re-load" feature pursuant to which an optionee exercising an option
by the delivery of shares of Common Shares would automatically be granted an
additional option (with an exercise price equal to the fair market value of the
Common Shares on the date the additional option is granted) to purchase that
number of Common Shares equal to the number delivered to exercise the original
option.

To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
shareholders.

Restricted Shares. The Committee may also award Common Shares to
participants, subject to such conditions and restrictions as the Committee may
determine. These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company through
a specified restricted period. If the performance goals and any other
restrictions are not attained, the participants would forfeit their restricted
Common Shares. The purchase price of restricted Common Shares will be
determined by the Committee.

Deferred Common Shares. The Committee may also award deferred Common Share
units which are ultimately payable in the form of unrestricted Common Shares.
The deferred Common Share may be subject to such conditions and restrictions as
the Committee may determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with the
Company through a specified restricted period. If the performance goals and
other restrictions are not attained, the participants will forfeit their
deferred Common Share units. During the deferral period, subject to terms and
conditions imposed by the Committee, the deferred Common Share units may be
credited with dividend equivalent rights.

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<PAGE>

Unrestricted Common Shares. The Committee may also grant shares (at no
cost or for a purchase price determined by the Committee) which are free from
any restrictions under the Plan. Unrestricted Common Shares may be issued to
participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such participants.

Performance Share Awards. The Committee may also grant performance shares
awards to participants entitling the participants to receive Common Shares upon
the achievement of individual or Company performance goals and such other
conditions as the Committee shall determine.

Dividend Equivalent Rights. The Committee may grant dividend equivalent
rights, which entitle the recipient to receive credits for dividends that would
be paid if the recipient had held a specified number of Common Shares. Dividend
equivalent rights may be granted as a component of another award or as a
freestanding award. Dividend equivalent rights credited under the Plan may be
paid currently or be deemed to be reinvested in additional Common Shares, and
may thereafter accrue additional dividend equivalent rights at fair market
value at the time of deemed reinvestment. Dividend equivalent rights may be
settled in cash, shares or a combination thereof, in a single installment or
installments, as specified in the award. Awards payable in cash on a deferred
basis may provide for crediting and payment of interest equivalents.

Adjustments for Share Dividends, Mergers and Similar Events. The Committee
will make appropriate adjustments in outstanding awards to reflect Common Share
dividends, splits and similar events. In the event of a merger, liquidation,
sale of the Company or similar event, the Committee, in its discretion, may
provide for substitution or adjustment of outstanding awards, or may terminate
all awards with payment of cash or in-kind consideration.

Change of Control. The Committee may provide in each award agreement that
the award becomes fully vested and non-forfeitable if, after a Change of
Control of the Company (as defined in the Plan), the participant's employment
is terminated by the Company (or its successor) without cause, or if the
participant voluntarily resigns for "good reason" (as defined in the Plan).

Amendments and Termination. The Board of Trustees may at any time amend or
discontinue the Plan and the Committee may at any time amend or cancel
outstanding awards for the purpose of satisfying changes in law or for any
other lawful purpose. However, no such action may be taken which adversely
affects any rights under an outstanding award without the holder's consent.
Further, Plan amendments may be subject to approval by the Company's
shareholders if and to the extent required by the Code to preserve the
qualified status of Incentive Options or to preserve tax deductibility of
compensation earned under options.

Employment and Non-Competition Agreements

The Company will enter into an employment agreement with Edward B.
Romanov, Jr. as its President and Chief Executive Officer that will continue in
effect until the third anniversary of the closing of the Offering and
thereafter will be automatically renewed for successive two year terms, unless
otherwise terminated. Mr. Romanov's annual base salary will be $250,000,
subject to increase by the Board of Trustees. Mr. Romanov's employment
agreement entitles him to receive additional bonus compensation as may be
determined by the Company's Board of Trustees in its sole discretion. In
addition, Mr. Romanov will receive options to purchase 300,000 Common Shares
and dividend equivalent rights with respect to 37,500 Common Shares. Mr.
Romanov's employment agreement may be terminated by the Company at any time for
Cause (as defined in his employment agreement), upon the vote of not less than
two-thirds of the entire Board of Trustees. Mr. Romanov may terminate his
employment agreement on 30 days' notice upon the occurrence of certain events,
including an election by the Company not to renew the term of the agreement, as
described above. In the event that the Company terminates Mr. Romanov's
employment agreement without Cause, or Mr. Romanov terminates his employment
agreement as described in the preceding sentence, Mr. Romanov is entitled to
severance compensation equal to two times his then current annual base salary
and bonus. If Mr. Romanov becomes disabled, he will continue to receive all of
his compensation and benefits for six months, less any amounts received under
any disability insurance provided by the Company. If the disability continues
for six months and for periods aggregating 12 months in any 24 month period,
the Company may terminate Mr. Romanov's employment. Mr. Romanov's employment
agreement also contains provisions which are

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<PAGE>

intended to limit him from competing with the Company throughout the term of
the agreement and for a period of two years thereafter. In particular, Mr.
Romanov may not establish, engage, own, manage, operate, join or control or
participate in the establishment, ownership (other than as the owner of less
than 1% of the stock of a corporation whose shares are publicly traded),
management, operation or control of, or be a director, trustee, officer,
employee, salesman, agent or representative of, or be a consultant to, any
person or entity in any business in competition with the Company, at any
location within 100 miles of any office or facility owned, leased or operated
by Company.

Mr. Walker also will enter into a similar non-competition agreement with
the Company restricting such activities by Mr. Walker in his individual
capacity at any location within 10 miles of any office or facility owned,
leased or operated by the Company during the period that Mr. Walker serves as
Chairman or as a trustee of the Company, provided that any activity engaged in
by Mr. Walker as an officer, director or employee of, or any interest of Mr.
Walker as a shareholder in, Genesis will not in any way be limited by such
provisions. Mr. Walker's non-competition agreement also will provide that he
may retain his board position with Universal Health Realty Income Trust and
that he may develop office and similar development projects not related to the
healthcare business.

Incentive Compensation

The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries. This plan will provide for
payment of cash bonuses to participating officers after evaluating the
officer's performance and the overall performance of the Company. The Chief
Executive Officer will make recommendations to the Compensation Committee of
the Board of Trustees, which will make the final determination of the award of
bonuses. The Compensation Committee will determine such bonuses, if any, for
the Chief Executive Officer.

Limitation of Liability and Indemnification

The Maryland REIT Law permits a Maryland REIT to include in its
Declaration of Trust a provision limiting the liability of its trustees and
officers to the trust and its shareholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services, to the extent of the amount of the benefit or
profit in money, property or services actually received, or (b) a judgment or
other final adjudication adverse to the trustee or officer entered in a
proceeding based on a finding in the proceeding that the trustee's or officer's
action or failure to act was material to the cause of action adjudicated in the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty. The Declaration of Trust of the Company contains a
provision that eliminates such liability to the maximum extent permitted by
Maryland law.

The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former trustee or officer or (b) any individual who,
while a trustee of the Company and at the request of the Company, serves or has
served as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her
status as a present or former trustee or officer of the Company. The Bylaws of
the Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer who
is made party to the proceeding by reason of his or her service in that
capacity or (b) any individual who, while a trustee or officer of the Company
and at the request of the Company, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a trustee, director, officer or partner of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and who is made a party to the proceeding by reason of his or her service in
that capacity, against any claim or liability to which he or she may become
subject by reason of such status. The Declaration of Trust and Bylaws also
permit the Company to indemnify and

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<PAGE>

advance expenses to any employee or agent of the Company. The Bylaws require
the Company to indemnify a trustee or officer (or any former trustee or
officer) who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he or she is made a party by reason of his or her
service in that capacity.

The Maryland REIT Law permits a Maryland REIT to indemnify and advance
expenses to its trustees, officers, employees and agents to the same extent as
permitted by the MGCL for directors and officers of Maryland corporations. The
MGCL permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of the
Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the Trustee or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (b) a written statement by or on
his or her behalf to repay the amount paid or reimbursed by the Company if it
shall ultimately be determined that the standard of conduct was not met.

The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and Trustees to the same extent that
indemnification is provided to officers and trustees of the Company in its
Declaration of Trust, and limits the liability of the Company and its officers
and trustees to the Operating Partnership and its respective partners to the
same extent that the liability of the officers and trustees of the Company to
the Company and its shareholders is limited under the Company's Declaration of
Trust.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to trustees, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.

Indemnification Agreements

The Company intends to enter into indemnification agreements with each of
its trustees and officers prior to completion of the Offering. The
indemnification agreements will require, among other things, that the Company
indemnify its trustees and officers to the fullest extent permitted by law and
advance to its trustees and executive officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Genesis currently leases the Windsor Office Building and the Windsor
Clinic and Training Facility from a partnership which is owned by among others,
Michael R. Walker, Chairman of the Board of Directors and Chief Executive
Officer of Genesis and Chairman of the Board of Trustees of the Company.
Payments under these two leases have approximated $197,000 per year during each
of the past three fiscal years. The Company will purchase these two buildings
in the Formation Transactions.

The Windsor Office Building and Windsor Clinic and Training Facility
secure a $1.1 million mortgage held by Mr. Walker since May 1995. The interest
rate on such mortgage is 10.25%. The mortgage is payable in monthly principal
and interest installments of $11,780, with a balloon payment of the outstanding
balance due May 2005. This indebtedness will be repaid in full upon completion
of the Offering using a portion of the net proceeds from the Offering.

Genesis currently is involved in certain lease transactions with Salisbury
Medical Office Building General Partnership ("SMOBGP"). This partnership is
owned by, among others, Michael R. Walker. Genesis rents

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<PAGE>

space in the Salisbury Medical Office Building which is used as a medical
clinic and therapy clinic pursuant to two leases with SMOBGP. Payments under
the leases have approximated $169,000 during each of the past three fiscal
years. The Company will purchase all of the outstanding general partnership
interests in SMOBGP in the Formation Transactions.

The Salisbury Medical Office Building secures a $742,000 mortgage held by
Mr. Walker since August 1995. The interest rate on such mortgage is 10.25%. The
mortgage is payable in monthly principal and interest installments of $7,362,
with a balloon payment of $674,000 due April 30, 2000. This indebtedness will
be repaid in full upon completion of the Offering using a portion of the net
proceeds from the Offering.

In June 1995, SMOBGP made two loans totaling $450,000 to Mr. Romanov. The
loans mature in May 1998 and provide for the payment of interest only until
maturity at an annual interest rate of 11 1/2%. One loan for $250,000 has been
repaid. The second loan for $200,000 will be repaid by Mr. Romanov prior to
completion of the Offering.

In October 1997, the Company agreed to issue and sell to Mr. Romanov
200,000 Common Shares at a per share price equal to the initial public offering
price. Mr. Romanov will pay for such shares with a recourse, 10-year promissory
note with interest only payable quarterly until maturity at an annual interest
rate of 7%.

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STRUCTURE AND FORMATION OF THE COMPANY

Formation of the Company. The Formation Transactions include the following
transactions which will have occurred prior to the Closing of the Offering:

o ElderTrust Realty Group, Inc., a Maryland corporation owned by Messrs.
Michael R. Walker, the Chairman of the Board of Trustees of the Company
and the Chairman of the Board of Directors and Chief Executive Officer
of Genesis, and Edward B. Romanov, Jr., the President and Chief
Executive Officer and a trustee of the Company, was incorporated on
June 5, 1997 as the organizational general partner of the Operating
Partnership. The Operating Partnership was formed on July 30, 1997. The
organizational limited partners of the Operating Partnership were Mr.
Romanov D. Lee McCreary, Jr., Vice President and Chief Financial
Officer of the Company, and ET Partnership, a Pennsylvania general
partnership. The partners in ET Partnership consist of Genesis, Mr.
Romanov and MGI Limited Partnership, a Delaware limited partnership
whose general partner is a corporation owned by Mr. Walker and whose
limited partners consist of Mr. Walker and the following four other
executive officers of Genesis: (i) Richard R. Howard, President and a
director of Genesis; (ii) David C. Barr, Executive Vice President and
Chief Operating Officer of Genesis; (iii) John F. DePodesta, Senior
Vice President, Law & Public Policy of Genesis; and (iv) George V.
Hager, Jr., Senior Vice President and Chief Financial Officer of
Genesis.

o ElderTrust filed its Declaration of Trust with the State Department of
Assessments and Taxation of Maryland on September 23, 1997.

o ET Capital Corp. was formed as a Delaware corporation. The Operating
Partnership owns all of the nonvoting stock of ET Capital Corp.
(representing a 95% equity interest) and Mr. Romanov owns all of the
voting stock of ET Capital Corp. (representing a 5% equity interest).

o The Continuing Investors will contribute the remaining interests in the
Initial Properties to the Operating Partnership in exchange for an
aggregate of $220,030. The Continuing Investors include Messrs. Walker
and Howard, individually, and Senior LifeChoice and three other
individuals not affiliated with the Company or Genesis. Following
completion of the Offering, Messrs. Walker, Howard, Barr and Hager and
Kent P. Dauten, a trustee nominee, will own, in the aggregate,
approximately 62.8% of the interests in Senior LifeChoice, and six
other individuals not affiliated with the Company or Genesis will own
the remaining interests in Senior LifeChoice.

o The Operating Partnership agreed to make Term Loans and Construction Loans
(totaling $39.3 million) secured by seven assisted living facilities in
lease-up or development to Genesis and entities in which it has an
interest and to acquire these seven facilities at the end of the loan
term or at such time as each such facility reaches Stabilized
Occupancy.

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o The Operating Partnership has made Construction Loan Commitments (totaling
$53.3 million) with respect to nine assisted living development and
expansion projects in the planning phase. Pursuant to these
Construction Loan Commitments, the Operating Partnership will agree to
purchase for cash eight of these projects which are owned by Genesis
upon the earlier of the maturity of the related loan or at such time
following completion of development as each such facility reaches
Stabilized Occupancy.

The following transactions will occur at or immediately prior to the closing of
the Offering:

o The Company will be admitted to the Operating Partnership as an additional
general partner, and ElderTrust Realty Group, Inc. will withdraw as a
general partner of the Operating Partnership.

o The Company will sell 6,050,000 Common Shares in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for Units.

o As a result of the foregoing transactions, the Company will own 6,482,600
Units, which will represent an approximate 93.1% interest in the
Operating Partnership after the Offering.

o The Company will have the right to exchange Common Shares for Units held
by Messrs. Romanov and McCreary, MGI Limited Partnership and the
Continuing Investors upon the election by such holders to redeem their
Units any time after 14 months after the closing of the Offering.

No third-party determination of the value was sought or obtained in
connection with the acquisition by the Company of the Initial Properties, the
Term Loans, the Construction Loans, the Penn Mortgage or substantially all of
the economic interest in the Florida Facilities Note or with respect to the
leases. The purchase price for each of the Initial Properties was determined
based upon the anticipated annual cash flow for each facility less ongoing
capital expenditures and a management fee was divided by an agreed upon
capitalization rate. Rental rates under the Minimum Rent Leases and the
interest rates on Term Loans, Construction Loans and Construction Loan
Commitments were based on an agreed upon yield. Rental rates under the
Percentage Rent Leases were determined on a comparable basis, adjusted for the
risk associated with the fact that there are no minimum rent provisions in such
leases. There can be no assurance that the aggregate value of the cash and
Units received by the participants in the Formation Transactions does not
exceed the fair market value of the properties and other assets acquired by the
Company.

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BENEFITS TO RELATED PARTIES

Genesis

o Genesis will receive approximately $61.2 million in cash from the Company
for the 10 Initial Properties or interests therein transferred by
Genesis or entities in which it has an interest to the Company in the
Formation Transactions. The estimated purchase price for these
facilities and interests is approximately $61.7 million, including
approximately $480,000 of assumed indebtedness. The aggregate book
value reflected on Genesis' financial statements of the Initial
Properties to be acquired from Genesis as of September 30, 1997 was
approximately $41.3 million. The Company does not believe that the book
values of the Initial Properties or interests therein being acquired
from Genesis (which reflect the historical cost of such Initial
Properties, net of accumulated depreciation, where applicable) are
equivalent to the fair market values of such Initial Properties.

o Genesis or entities in which Genesis owns an interest will receive
approximately $31.9 million in cash from the Company as a result of the
funding of the Term Loans and the initial draws under two of the
Construction Loans to be made by the Company. The Company will be
obligated to fund approximately $7.4 million in subsequent advances
under these two Construction Loans.

o The Company has agreed to purchase from Genesis or entities in which it
owns an interest for cash the five Lease-up Assisted Living Facilities
and the two Initial Assisted Living Development Project owned by
Genesis or entities in which it owns an interest. The estimated
aggregate purchase price of these facilities is $52.2 million.

o The Company has agreed to make Construction Loan Commitments to Genesis
totaling approximately $42.9 million for eight assisted living
development and expansion projects which are owned by Genesis and which
are in the planning stage. Pursuant to these Construction Loan
Commitments, the Operating Partnership will agree to purchase for cash
these projects from Genesis upon the earlier of the maturity of the
related loan or at such time following completion of development as
each such project reaches Stabilized Occupancy. The estimated aggregate
purchase price of these facilities upon completion of development is
approximately $52.6 million.

o The Company has agreed to purchase from Genesis a Construction Loan made by
Genesis to a subsidiary of SLC with respect to the Monteharin Initial
Assisted Living Development Project for a purchase price equal to the
outstanding loan balance (currently $2.0 million).

o As a result of the assumption by the Company of debt secured by two of the
Initial Properties, Genesis will be released from guarantees of such
indebtedness totaling approximately $3.2 million.

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Mr. Walker

o Mr. Walker will receive cash distributions totaling approximately $358,000
from certain entities in which he owns interests and which own
interests in three of the Initial Properties. Mr. Walker also will
receive a direct or indirect interest in 88,110 Units in exchange for
his ownership interests in certain of the Initial Properties that are
not owned by Genesis. Such Units, together with Mr. Walker's interest
in the Units to be distributed to MGI Limited Partnership upon the
recapitalization of the Operating Partnership, will have a total value
of approximately $2.5 million based on the assumed initial public
offering price of the Common Shares. In addition, Mr. Walker will
receive approximately $1.9 million in cash from the Company as
repayment of indebtedness. The aggregate book value of Mr. Walker's
ownership interests in the Initial Properties being transferred to the
Company in which he holds interests was approximately negative $251,000
as of September 30, 1997.

o Mr. Walker will receive $50,000 in cash (representing a return of his
initial investment) indirectly from the Operating Partnership upon the
dissolution of Elder Trust Realty Group, Inc. following the sale by
Elder Trust Realty Group, Inc. of all of its assets and liabilities to
the Operating Partnership.

o The Company will grant to Mr. Walker options to purchase 150,000 Common
Shares under the Company's 1998 Share Option and Incentive Plan. These
options will vest over three years.

o Mr. Walker will enter into a non-competition agreement with the Company.
See "Management -- Employment and Non-Competition Agreements."

Other Executive Officers of Genesis

o Mr. Howard will receive a cash distribution in the amount of
approximately $91,000 from an entity in which he owns an interest and
which owns one of the Initial Properties. In addition, Messrs. Howard,
Barr and Hager will receive direct or indirect interests in 24,139 Units
in the agregate in exchange for their ownership interests in certain of
the Initial Properties that are not owned by Genesis. Such Units will
have a total value of approximately $483,000 based on the assumed
initial public offering price of the Common Shares. The aggregate book
value of Messrs. Howard, Barr and Hager's ownership interests in the
Initial Properties being transferred to the Company in which they hold
interests was approximately negative $80,000 as of September 30, 1997.

o Messrs. Howard, Barr, Hager and DePodestra will have an interest in the
Units to be distributed to MGI Limited Partnership upon the
recapitalization of the Operating Partnership, which interest will
consist, in the aggregate, of 95,454 Units having a total value of
approximately $1.9 million based on the assumed initial public offering
price of the Common Shares.

Executive Officers and Trustee Nominees of the Company

o Messrs. Romanov and McCreary will receive a total of 130,750 Units upon the
recapitalization of the Operating Partnership (not including the Units
distributed to Mr. Romanov with respect to the Operating Partnership
interest acquired by Mr. Romanov from Genesis) as a portion of their
compensation packages, which Units will have a total value of
approximately $2.2 million based on the assumed initial public offering
price of the Common Shares.

o Mr. Romanov will receive $50,000 in cash (representing a return of his
initial investment) indirectly from the Operating Partnership upon the
dissolution of ElderTrust Realty Group, Inc. following the sale by
ElderTrust Realty Group, Inc. of all of its assets and liabilities to
the Operating Partnership.

o Mr. Dauten will receive an

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indirect interest in 18,924 Units in exchange for his ownership interests
in certain of the Initial Properties that are not owned by Genesis. Such
Units will have a total value of approximately $378,000 based on the
assumed initial public offering price of the Common Shares. The aggregate
book value of Mr. Dauten's ownership interests in the Initial Properties
being transferred to the Company in which he holds interests was
approximately negative $63,000 as of September 30, 1997.

o The Company will grant to Messrs. Romanov and McCreary options to purchase
300,000 Common Shares and 25,000 Common Shares, respectively, under the
Company's 1998 Share Option and Incentive Plan. The options will have
an exercise price equal to the initial public offering price. One-half
of the options to be granted to Mr. Romanov will vest immediately and
one-half will vest over three years and the options to be granted to
Mr. McCreary will vest over five years.

o Mr. Romanov will enter into an employment and non-competition agreement
with the Company. See "Management -- Employment and Non-Competition
Agreements."

o Commencing 14 months after the Offering, Messrs. Romanov, Dauten and
McCreary will have registration rights with respect to the Common
Shares issued to them and that may be issued to them in exchange for
Units they receive in the Formation Transactions, as well as, in the
case of Mr. Romanov, with respect to the Common Shares to be acquired
by them upon exchange of the Units distributed to them in respect of
the interest in ET Partnership purchased by them from Genesis.

<PAGE>

The following table summarizes the amount of cash, Common Shares, Options to
purchase Common Shares and Units to be received by certain persons and entities
as a result of the Formation Transactions:

<TABLE>
<CAPTION>
Name Cash Common Shares Options Units
- ------------------------- ------------------- --------------- --------- ----------------
<S> <C> <C> <C> <C>
Genesis(1) $110.9 million(2) -- -- --
Michael R. Walker $2.3 million(3) 112,500(4) 150,000 123,906(5)
Edward B. Romanov, Jr. $50,000(6) 312,500(7) 300,000 118,750(8)
D. Lee McCreary, Jr. -- 100(9) 25,000 12,000(10)
Kent P. Dauten -- 2,500 7,500 18,924(11)
Rodman W. Moorhead, III -- 2,500 7,500 --
Timothy T. Weglicky -- 2,500 7,500 --
Richard R. Howard $90,500 (12) -- -- 44,506(13)
David C. Barr -- -- -- 34,560(14)
John F. DePodesta -- -- -- 17,898(15)
George V. Hager, Jr. -- -- -- 22,629(16)
</TABLE>

- ------------
(1) Includes certain of its wholly owned subsidiaries, Lake Washington and
Multicare.

(2) Includes: (i) approximately $61.2 million as the purchase price for the
Initial Properties or interests therein; (ii) approximately $33.9 million
as the purchase price of or initial draws under Term and Construction
Loans; (iii) $7.5 million as the purchase price of the Florida Facilities
Note; (iv) $800,000 as the purchase price of the Penn Mortgage; (v)
approximately $3.0 million as reimbursement of certain expenses; and (vi)
$4.5 million paid to Genesis by Messrs. Walker and Romanov as the purchase
price of its interest in ET Partnership.

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(3) Includes (i) approximately $1.9 million as repayment of indebtedness; (ii)
$50,000 received by Mr. Walker (representing a return of his original
investment) upon dissolution of Elder Trust Realty Group, Inc. following
the purchase of its assets and liabilities by the Company; and (iii)
approximately $358,000 in cash distributions from entities in which Mr.
Walker owns interests and which own interests in five of the Initial
Properties.
(4) Represents Common Shares to be issued to Mr. Walker in respect of one-half
of Genesis' interest in ET Partnership which Mr. Walker will purchase from
Genesis for $2.25 million prior to the closing of the Offering.
(5) Includes: (i) 21,875 Units to be issued to Mr. Walker in exchange for his
interests in three of the initial properties; (ii) 66,235 Units
representing Mr. Walker's approximate 39.9% interest in the Units to be
issued to Senior Life Choice in exchange for its interests in two of the
Initial Properties; and (iii) 35,796 Units representing Mr. Walker's
approximate 27.3% interest in the Units to be issued to MGI Limited
Partnership in respect of its interest in ET Partnership.
(6) Represents the amount to be received by Mr. Romanov (representing a return
of his initial investment) upon dissolution of Elder Trust Realty Group,
Inc. following the purchase of its assets and liabilities by the Company.
(7) Includes (i) 112,500 Common Shares to be issued to Mr. Romanov in respect
of one-half of Genesis' interest in ET Partnership which Mr. Romanov will
purchase from Genesis for $2.25 million prior to the closing of the
Offering; and (ii) 200,000 Common Shares to be issued to Mr. Romanov in
exchange for a recourse promissory note in the amount of $4.0 million to
be given to the Company by Mr. Romanov.
(8) Includes: (i) 100,000 Units issued to Mr. Romanov in respect of his
interest in the Operating Partnership; and (ii) 18,750 Units issued to Mr.
Romanov in respect of his interest in ET Partnership. All of these Units
will be received by Mr. Romanov as compensation.
(9) Represents Common Shares issued to Mr. McCreary of the time of the
formation of the Company.
(10) Represents Units issued to Mr. McCreary in respect of his interest in the
Operating Partnership. These Units will be received by Mr. McCreary as
compensation.
(11) Represents Mr. Dauten's approximate 11.4% interest in the Units to be
issued to Senior Life Choice in exchange for its interests in two of the
Initial Properties.
(12) Mr. Howard will receive approximately $90,500 as a cash distribution from
an entity in which he owns an interest and which owns one of the Initial
Properties.
(13) Includes: (i) 5,215 Units to be issued to Mr. Howard in exchange for his
interest in one of the Initial Properties; (ii) 9,462 Units representing
Mr. Howard's approximate 5.7% interest in the Units to be issued to Senior
LifeChoice in exchange for its interests in two of the Initial
Properties; and (iii) 29,829 Units representing Mr. Howard's approximate
22.7% interest in the Units to be issued to MGI Limited Partnership in
respect of its interest in ET Partnership.
(14) Includes: (i) 4,731 Units representing Mr. Barr's approximate 2.9%
interest in the Units to be issued to Senior Life Choice in exchange for
its interests in two of the Initial Properties; and (ii) 29,829 Units
representing Mr. Barr's approximate 22.7% interest in the Units to be
issued to MGI Limited Partnership in respect of its interest in ET
Partnership.
(15) Represents Mr. DePodestas' approximate 13.6% interest in the Units to be
issued to MGI Limited Partnership in respect of its interest in ET
Partnership.
(16) Includes: (i) 4,731 Units representing Mr. Hager's approximate 2.9%
interest in the Units to be issued to Senior Life Choice in exchange for
its interest in two of the Initial Properties; and (ii) 17,898 Units
representing Mr. Hager's approximate 13.6% interest in the Units to be
issued to MGI Limited Partnership in respect of its interest in ET
Partnership.

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of the anticipated policies with respect to
investments, financing and certain other activities of the Operating
Partnership and the Company. Upon consummation of the Offering, these policies
will be determined by the Board of Trustees of the Company and may be amended
or revised from time to time at the discretion of the Board of Trustees without
notice to or a vote of the shareholders of the Company, or the limited partners
of the Operating Partnership, except that changes in certain policies with
respect to conflicts of interest must be consistent with legal requirements.

Investment Policies

Investments in Real Estate or Interests in Real Estate and Investments in
Mortgages. The Company currently plans to conduct all of its investment
activities through the Operating Partnership. The Company's principal business
objective is to maximize growth in cash available for distribution and to
enhance the value of its portfolio in order to maximize total return to
shareholders. The Company's business and growth strategies to achieve this
objective are: (i) to invest in a high quality portfolio of healthcare-related
properties operated or managed by established operators or mortgages secured by
such properties located in close proximity to complimentary healthcare services
and facilities, (ii) to pursue aggressively opportunities for portfolio growth
through REIT financing to established operators in the healthcare industry,
particularly in the fast growing assisted living segment, (iii) to provide
shareholders the opportunity for increased distributions from annual increases
in rental income and interest income and from portfolio growth and (iv) to
provide shareholders with stock price appreciation resulting from potential
increases in the value of the Company's investments. There can be no assurance,
however, that these investment objectives will be realized. See "Business and
Growth Strategies" and "Policies with Respect to Certain Activities."

The Company intends to acquire a diversified portfolio of income-producing
healthcare facilities or mortgages thereon, with a primary initial focus on
assisted living facilities located primarily in the eastern United States. In
evaluating potential investments, the Company will consider such factors as (i)
the quality and experience of management and the creditworthiness of the
operator of the facility: (ii) the facility's historical, current and
forecasted cash flow and its adequacy to meet operational needs, capital
expenditures and lease or debt service obligations, while providing a
competitive return on investment to the Company; (iii) the construction
quality, conditions and design of the facility; (iv) the geographic areas and
type of facility; (v) the tax, growth, regulatory and reimbursement environment
of the community in which the facility is located; (vi) the occupancy and
demand for similar health care facilities in the same or nearby communities and
(vii) in the case of skilled nursing facilities, the payor mix of private,
Medicare and Medicaid patients.

In making future investments, the Company intends to focus on established,
creditworthy, healthcare operators which meet the Company's standards for
network resources and quality and experience of management. Although the
Company initially will emphasize assisted living investments, it may seek to
diversify prudently into other types of healthcare facilities, such as
retirement facilities, congregate care facilities, continuing care retirement
communities, and additional independent living facilities, skilled nursing
facilities and medical office buildings. The Company also may seek to diversify
its investments in terms of geographic location, operators and, subject to the
foregoing, facility types. Nonetheless, substantially all of the Initial
Properties will be leased to or managed by Genesis, and it is anticipated that
a significant portion of new investments also will involve Genesis as tenant or
manager. In addition, Genesis will manage the 11 skilled nursing facilities
that secure the Florida Facilities Note.

There are no limitations on the amount or percentage of the Company's
total assets that may be invested in any one property. Additionally, no limits
have been set on the concentration of investments in any one location, operator
or facility type.

The Company may participate with other entities in property ownership
through joint ventures or other types of co-ownership. Equity investments may
be subject to existing mortgage financing and other indebtedness or such
financing or indebtedness may be incurred in connection with acquiring
investments. Any such financing or indebtedness will have priority over the
Company's equity interest in such property.

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The Company does not intend to invest in the securities of others for the
purpose of exercising control. Where appropriate, and subject to REIT
qualification rules, the Operating Partnership may sell certain of its
properties.

The Company may determine to finance acquisitions through the exchange of
properties of the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy the Company's investment criteria. The Company
also has authority to repurchase or otherwise reacquire its Common Shares or
any other securities and may determine to do so in the future.

To the extent that the Company's Board of Trustees determines to obtain
additional capital, the Company may raise such capital through additional
equity offerings, debt financing or retention of cash flow (subject to
provisions of the Code concerning the taxability of undistributed income of
"real estate investment trusts") or a combinations of these methods. See
"Borrowing Policies" for further information concerning the Company's policies
regarding debt financing.

Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests
necessary for REIT qualification, the Company also may invest in securities of
entities engaged in real estate activities or securities of other issuers
including CMBSs. The Company may acquire all or substantially all of the
securities or assets of other REITs or similar entities where such investments
would be consistent with the Company's investment policies. In any event, the
Company does not intend that its investments in securities will require it or
the Operating Partnership to register as an "investment company" under the
Investment Company Act of 1940, as amended.

Financing Policies

The Company does not have a policy limiting the amount of indebtedness
that the Company may incur. In addition, the Declaration of Trust and Bylaws do
not limit the amount or percentage of indebtedness that the Company may incur.
The Company has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio as a whole.

The Board of Trustees will consider a number of factors when evaluating
the Company's level of indebtedness and when making decisions regarding the
incurrence of indebtedness, including the purchase price of properties to be
acquired with debt financing, the estimated market value of its properties upon
refinancing and the ability of particular properties and the Company as a whole
to generate cash flow to cover expected debt service. See "Risk Factors-No
Limitations on Debt" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."

Lending Policies

The Company may consider offering purchase money financing in connection
with the sale of properties where the provision of such financing will increase
the value received by the Company for the property sold.

Conflict of Interest Policies

Conflicts of Interest Involving Trustees. Mr. Walker, the Chairman of the
Board of Trustees, also serves as Chairman of the Board of Directors and Chief
Executive Officer of Genesis. At September 30, 1997, Mr. Walker beneficially
owned approximately 2.2% of the outstanding common stock of Genesis. Because he
serves as Chairman of both Genesis and the Company, Mr. Walker may be subject
to certain conflicts of interest in fulfilling his responsibilities to the
Company and its shareholders. See "Risk Factors -- Conflicts of Interest
Between the Company and Genesis and Mr. Walker In Connection with the Formation
and Operation of the Company." Under Maryland law, any contract or other
transaction between a corporation and any of its directors or any other
corporation, firm or other entity in which any of its directors is a director
or has a material financial interest may be void or voidable. However, the MGCL
provides that any such contract or transaction will not be void or voidable if
(a) the contract or transaction is authorized, approved or ratified, after
disclosure of, or with knowledge of, the common directorship or interest, by
the affirmative vote of a majority of disinterested directors (even if the
disinterested directors constitute less than a quorum) or by the affirmative
vote of a majority of the votes cast by disinterested shareholders, or (b) it
is fair and reasonable to

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the corporation. While the Maryland REIT Law does not have a comparable
provision for trustees, a court may apply the principles of the MGCL to
contracts or transactions between the Company and its trustees. The Company
believes that a requirement of disinterested director approval of such
transactions, including transactions with Genesis, will help to eliminate or
minimize certain potential conflicts of interest. Therefore, pursuant to the
Company's Bylaws without the approval of a majority of the disinterested
trustees, the Company and its subsidiaries may not (i) acquire from or sell to
any trustee, officer or employee of the Company, or any entity in which a
trustee, officer or employee of the Company serves as a director or owns more
than a 1% interest, or acquire from or sell to any affiliate of any of the
foregoing, any assets or other property of the Company or its subsidiaries,
(ii) make any loan to or borrow from any of the foregoing persons, or (iii)
engage in any other material transaction with any of the foregoing persons
(other then pursuant to agreements entered into in connection with the
Formation Transactions.

Policies Applicable to All Trustees. Under Maryland law, each trustee will
be obligated to offer to the Company any opportunity (with certain limited
exceptions) which comes to him and which the Company could reasonably be
expected to have an interest in developing or acquiring. In addition, under
Maryland law, any contract or other transaction between a corporation and any
director or any other corporation, firm or other entity in which the director
is a director or has a material financial interest may be void or voidable
unless approved as described above.

Leased Office Space. Genesis is the principal tenant of three office
properties owned by the Company. The Company believes Genesis is paying fair
market rent for this space. The disinterested members of the Board of Trustees
will annually review and approve the rates charged to Genesis for such office
space.

Policies With Respect to Other Activities

The Company may, but does not presently intend to, make investments other
than as previously described. The Company will make investments only through
the Operating Partnership. The Company will have authority to offer its Common
Shares or other equity or debt securities of the Operating Partnership in
exchange for property and to repurchase or otherwise reacquire its Common
Shares or any other securities and may engage in such activities in the future.
Similarly, the Operating Partnership may offer additional Units or other equity
interests in the Operating Partnership that are exchangeable into Common Shares
or Preferred Shares, in exchange for property. The Operating Partnership also
may make loans to joint ventures in which it may participate in the future.
Neither the Company nor the Operating Partnership will engage in trading,
underwriting or the agency distribution or sale of securities of other issuers.
At all times, the Company intends to cause the Operating Partnership to make
investments in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT unless, because of circumstances or changes in the
Code (or the regulations promulgated thereunder), the Board of Trustees
determines that it is no longer in the best interests of the Company to
continue to qualify as a REIT. The Company's policies with respect to such
activities may be reviewed and modified from time to time by the Company's
trustees without notice to or the vote of its shareholders.

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PARTNERSHIP AGREEMENT

The following summary of the Operating Partnership Agreement, including
the descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Operating
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

Management

The Operating Partnership was formed on July 30, 1997, as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act"). Following completion of the Offering, the Company will be
the sole general partner of the Operating Partnership and expects at all times
to own a majority interest in the Operating Partnership.

The Company, as the general partner of the Operating Partnership, will
have the exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances. Limited partners will have no right or authority to act for or
to bind the Operating Partnership. No limited partner may take part in the
conduct or control of the business or affairs of the Operating Partnership by
virtue of being a holder of Units. In particular, the limited partners
expressly acknowledge in the Operating Partnership Agreement that the Company,
as general partner, is acting on behalf of the Operating Partnership's limited
partners and the Company's shareholders collectively, and is under no
obligation to consider the tax consequences to limited partners when making
decisions for the benefit of the Operating Partnership.

Sales of Assets

Under the Operating Partnership Agreement, the Company, as general
partner, will have the exclusive authority to determine whether, when and on
what terms the assets of the Operating Partnership (including the Properties)
will be sold. A sale of all or substantially all of the assets of the Operating
Partnership (or a merger of the Operating Partnership with another entity)
generally requires an affirmative vote of the holders of a majority of the
outstanding Units (excluding Units held directly or indirectly by the Company).

Removal of the General Partner; Transfer of the Company's Interests

The Operating Partnership Agreement provides that the limited partners may
not remove the Company as general partner of the Operating Partnership with or
without cause. In addition, the Company may not transfer any of its interests
as general or limited partner in the Operating Partnership, except in
connection with a merger or sale of all or substantially all of the Company's
assets (subject to certain conditions).

Under the Operating Partnership Agreement, a sale of all or substantially
all of the assets of the Company (or a merger of the Company with another
entity) generally requires an affirmative vote of the holders of a majority of
the outstanding Units (including Units held directly or indirectly by the
Company). The Company expects at all times to own a majority of the outstanding
Units and thus to control any such vote. In addition, the Operating Partnership
Agreement does not require the consent of the limited partners to approve a
transaction in which another entity acquires control (or all of the outstanding
Common Shares) of the Company as long as all limited partners receive or have
the right to receive the same consideration for their interests as they would
have received had they exercised the Units Redemption Right (as defined below)
with respect to their Units immediately prior to such acquisition.

Reimbursement of the Company; Transactions with the Company and its Affiliates

The Company will not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners in the Operating Partnership. In addition, the Operating
Partnership will reimburse the Company for all expenses it incurs relating to
its activities as general partner, its continued existence and qualification as
a REIT and all other liabilities incurred by the Company in connection with the
pursuit of its business and affairs (including expenses incurred by the Company
in

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connection with the issuance of Common Shares or other securities of the
Company). Except as expressly permitted by the Operating Partnership Agreement,
affiliates of the Company will not engage in any transactions with the
Operating Partnership except on terms that are fair and reasonable and no less
favorable to the Operating Partnership than would be obtained from an
unaffiliated third-party.

Redemption of Units

Subject to certain limitations in the Operating Partnership Agreement,
holders of Units generally will have the right to require the redemption of
their Units at any time 14 months after the Closing of the Offering (the "Unit
Redemption Right"). Pursuant to the Partnership Agreement, at the closing of
the Offering, Messrs. Walker and Romanov will exchange the Units issued to them
in respect of the Genesis interest in ET Partnership for Common Shares on a
one-for-one basis. See "Structure and Formation of the Company" and "Benefits
to Related Parties."

Unless the Company elects to assume and perform the Operating
Partnership's obligation with respect to the Unit Redemption Right, as
described below, the limited partner will receive cash from the Operating
Partnership in an amount equal to the market value of the Units to be redeemed.
The market value of a Unit for this purpose will be equal to the average of the
closing trading price of a Common Share on the NYSE for the ten trading days
before the day on which the redemption notice was given. In lieu of the
Operating Partnership's acquiring the Units for cash, the Company will have the
right to elect to acquire the Units directly from a limited partner exercising
the Unit Redemption Right, in exchange for either cash or Common Shares, and,
upon such acquisition, the Company will become the owner of such Units. Upon
exercise of the Unit Redemption Right, the limited partner's right to receive
distributions for the Units so redeemed or exchanged will cease. At least 1,000
Units (or all remaining Units owned by the limited partner if less than 1,000
Units) must be redeemed each time the Unit Redemption Right is exercised. No
redemption or exchange can occur if delivery of Common Shares would be
prohibited either under the provisions of the Company's Declaration of Trust
designed to protect the Company's qualification as a REIT or under applicable
Federal or state securities laws as long as the Common Shares are publicly
traded. The Company will at all times reserve and keep available out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
issuance of Common Shares pursuant to the Unit Redemption Right, a sufficient
number of Common Shares as shall from time to time be sufficient for the
redemption of all outstanding Units not owned by the Company. See "Shares of
Beneficial Interest" and "Shares Available for Future Sale."

Restrictions on Transfer of Units by Limited Partners

The Operating Partnership Agreement imposes certain restrictions on the
transfer of Units. The Operating Partnership Agreement provides that for a
period of 12 months after the Closing of the Offering, no limited partner
shall, without the prior written consent of the Company (which may be withheld
in the sole discretion of the Company), sell, assign, distribute or otherwise
transfer all or any part of his, her or its interest in the Operating
Partnership except, (i) in the case of an individual, to a member of his or her
immediate family (or to a trust formed for the benefit of such individual or
members of his or her immediate family or to a partnership, limited liability
company, joint venture, corporation or other business entity comprised,
directly or indirectly, only of such individual or members of his or her
immediate family) (ii) in the case of a trust, partnership, limited liability
company, joint venture, corporation or other business entity, to its
beneficiaries, partners, owners or stockholders, as the case may be, (iii) by
gift, (iv) by operation of law, (v) to another limited partner or (vi) pursuant
to certain pledges or other collateral transfers effected by a limited partner
to secure the repayment of a loan. See "Shares of Beneficial Interest --
Restrictions on Ownership and Transfer."

Issuance of Additional Units and Preference Units

The Company is authorized at any time, without the consent of the limited
partners, to cause the Operating Partnership to issue additional Units to the
Company, to the limited partners or to other persons for such consideration and
on such terms and conditions as the Company deems appropriate. If Units are
issued to the Company, then the Company must issue a corresponding number of
Common Shares and must contribute to the Operating Partnership the proceeds, if
any, received by the Company from such issuance. In

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addition, the Operating Partnership Agreement provides that the Operating
Partnership may also issue preferred units and other partnership interests of
different classes and series (collectively, "Preference Units") having such
rights, preferences and other privileges, variations and designations as may be
determined by the Company. Any such Preference Units may have terms, provisions
and rights which are preferential to the terms, provisions and rights of the
Units. Preference Units, however, may be issued to the Company only in
connection with an offering of securities of the Company having substantially
similar rights and the contribution of the proceeds therefrom to the Operating
Partnership. No limited partner has preemptive, preferential or similar rights
with respect to capital contributions to the Operating Partnership or the
issuance or sale of any partnership interests therein.

Capital Contributions

No partner of the Operating Partnership will be required to make
additional capital contributions to the Operating Partnership, except that the
Company is generally required to contribute net proceeds of the sale of Common
Shares (and other equity interests) of the Company to the Operating
Partnership. Except for limited partners (which will not include the Company)
who enter into one or more Deficit Restoration Obligation Agreements with the
Operating Partnership), no limited or general partner will be required to pay
to the Operating Partnership any deficit or negative balance which may exist in
its account.

Distributions; Allocations of Income and Loss

The Operating Partnership Agreement generally provides for the quarterly
distribution of "Available Cash" (as defined below), as determined in the
manner provided in the Operating Partnership Agreement, to the partners of the
Operating Partnership in proportion to their percentage interests in the
Operating Partnership (which for any partner is determined by the number of
Units it owns relative to the total number of Units outstanding). "Available
Cash" is generally defined as net cash flow from operations plus any reduction
in reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments. Neither the
Company nor the limited partners are entitled to any preferential or
disproportionate distributions of Available Cash with respect to the Units.

Exculpation and Indemnification of the Company

The Operating Partnership Agreement generally provides that the Company,
as general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained, liabilities
incurred, or benefits not derived as a result of errors in judgment or for any
mistakes of fact or law or for anything which it may do or refrain from doing
in connection with the business and affairs of the Operating Partnership if the
Company or such other general partner carried out its duties in good faith. The
Company's liability in any event is limited to its interest in the Operating
Partnership. Without limiting the foregoing, the Company has no liability for
the loss of any limited partner's capital. In addition, the Company is not
responsible for any misconduct, negligent act or omission of any consultant,
contractor, or agent of the Operating Partnership or of the Company and has no
obligation other than to use good faith in the selection of all such
contractors, consultants, and agents.

The Operating Partnership Agreement also requires the Operating
Partnership to indemnify the Company, the Trustees and officers of the Company,
and such other persons as the Company may from time to time designate against
any loss or damage, including reasonable legal fees and court costs incurred by
such person by reason of anything it may do or refrain from doing for or on
behalf of the Operating Partnership or in connection with its business or
affairs unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful. Any such indemnification claims must be satisfied
solely out of the assets of the Operating Partnership.

Amendment of the Operating Partnership Agreement

Amendments to the Operating Partnership Agreement may be proposed by the
Company or by limited partners owning at least 25% of the then outstanding
Units. Generally, the Operating Partnership Agreement

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may be amended with the approval of the Company, as general partner, and
limited partners (including the Company) holding a majority of the Units.
Certain provisions regarding, among other things, the rights and duties of the
Company as general partner (e.g., restrictions on the Company's power to
conduct businesses other than owning Units) or the dissolution of the Operating
Partnership, may not be amended without the approval of a majority of the Units
not held by the Company. Certain amendments that would, among other things, (i)
convert a limited partner's interest into a general partner's interest, (ii)
modify the limited liability of a limited partner, (iii) alter the interest of
a partner in profits or losses, or the right to receive any distributions
(except as permitted under the Operating Partnership Agreement with respect to
the admission of new partners or the issuance of additional Units), or (iv)
alter the Unit Redemption Right, must be approved by the Company and each
limited partner that would be adversely affected by such amendment.

Term

The Operating Partnership will be dissolved and its affairs wound up upon
the earliest of (i) December 31, 2096, (ii) the withdrawal of the Company as
general partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances), (iii) the
sale of all or substantially all of the Operating Partnership's assets and
properties, (iv) the entry of a decree of judicial dissolution of the Operating
Partnership pursuant to the provisions of the Partnership Act, (v) the entry of
a final non-appealable judgment ruling that the general partner is bankrupt or
insolvent (except that, in either such case, in certain circumstances the
limited partners (other than the Company) may vote to continue the Operating
Partnership and substitute a new general partner in place of the Company), (vi)
prior to January 1, 2047, with the consent of holders (including the Company)
of 90% of the outstanding Units or (vii) on or after January 1, 2047, on
election by the Company, in its sole and absolute discretion.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Common Shares (or Common Shares for which Units are
exchangeable) by (i) each trustee (and trustee nominee) of the Company, (ii)
each executive officer of the Company, (iii) all trustees, trustee nominees and
executive officers of the Company as a group, and (iv) each person or entity
which is expected to be the beneficial owner of 5% or more of the outstanding
Common Shares immediately following completion of the Offering. Except as
indicated below, all of such Common Shares are owned directly, and the
indicated person or entity has sole voting and investment power.

<TABLE>
<CAPTION>
Number of Shares and Units Percentage of All Percent of
Beneficially Owned After the Common Shares and All Common
Name of Beneficial Owner(1) Offering Units Shares (2)
- -------------------------------------------- ------------------------------ ------------------- -----------
<S> <C> <C> <C>
Michael R. Walker ........................ 265,625(3) 3.8% 1.7%
Edward B. Romanov, Jr. ..................... 581,250(4) 8.2 7.0
Kent P. Dauten ........................... 77,500(3)(5) 1.1 1.2
Rodman W. Moorhead, III .................. 27,500(5) * *
Timothy T. Weglicki ........................ 7,500(5) * *
D. Lee McCreary, Jr. ..................... 12,100 * *
All trustees, trustee nominees and executive
officers as a group (6 persons) ......... 971,475(3)(4)(5) 13.7% 10.4%
</TABLE>

- ------------
* Less than 1%.

(1) Address: c/o ElderTrust, 415 McFarlan Road, Suite 202, Kennett Square,
Pennsylvania 19348.

(2) Assumes that all Units held by the person are presented to the Operating
Partnership for redemption and acquired by the Company for Common Shares.
The total number of Common Shares outstanding used in calculating the
percentage assumes that none of the Units held by other persons are
similarly acquired for Common Shares.
(3) Excludes the indirect interests of Messrs. Walker and Dauten as
shareholders of Senior LifeChoice in 165,850 Units that will be issued to
and will not be distributed by that entity.
(4) Includes options for 150,000 Common Shares that will vest immediately upon
completion of the Offering.
(5) Includes 75,000, 25,000 and 5,000 Common Shares, respectively, which the
named trustee nominees have indicated they expect to purchase in the
Offering.

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SHARES OF BENEFICIAL INTEREST

The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and Bylaws
of the Company, copies of which are exhibits to the Registration Statement of
which this Prospectus is a part.

General

The Declaration of Trust of the Company provides that the Company may
issue 100 million Common Shares and 20 million Preferred Shares. As of
September 30, 1997, 100 Common Shares were issued and outstanding.

Under the Maryland REIT Law, a shareholder is not personally liable for
the obligations of the Company solely as a result of his status as a
shareholder. The Declaration of Trust provides that no shareholder shall be
liable for any debt or obligation of the Company by reason of being a
shareholder nor shall any shareholder be subject to any personal liability in
tort, contract or otherwise to any person in connection with the property or
affairs of the Company by reason of being a shareholder. The Company's Bylaws
further provide that the Company shall indemnify each present or former
shareholder against any claim or liability to which the shareholder may become
subject by reason of being or having been a shareholder and that the Company
shall reimburse each shareholder for all reasonable expenses incurred by him or
her in connection with any such claim or liability. However, with respect to
tort claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.

Common Shares

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Declaration of Trust regarding
restrictions on transfers of shares of beneficial interest, holders of Common
Shares are entitled to receive distributions if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company. The Company currently intends to pay regular
quarterly distributions.

Subject to the provisions of the Company's Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees, and, except as provided
with respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess the exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of
a majority of the outstanding Common Shares can elect all of the trustees then
standing for election, and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.

Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company. Subject to the exchange provisions of the Company's Declaration of
Trust regarding restrictions on transfer, Common Shares have equal
distribution, liquidation and other rights.

Pursuant to the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the trust's

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<PAGE>

declaration of trust. The Company's Declaration of Trust provides that the
Board of Trustees, with the approval of a majority of the votes entitled to be
cast at a meeting of shareholders, may amend the Declaration of Trust from time
to time to increase or decrease the aggregate number of shares or the number of
shares of any class that the Company has authority to issue. The Company's
Declaration of Trust also provides that a merger transaction or termination of
the trust must be approved, at a meeting of the shareholders called for that
purpose, by the affirmative vote of not less than sixty-six and two-thirds
percent (66 2/3%) of all the votes entitled to be cast on the matter. Under the
Maryland REIT Law, a declaration of trust may permit the trustees by a
two-thirds vote to amend the declaration of trust from time to time to qualify
as a REIT under the Code or the Maryland REIT Law without the affirmative vote
or written consent of the shareholders. The Company's Declaration of Trust
permits such action by the Board of Trustees.

Preferred Shares

The Declaration of Trust authorizes the Board of Trustees to issue 20
million Preferred Shares and to classify any unissued Preferred Shares or to
reclassify any previously classified but unissued Preferred Shares of any
series from time to time, in one or more series. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland REIT Law and the
Declaration of Trust of the Company to set, subject to the provisions of the
Declaration of Trust regarding the restriction on transfer of shares of
beneficial interest, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Thus, the Board could authorize the issuance of Preferred Shares with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be in their best interest. As
of the date hereof, no Preferred Shares are outstanding and the Company has no
present plans to issue any Preferred Shares.

Power To Issue Additional Common Shares and Preferred Shares

The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Common Shares or Preferred Shares in one or
more series will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Authorized but unissued Common Shares or Preferred Shares will be
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded.

Restrictions on Ownership and Transfer

For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of beneficial interest may be owned, actually
or constructively, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year for which an election to be treated as a REIT has been made) or
during a proportionate part of a shorter taxable year. In addition, if the
Company, or an owner of 10% or more of the Company, actually or constructively
owns 10% or more of a tenant of the Company (or a tenant of any partnership in
which the Company is a partner), the rent received by the Company (either
directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. A
REIT's shares also must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate
part of a shorter taxable year (other than the first year for which an election
to be treated as a REIT has been made).

Because the Board of Trustees believes it is desirable for the Company to
qualify as a REIT, the Declaration of Trust, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit or the
Excluded Holder Limit, as applicable. In connection with the Excluded Holder
Limit of 15% of the Common Shares that applies with respect to Mr. Romanov, Mr.
Romanov has entered into an agreement with the Company for the benefit of the

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<PAGE>

Company and certain designated charitable beneficiaries that restricts Mr.
Romanov's ownership of (i) a tenant of the Company or (ii) any entity that
would cause the Company to be deemed to own more than 10% of a tenant of the
Company and providing that if, at any time, for any reason, Mr. Romanov's
ownership of interests in a tenant of the Company resulted in the actual or
constructive ownership by the Company of 10% or more of any tenant of the
Company, than a number of shares of the Company owned by Mr. Romanov necessary
to reduce the Company's actual or constructive ownership of such tenant to less
than 10% will automatically and irrevocably be transferred to a designated
charitable beneficiary. The ownership attribution rules under the Code are
complex and may cause Common Shares owned actually or constructively by a group
of related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 8.6% of the
Common Shares (or the acquisition of an interest in an entity that owns,
actually or constructively, Common Shares) by an individual or entity, could,
nevertheless cause that individual or entity, or another individual or entity,
to own constructively in excess of 8.6% of the outstanding Common Shares and
thus subject such Common Shares to the Ownership Limit. The Board of Trustees
may grant an exemption from the Ownership Limit with respect to one or more
persons who would not be treated as "individuals" for purposes of the Code if
such person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that (i) such person is not an individual
for purposes of the Code, (ii) such ownership will not cause a person who is an
individual to be treated as owning Common Shares in excess of the Ownership
Limit, applying the applicable constructive ownership rules, and (iii) such
ownership will not otherwise jeopardize the Company's status as a REIT. As a
condition of such waiver, the Board of Trustees may, in its reasonable
discretion, require undertakings or representations from the applicant to
ensure that the conditions in clauses (i), (ii) and (iii) of the preceding
sentence are satisfied and will continue to be satisfied as long as such person
owns shares in excess of the Ownership Limit. Under certain circumstances, the
Board of Trustees may, in its sole and absolute discretion, grant an exemption
for individuals or entities to acquire any series or class of Preferred Shares
in excess of the Ownership Limit or the Excluded Holder Limit, provided that
certain conditions are met and any representations and undertakings that may be
required by the Board of Trustees are made. In either circumstance, prior to
granting any exemption, the Board of Trustees must receive a ruling from the
Internal Revenue Service or advice of counsel, in either case in form and
substance satisfactory to the Board of Trustees, as it may deem necessary or
advisable in order to determine or ensure the Company's status as a REIT.

The Board of Trustees of the Company will have the authority to increase
the Ownership Limit with respect to Common Shares from time to time, but will
not have the authority to do so to the extent that after giving effect to such
increase, five beneficial owners of Common Shares could beneficially own in the
aggregate more than 49.5% of the outstanding Common Shares.

The Declaration of Trust further prohibits (a) any person from actually or
constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person
from transferring shares of beneficial interest of the Company if such transfer
would result in shares of beneficial interest of the Company being owned by
fewer than 100 persons.

Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of beneficial interest of the Company that
will or may violate any of the foregoing restrictions on transferability and
ownership is required to give notice immediately to the Company and provide the
Company with such other information as the Company may request in order to
determine the effect of such transfer on the Company's status as a REIT.

If any purported transfer of shares of beneficial interest of the Company
or any other event would otherwise result in any person violating the Ownership
Limit or the other restrictions in the Declaration of the Trust, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
that exceeds the Ownership Limit (referred to as "excess shares") and the
Prohibited Transferee shall acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to any such shares in excess of the Ownership Limit (the "Prohibited
Owner") shall cease to own any right or interest) in such excess shares. Any
such excess shares described above will be transferred automatically, by
operation of law, to a trust, the

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beneficiary of which will be a qualified charitable organization selected by
the Company (the "Beneficiary"). Such automatic transfer shall be deemed to be
effective as of the close of business on the Business Day (as defined in the
Declaration of Trust) prior to the date of such violating transfer. Within 20
days of receiving notice from the Company of the transfer of shares to the
trust, the trustee of the trust (who shall be designated by the Company and be
unaffiliated with the Company and any Prohibited Transferee or Prohibited
Owner) will be required to sell such excess shares to a person or entity who
could own such shares without violating the Ownership Limit, and distribute to
the Prohibited Transferee an amount equal to the lesser of the price paid by
the Prohibited Transferee for such excess shares or the sales proceeds received
by the trust for such excess shares. In the case of any excess shares resulting
from any event other than a transfer, or from a transfer for no consideration
(such as a gift), the trustee will be required to sell such excess shares to a
qualified person or entity and distribute to the Prohibited Owner an amount
equal to the lesser of the fair market value of such excess shares as of the
date of such event or the sales proceeds received by the trust for such excess
shares. In either case, any proceeds in excess of the amount distributable to
the Prohibited Transferee or Prohibited Owner, as applicable, will be
distributed to the Beneficiary. Prior to a sale of any such excess shares by
the trust, the trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the Company with
respect to such excess shares, and also will be entitled to exercise all voting
rights with respect to such excess shares. Subject to Maryland law, effective
as of the date that such shares have been transferred to the trust, the trustee
shall have the authority (at the trustee's sole discretion and subject to
applicable law) (i) to rescind as void any vote cast by a Prohibited Transferee
prior to the discovery by the Company that such shares have been transferred to
the trust and (ii) to recast such vote in accordance with the desires of the
trustee acting for the benefit of the Beneficiary. However, if the Company has
already taken irreversible corporate action, then the trustee shall not have
the authority to rescind and recast such vote. Any dividend or other
distribution paid to the Prohibited Transferee or Prohibited Owner (prior to
the discovery by the Company that such shares had been automatically
transferred to a trust as described above) will be required to be repaid to the
trustee upon demand for distribution to the Beneficiary. If the transfer to the
trust as described above is not automatically effective (for any reason) to
prevent violation of the Ownership Limit, then the Declaration of Trust
provides that the transfer of the excess shares will be void.

In addition, shares of beneficial interest of the Company held in the
trust shall be deemed to have been offered for sale to the Company, or its
designee, at a price per share equal to the lesser of (i) the price per share
in the transaction that resulted in such transfer to the trust (or, in the case
of a devise or gift, the market value at the time of such devise or gift) and
(ii) the market value of such shares on the date of the Company, or its
designee, accepts such offer. The Company shall have the right to accept such
offer until the trustee has sold the shares of beneficial interest held in the
Trust. Upon such a sale to the Company, the interest of the Beneficiary in the
shares sold shall terminate and the trustee shall distribute the net proceeds
of the sale to the Prohibited Owner.

The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.

All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.

All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 5% (or such other lower percentage as provided in the
rules and regulations promulgated under the Code) of the lesser of the number
or value of the outstanding shares of beneficial interest of the Company must
give a written notice to the Company within 30 days after the end of each
taxable year. In addition, each shareholder will, upon demand, be required to
disclose to the Company in writing such information with respect to the direct,
indirect and constructive ownership of shares of beneficial interest as the
Board of Trustees deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.

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These ownership limitations could have the effect of delaying, deferring
or preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.

Transfer Agent and Registrar

The transfer agent and registrar for the Common Shares is ChaseMellon
Shareholder Services, Inc.

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CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
DECLARATION OF TRUST AND BYLAWS

The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law
and the Declaration of Trust and Bylaws of the Company, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part.

The Declaration of Trust and Bylaws of the Company contain certain
provisions that could make more difficult an acquisition or change in control
of the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trustees.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. See also "Shares of Beneficial Interest -- Restrictions on Ownership and
Transfer."

Number of Trustees; Classification and Removal of Board of Trustees; Other
Provisions

Effective immediately following the closing of the Offering, the
Declaration of Trust will provide that the Board of Trustees shall consist of
five members and may be thereafter increased or decreased in accordance with
the Bylaws of the Company, provided that the total number of Trustees may not
be fewer than three or more than nine. Pursuant to the Company's Bylaws, the
number of trustees shall be fixed by the Board of Trustees within the limits
set forth in the Declaration of Trust. Following the closing of the Offering,
the Company's Declaration of Trust also will provide for the Board of Trustees
to be divided into three classes of Trustees, with each class to consist as
nearly as possible of an equal number of Trustees. The term of office of the
first class of trustees will expire at the 1999 annual meeting of shareholders;
the term of the second class of trustees will expire at the 2000 annual meeting
of shareholders; and the term of the third class of trustees will expire at the
2001 annual meeting of shareholders. At each annual meeting of shareholders,
the class of trustees to be elected at such meeting will be elected for a
three-year term, and the trustees in the other two classes will continue in
office. Because shareholders will have no right to cumulative voting for the
election of trustees, at each annual meeting of shareholders the holders of a
majority of the Common Shares will be able to elect all of the successors to
the class of trustees whose term expires at that meeting.

The Company's Declaration of Trust also provides that, except for any
trustees who may be elected by holders of a class or series of shares of
beneficial interest other than the Common Shares, Trustees may be removed only
for cause and only by the affirmative vote of shareholders holding at least a
majority of the shares then outstanding and entitled to be cast for the
election of trustees. Vacancies on the Board of Trustees may be filled by the
concurring vote of a majority of the remaining trustees and, in the case of a
vacancy resulting from the removal of a trustee by the shareholders, by a
majority of the votes entitled to be cast for the election of trustees. Under
Maryland law, trustees may fill any vacancy only until the next annual meeting
of shareholders. A vote of shareholders holding at least two-thirds of all the
votes entitled to be cast thereon is required to amend, alter, change, repeal
or adopt any provisions inconsistent with the foregoing classified board and
trustee removal provisions. These provisions may make it more difficult and
time-consuming to change majority control of the Board of Trustees of the
Company and, thus, may reduce the vulnerability of the Company to an
unsolicited proposal for the takeover of the Company or the removal of
incumbent management.

Because the Board of Trustees will have the power to establish the
preferences and rights of additional series of shares of beneficial interest
without a shareholder vote, the Board of Trustees may afford the holders of any
series of senior shares of beneficial interest preferences, powers and rights,
voting or otherwise, senior to the rights of holders of Common Shares. The
issuance of any such senior shares of beneficial interest could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Board of Trustees, however, currently does not contemplate the issuance of any
shares of beneficial interest other than Common Shares.

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See "Management -- Limitation of Liability and Indemnification" for a
description of the limitations on liability of trustees and officers of the
Company and the provisions for indemnification of trustees and officers
provided for under applicable Maryland law and the Declaration of Trust.

Changes in Control Pursuant to Maryland Law

Maryland Business Combination Law. Under the MGCL, as applicable to real
estate investment trusts, certain "business combinations" (including certain
issuances of equity securities) between a Maryland real estate investment trust
and any Interested Shareholder or an affiliate of the Interested Shareholder
are prohibited for five years after the most recent date on which the
Interested Shareholder becomes an Interested Shareholder. Thereafter, any such
business combination must be recommended by the Board of Trustees of such Trust
and approved by the affirmative vote of at least (i) 80% of all the votes
entitled to be cast by holders of the outstanding shares of voting stock and
(ii) two-thirds of the votes entitled to be cast by holders of voting stock
held by the Interested Shareholder who is (or whose affiliate is) a party to
the business combination unless, among other conditions, the trust's common
shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously
paid by the Interested Shareholder for its common shares.

Maryland Control Share Acquisition Law. In addition, also under the MGCL,
as applicable to real estate investments trusts, "control shares" acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the trust. "Control shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third; (ii) one-third
or more but less than a majority; or (iii) a majority or more of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder
approval. A "control share acquisition" means the acquisition of control
shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees of the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the trust may
itself present the question at any shareholders meeting.

If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.

The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the trust is a party
to the transaction or (b) to acquisitions approved or exempted by the
declaration of trust or bylaws of the trust. As permitted by the MGCL, the
Bylaws provide that the control share provisions of the MGCL do not apply to
the Company. However, the Board of Trustees, through its exclusive power to
amend the Bylaws, may elect to adopt these provisions in the future.

Amendments to the Declaration of Trust and Bylaws

The Declaration of Trust, including its provisions on classification of
the Board of Trustees, restrictions on transferability of Common Shares and
removal of trustees, may be amended only by a resolution adopted

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by the Board of Trustees and approved at an annual or special meeting of the
shareholders by the affirmative vote of the holders of not less than two-thirds
of all of the votes entitled to be cast on the matter. However, amendments
relating to changes in the number of authorized shares of beneficial interest
of the Company require the approval of holders of a majority of all votes
entitled to be cast at a meeting of shareholders at which a quorum is present.
Under the Maryland REIT law, a declaration of trust may permit the trustees by
a two-thirds vote to amend the declaration from time to time to qualify as a
REIT under the Code or the Maryland REIT law without the affirmative vote or
written consent of the shareholders. The Company's Declaration of Trust permits
such action by the Board of Trustees.

The Bylaws of the Company provide that the trustees have the exclusive
right to amend the Bylaws.

Advance Notice of Trustee Nominations and New Business

The Bylaws of the Company provide that (i) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board of
Trustees and the proposal of business to be considered by shareholders may be
made only (A) pursuant to the Company's notice of the meeting, (B) by the Board
of Trustees or (C) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(ii) with respect to special meetings of the shareholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of
Trustees may be made only (A) pursuant to the Company's notice of the meeting,
(B) by the Board of Trustees or (C) provided that the Board of Trustees has
determined that trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.

Meetings of Shareholders

The Company's Bylaws provide that annual meetings of shareholders shall be
held on a date and at the time set by the Board of Trustees during the month of
May each year (commencing in May 1999). Special meetings of the shareholders
may be called by (i) the Chairman of the Board of the Company, (ii) the
President or (iii) one-third of the Board of Trustees. As permitted by the
MGCL, the Bylaws of the Company provide that special meetings must be called by
the Secretary of the Company upon the written request of the holders of shares
entitled to cast not less than a majority of all votes entitled to be cast at
the meeting. Pursuant to the Declaration of Trust and Bylaws of the Company,
any action required or permitted to be taken by the shareholders must be
effected at a duly called annual or special meeting of shareholders and may not
be effected by any consent in writing by shareholders, unless such consent is
unanimous.

Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws

The business combination provisions of the MGCL (and the control share
acquisition provisions of the MGCL if they ever become applicable to the
Company), the provisions of the Declaration of Trust on classification of the
Board of Trustees and removal of Trustees, the provisions for amending the
Declaration of Trust and Bylaws and the advance notice provisions of the Bylaws
could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interests. The Declaration of Trust, as in effect,
provides that a merger, consolidation or sale of all or substantially all of
the assets of the Company must be approved, at a meeting called for that
purpose, by the affirmative vote of the holders of not less than two-thirds of
the then outstanding shares entitled to vote thereon.

Maryland Asset Requirements

To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.

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SHARES AVAILABLE FOR FUTURE SALE

General

Upon the completion of the Offering, the Company will have outstanding
6,482,600 Common Shares (7,390,100 shares if the Underwriters' overallotment
option is exercised in full). In addition, 482,030 Common Shares are reserved
for issuance upon exchange of Units. The Common Shares issued in the Offering
will be freely tradable by persons other than "affiliates" of the Company
without restriction under the Securities Act, subject to the limitations on
ownership set forth in this Prospectus. See "Shares of Beneficial Interest."
The 200,000 Common Shares purchased by Mr. Romanov in the private placement,
the Common Share awards of 2,500 shares each to be made to the three trustee
nominees and the 225,000 Common Shares to be issued to Messrs. Walker and
Romanov in exchange for the Units received by Messrs. Walker and Romanov in
respect of the interest of Genesis in ET Partnership, which interest will be
purchased by Messrs. Walker and Romanov from Genesis prior to the liquidation
of ET Partnership and the recapitalization of the Operation Partnership from
Genesis, as well as any Common Shares acquired in redemption of Units
(collectively, the "Restricted Common Shares"), will be "restricted" securities
under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144. As described below under "-- Registration Rights," the
Company has granted certain holders registration rights with respect to their
Restricted Common Shares.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Common Shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 also are subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of Restricted
Common Shares from the Company or from any "affiliate" of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate
of the Company at any time during the 90 days immediately preceding a sale,
such person is entitled to sell such shares in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.

The Company and the executive officers and trustees (including trustee
nominees) of the Company will be required, as a condition to the Underwriters'
participation in the Offering, to agree that they will not, without the consent
of the Representative (as defined below), offer, sell, contract to sell or
otherwise dispose of any Common Shares (including any Common Shares acquired
upon redemption of Units) for 12 months following the Closing. See
"Underwriting."

Prior to the Offering, there has been no public market for the Common
Shares. Trading of the Common Shares on the New York Stock Exchange is expected
to commence immediately following completion of the Offering. No prediction can
be made as to the effect, if any, that future sales or shares of the
availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Shares
(including Common Shares issued upon the exercise of options), or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Shares. See "Risk Factors -- Lack of a Prior Public
Market, Changes in Market Conditions, Changes in Earnings and Cash
Distributions, Changes in Interest Rates and Dependence on External Sources of
Capital Could Adversely Impact the Trading Price of the Common Shares" and
"Partnership Agreement -- Restrictions on Transfer of Interests by Limited
Partners."

Registration Rights

The Company will grant demand registration rights to Messrs. Walker and
Romanov with respect to Restricted Common Shares owned by them as of the
Closing of the Offering. The Company also will grant demand registration rights
to any shareholder with respect to any Restricted Common Shares acquired by
such shareholder in redemption of Units. The Company will bear all expenses
incident to these registration requirements, except for any underwriting
discounts or commissions or transfer taxes, if any, relating to the such
Restricted Common Shares.

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In addition, the Company will adopt the ElderTrust 1998 Share Option and
Incentive Plan for the purpose of attracting and retaining highly qualified
trustees, executive officers and other key employees. See "Management -- 1998
Share Option and Incentive Plan" and "-- Compensation of the Board of
Trustees." The Company intends to grant options to purchase approximately
497,500 Common Shares to trustees and executive officers upon the completion of
the Offering. Promptly following the completion of the Offering, the Company
expects to file a registration statement with the SEC with respect to the
Common Shares issuable under the ElderTrust 1998 Share Option and Incentive
Plan, which shares may be resold without restriction, unless held by
affiliates.

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the federal income tax considerations
reasonably anticipated to be material to a prospective shareholder in the
Company in connection with the ownership of Common Shares. The following
description is for general information only, is not exhaustive of all possible
tax considerations, and is not intended to be (and should not be construed as)
tax advice. For example, this summary does not give a detailed discussion of
any state, local or foreign tax considerations. In addition, the discussion is
intended to address only those federal income tax considerations that are
generally applicable to all shareholders in the Company. It does not discuss
all aspects of federal income taxation that might be relevant to a specific
shareholder in light of its particular investment or tax circumstances. The
description does not purport to deal with all aspects of taxation that may be
relevant to shareholders subject to special treatment under the federal income
tax laws, including, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations (except to the extent
discussed under the heading "-- Taxation of Tax-Exempt Shareholders of the
Company") or foreign corporations and persons who are not citizens or residents
of the United States (except to the extent discussed under the heading "--
Taxation of Non-U.S. Shareholders of the Company").

The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code (taking into account certain changes in law that are effective for taxable
years starting after August 5, 1997), current administrative interpretations
and practices of the IRS (including its practices and policies as endorsed in
private letter rulings, which are not binding on the IRS except with respect to
a taxpayer that receives such a ruling), and court decisions, all as of the
date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and practices and court decisions
will not significantly change the current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. The Company has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Company or the Operating Partnership. Thus, no assurance can
be provided that the statements set forth herein (which do not bind the IRS or
the courts) will not be challenged by the IRS or will be sustained by a court
if so challenged.

As used in this section, the term "Company" refers solely to ElderTrust.

EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT WITH ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE OWNERSHIP
AND DISPOSITION OF COMMON SHARES OF AN ENTITY ELECTING TO BE TAXED AS A REIT IN
LIGHT OF ITS SPECIFIC TAX AND INVESTMENT SITUATIONS AND THE SPECIFIC FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS APPLICABLE TO IT.

Taxation of the Company

The Company plans to make an election to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. The Company believes that, commencing with its taxable year ending
December 31, 1998, it will be organized and will operate in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it
will continue to operate in such a manner so as to qualify or remain qualified.

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These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. The following sets forth the material aspects of
the rules that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof.

Hogan & Hartson L.L.P. has acted as tax counsel to the Company in
connection with the Company's election to be taxed as a REIT. In the opinion of
Hogan & Hartson L.L.P., commencing with the Company's taxable year ending
December 31, 1998, the Company will be organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
should enable it to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion is conditioned
upon certain representations made by the Company as to factual matters relating
to the organization and operation of the Company and the Operating Partnership.
In addition, this opinion is based upon the factual representations of the
Company concerning its business and properties as set forth in this Prospectus
and will assume that the actions described in this Prospectus are completed in
a timely fashion. Moreover, such qualification and taxation as a REIT depends
upon the Company's ability to meet on an ongoing basis (through actual annual
operating results, distribution levels and diversity of share ownership) the
various qualification tests imposed under the Code discussed below, the results
of which will not be reviewed by Hogan & Hartson L.L.P. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any particular taxable year will satisfy such requirements. Further, the
anticipated income tax treatment described in this Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time. See "-- Failure of the Company to Qualify as a REIT."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is distributed
currently to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows.

o The Company will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.

o Under certain circumstances, the Company may be subject to the "alternative
minimum tax" on its items of tax preference.

o If the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest
corporate rate on such income.

o If the Company has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business other than
foreclosure property or sales to which Section 1033 applies), such
income will be subject to a 100% tax.

o If the Company should fail to satisfy the 75% gross income test or the 95%
gross income test (each as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the
amount by which the Company fails the 75% or 95% test multiplied by (b)
a fraction intended to reflect the Company's profitability.

o If the Company should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year (ii) 95%
of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.

o With respect to any asset (a "Built-In Gain Asset") acquired by the Company
from a corporation which is or has been a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the Built-In Gain Asset in the hands
of the Company is determined by reference to the basis of the asset in
the hands of the C corporation, if the Company recognizes gain on

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the disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which such asset was acquired by the
Company, then, to the extent of the "Built-In Gain" (i.e., the excess of
(a) the fair market value of such asset over (b) the Company's adjusted
basis in such asset, determined as of the beginning of the Recognition
Period), such gain will be subject to tax at the highest regular corporate
rate pursuant to Treasury Regulations that have not yet been promulgated.
The results described above with respect to the recognition of Built-In
Gain assume that the Company will make the election described in IRS
Notice 88-19.

Requirements for Qualification as a REIT

Organizational Requirements. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest, (iii) that would be
taxable as a domestic corporation, but for Sections 856 through 860 of the
Code, (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code, (v) the beneficial ownership of
which is held by 100 or more persons, (vi) during the last half of each taxable
year not more than 50% in value of the outstanding shares of which is owned,
actually or constructively, by five or fewer individuals (as defined in the
Code to include certain entities), (vii) that makes an election to be a REIT
(or has made such an election for a previous taxable year which has not been
terminated or revoked) and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order to
elect and maintain REIT status, (viii) that uses a calendar year for federal
income tax purposes and complies with the recordkeeping requirements of the
Code and Treasury Regulations promulgated thereunder, and (ix) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to
be taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).

The Company believes that it will have issued sufficient Common Shares
with sufficient diversity of ownership in the Offering to allow it to satisfy
conditions (v) and (vi) above. In addition, the Company's Declaration of Trust
provides for restrictions regarding the transfer and ownership of Common
Shares, which restrictions are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above. Such
ownership and transfer restrictions are described in "Shares of Beneficial
Interest -- Restrictions on Ownership and Transfer." These restrictions,
however, may not ensure that the Company will, in all cases, be able to satisfy
the share ownership requirements described above. If the Company fails to
satisfy such share ownership requirements, the Company's status as a REIT will
terminate. See "-- Failure of the Company to Qualify as a REIT." Treasury
Regulations require that the Company each year demand from certain record
owners of its shares certain information in order to assist the Company in
ascertaining that the share ownership requirements described above are
satisfied. If the Company were to fail to comply with these Treasury Regulation
requirements for any year, it would be subject to a $25,000 penalty. If the
Company's failure to comply were due to intentional disregard of the
requirements, the penalty would be increased to $50,000. However, if the
Company's failure to comply were due to reasonable cause and not willful
neglect, no penalty would be imposed. If the Company complies with the
regulatory rules on ascertaining its actual owners but does not know, or would
not have known by exercising reasonable diligence, whether it failed to meet
the requirement that it not be closely held, the Company will be treated as
having met the requirement. These rules were enacted as part of the Taxpayer
Relief Act of 1997 (the "1997 Act") and are a change to the prior law, which
provided that a REIT would be disqualified if it failed to comply with these
Treasury Regulations.

Absence of C Corporation Earnings and Profits. The Company was formed in
1997, but will not be active until 1998. Because it was inactive the Company
did not satisfy the requirements for qualifications as a REIT for its short
taxable year ended December 31, 1997. The Company will therefore make its
election to be

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taxed as a REIT for its taxable year ending December 31, 1998. In order to
qualify as a REIT, the Company cannot have at the end of any taxable year any
undistributed "earnings and profits" that are attributable to a "C corporation"
taxable year. The Company believes that it does not have, and did not have, any
earnings and profits from its taxable year ended December 31, 1997.

Ownership of Partnership Interests. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share of assets. In addition, the character of the assets and gross income of
the partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income
tests and the asset tests. Thus, the Company's proportionate share of the
assets and items of income of the Operating Partnership and any subsidiaries of
the Operating Partnership that are partnerships or limited liability companies
("LLCs") will be treated as assets and items of income of the Company for
purposes of applying the requirements described herein. A summary of the rules
governing the federal income taxation of partnerships and their partners is
provided below in "-- Tax Aspects of the Company's Ownership of Interests in
the Operating Partnership." The Company will have direct control of the
Operating Partnership and intends to operate the Operating Partnership in a
manner consistent with the requirements for qualification as a REIT.

Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy the following two gross income requirements.

o First, at least 75% of the Company's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property," gains
on dispositions of real estate, dividends paid by another REIT and, in
certain circumstances, interest from mortgage loans secured by real
property) or from certain types of temporary investments.

o Second, at least 95% of the Company's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived
from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities, including certain
hedging instruments (or from any combination of the foregoing).

Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
the following several conditions are met.

o First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.

o Second, rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an
actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a "Related Party
Tenant").

o Third, if rent attributable to personal property leased in connection with
a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property" (the
"15% Personal Property Test").

o Finally, for rents received to qualify as "rents from real property," the
REIT generally must not operate or manage the property, or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue. The REIT
may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the
occupant" of the property. Additionally, due to changes in this
requirement enacted as part of the 1997 Act for taxable years beginning
on or after January 1, 1998, a REIT may provide de minimis services
directly to the tenants of a property; provided, however, that if (i)
the REIT operates or manages a property or furnishes or renders
services to the tenants at the property other than through an
independent contractor from whom the REIT derives no revenue (not
including services "usually or customarily rendered" in connection with
the rental of real property and not otherwise considered "rendered to
the occupant") and (ii) the

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amount received for so doing (the "Impermissible Tenant Service Income")
exceeds one percent of the total amount of rent received by the REIT with
respect to the property, then no amount of rent received by the REIT with
respect to the property will qualify as "rents from real property." If the
Impermissible Tenant Service Income is one percent or less of the total
amount of rent received by the REIT with respect to the property, then
only the Impermissible Tenant Service Income will not qualify as "rents
from real property." A REIT's Impermissible Tenant Service Income may not
be less than 150% of the REIT's direct cost in generating such income. To
the extent that services (other than those customarily furnished or
rendered in connection with the rental of real property) are rendered to
the tenants of the property by the independent contractor, the cost of the
services must be borne by the independent contractor.

The Company will not (i) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a fixed percentage of receipts or sales, as described above, or
unless the Board of Trustees determines, in its discretion, that the rent
received from a particular tenant under such an arrangement is not material and
will not jeopardize the Company's status as a REIT), (ii) rent any property to
a Related Party Tenant (unless the Board of Trustees determines in its
discretion that the rent received from such Related Party Tenant is not
material and will not jeopardize the Company's status as a REIT), (iii) derive
rental income attributable to personal property (other than personal property
leased in connection with the lease of real property, the amount of which is
less than 15% of the total rent received under the lease) or (iv) perform
services considered to be rendered to the occupant of the property, other than
through an independent contractor from whom the Company derives no revenue
(except to the extent that the Impermissible Tenant Service Income would not
exceed the 1% threshold described above or the Board of Trustees otherwise
determines, in its discretion, that the nonqualifying income resulting
therefrom is not material and will not jeopardize the Company's status as a
REIT).

Pursuant to the Percentage Rent Leases, Genesis or a subsidiary of Genesis
will lease from the Operating Partnership (i) two of the Initial Properties
which are assisted living facilities and one of the Initial Properties which is
an independent living facility, (ii) the three Lease-up Assisted Living
Facilities which the Company has agreed to acquire from Genesis or from an
entity in which Genesis has a 49% interest and (iii) the Initial Assisted
Living Development Project which the Company has agreed to acquire from
Genesis. The lease for the remaining assisted living facility being acquired
from and leased-back to a subsidiary of Genesis will provide for the payment of
Minimum Rent until such facility reaches Stabilized Occupancy, at which time
the lease will convert automatically into a Percentage Rent Lease with no
minimum rent. The Percentage Rent Leases provide that Genesis, directly or
indirectly, will be obligated to pay to the Operating Partnership (i)
Percentage Rent (as defined below) and (ii) Additional Rent (as defined below)
(collectively "Rent"). "Percentage Rent" is calculated by multiplying a
specified fixed percentage by the revenue generated with respect to the leased
property (adjusted to exclude: (a) revenues from professional fees or charges
by physicians and all providers of ancillary services (including Genesis and
its affiliates), including, without limitation, physical therapy services,
whether or not such providers are employees of the tenant; (b) non-operating
revenues, such as interest income or income from the sale of assets not sold in
the ordinary course of business; (c) federal, state or local excise taxes
imposed upon, and any tax based upon or measured by, such revenues which is
added to or made a part of the amount billed to the resident, client or other
recipient of such services or goods, whether included in the billing or stated
separately; (d) contractual allowances (relating to any period during the term)
for billings not paid by or received from the appropriate governmental agencies
or third party providers; and (e) all proper patient billing credits and
adjustments (including, without limitation, allowances for uncollectable
accounts) according to generally accepted accounting principles relating to
healthcare accounting) (as adjusted, "Facility Revenues"). Percentage Rent is
required to be paid each month in advance, with adjustments to be made
quarterly and annually based on actual results.

Pursuant to the Minimum Rent Leases, a tenant will lease from the
Operating Partnership (i) two of the Initial Properties which are assisted
living facilities, (ii) all of the Initial Properties which are skilled nursing
facilities and (iii) the Lease-up Assisted Living Facilities and Initial
Assisted Living Development Projects which will be acquired for and leased back
to Multicare or SLC. The Minimum Rent Leases provide that the tenant will be
obligated to pay to the Operating Partnership "Rent" consisting of (i) Minimum
Rent (as

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defined below), (ii) Incremental Percentage Rent and (iii) Additional Rent.
"Minimum Rent" is set at the beginning of the term and escalates based on the
Consumer Price Index, a fixed percentage increase per year or a fixed
percentage of the increase in the gross revenues for a facility during the
immediately preceding year. Incremental Percentage Rent is calculated by
multiplying a specified fixed percentage by the increased gross revenues for a
facility over a specified base amount. Minimum Rent is to be paid each month in
advance, and Incremental Percentage Rent is required to be paid quarterly, with
adjustments to be made annually based on actual results.

For both Percentage Rent Leases and Minimum Rent Leases, "Additional Rent"
includes adjustments equal to the difference between the tenant's payment of
estimated Percentage Rent or Incremental Percentage Rent, as the case may be,
during a particular period and the actual Percentage Rent or Incremental
Percentage Rent, as applicable, payable with respect to such period and certain
other costs a tenant agrees to pay under the applicable lease.

The leases of the medical and other office buildings included in the
Initial Properties do not provide for any rent payments based on a tenant's
revenues.

In order for Rent to constitute "rents from real property," the leases
must be respected as true leases for federal income tax purposes and not
treated as service contracts, joint ventures or some other type of arrangement.
The determination of whether the leases are true leases depends on an analysis
of all the surrounding facts and circumstances. In making such a determination,
courts have considered a variety of factors, including the following: (i) the
intent of the parties; (ii) the form of the agreement; (iii) the degree of
control over the property that is retained by the property owner (e.g., whether
the lessee has substantial control over the operation of the property or
whether the lessee was required simply to use its best efforts to perform its
obligations under the agreement); and (iv) the extent to which the property
owner retains the risk of loss with respect to the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property) or the potential for economic gain (e.g., appreciation) with
respect to the property.

In addition, Code section 7701(e) provides that a contract that purports
to be a service contract (or a partnership agreement) is treated instead as a
lease of property if the contract is properly treated as such, taking into
account all relevant factors, including whether or not: (i) the service
recipient is in physical possession of the property; (ii) the service recipient
controls the property; (iii) the service recipient has a significant economic
or possessory interest in the property (e.g., if the property's use is likely
to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs
or the recipient bears the risk of damage to or loss of the property); (iv) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract; (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient;
and (vi) the total contract price does not substantially exceed the rental
value of the property for the contract period. Since the determination of
whether a service contract should be treated as a lease is inherently factual,
the presence or absence or any single factor may not be dispositive in every
case.

The Percentage Rent Leases and the Minimum Rent Leases have been
structured with the intent to qualify as true leases for federal income tax
purposes. Investors should be aware, however, that there are no controlling
Treasury Regulations, published rulings or judicial decisions involving leases
with terms substantially the same as the Percentage Rent Leases or the Minimum
Rent Leases that discuss whether such leases constitute true leases for federal
income tax purposes. Therefore, there can be no assurance that the IRS might
not assert a contrary position. If the Percentage Rent Leases or the Minimum
Rent Leases are recharacterized as service contracts or partnership agreements,
rather than true leases, part or all of the payments that the Operating
Partnership receives from the lessee would not be considered rent or would not
otherwise satisfy the various requirements for qualification as "rents from
real property." In that case, the Company likely would not be able to satisfy
either the 75% or 95% gross income test and, as a result, would lose its REIT
status. In rendering its opinion, described above, that the Company's proposed
method of

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operation should enable it to meet the requirement for qualification and
taxation as a REIT under the Code, Hogan & Hartson L.L.P. has relied upon
representations made by the Company as to, among other things, the terms of the
Leases, their commercial reasonableness and the intent and economic
expectations of the parties to the Leases.

As indicated above, "rents from real property" must not be based in whole
or in part on the income or profits of any person. Each of the Percentage Rent
and the Incremental Percentage Rent should qualify as "rents from real
property" since it is based on percentages of receipts or sales which
percentages are fixed at the time the leases are entered into, provided the
leases (i) are not renegotiated during the term of the leases in a manner that
has the effect of basing Percentage Rent or Incremental Percentage Rent on
income or profits and (ii) are not in reality used as a means of basing rent on
income or profits. More generally, the Percentage Rent and the Incremental
Percentage Rent, as applicable, will not qualify as "rent from real property"
if, considering the Percentage Rent Leases or the Minimum Rent Leases and all
the surrounding circumstances, the arrangement does not conform with normal
business practice but is in reality used as a means of basing rent on income or
profits. Because each of the Percentage Rent and the Incremental Percentage
Rent, as applicable, is based on fixed percentages of the gross revenues from
the facilities that are established in the Percentage Rent Leases and the
Minimum Rent Leases, and the Company has represented that the percentages (i)
will not be renegotiated during the terms of the leases in a manner that has
the effect of basing rent on income or profits and (ii) conform with normal
business practice, the Percentage Rent and the Incremental Percentage Rent, as
applicable, should not be considered based in whole or in part on the income or
profits of any person. Furthermore, the Company has represented that, with
respect to other properties that it acquires in the future, it will not charge
rent for any property that is based in whole or in part on the income or
profits of any person (except by reason of being based on a fixed percentage of
gross revenues, as described above). Neither the Percentage Rent and the
Incremental Percentage Rent, as applicable, nor Additional Rent are based on
the income or net profits of any person, and therefore should qualify as "rents
from real property."

The Company may lease certain items of personal property in connection
with the lease of an assisted living facility, a skilled nursing facility or an
independent living facility property. The 15% Personal Property Test provides
that if a lease provides for the rental of both real and personal property and
the portion of the rent attributable to personal property is 15% or less of the
total rent due under the lease, then all rent paid pursuant to such lease
qualifies as "rent from real property." If, however, a lease provides for the
rental of both real and personal property, and the portion of the rent
attributable to personal property exceeds 15% of the total rent due under the
lease, then the portion of the rent that is attributable to personal property
does not qualify as "rent from real property." The amount of rent attributable
to personal property is that amount which bears the same ratio to total rent
for the taxable year as the average of the adjusted tax bases of the personal
property at the beginning and end of the year bears to the average of the
aggregate adjusted tax bases of both the real and personal property at the
beginning and end of such year. The Company has represented that with respect
to each lease that includes a lease of items of personal property, the amount
of rent attributable to personal property with respect to such lease,
determined as set forth above, will not exceed 15% of the total rent due under
the lease.

If any of the leased Initial Properties which are assisted living
facilities, skilled nursing facilities or independent living facilities or any
of the leased Initial Assisted Living Development Projects were to be operated
directly by the Operating Partnership or a subsidiary partnership or LLC as a
result of a default by the lessee under the applicable lease, such property
would constitute foreclosure property for three years following its acquisition
(or for up to an additional three years if an extension is granted by the IRS),
provided that (i) the Operating Partnership or its subsidiary partnership or
LLC conducts operations through an independent contractor (which would not
include Genesis and its affiliates) within 90 days after the date the property
is acquired, (ii) the Operating Partnership or its subsidiary partnership or
LLC does not undertake any construction on the foreclosed property other than
completion of improvements that were more than 10% complete before default
became imminent and (iii) foreclosure was not regarded as foreseeable at the
time the Company entered into such leases. For as long as any of these
properties constitute foreclosure property, the income from the properties
would be subject to tax at the maximum corporate rates, but it would qualify
under the 75% and 95% gross income tests. However, if any of these properties
does not constitute foreclosure property at any time in the future, income
earned from the disposition or operation of such property will not qualify
under the 75% and 95% gross income tests.

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Through the Operating Partnership, which is not an "independent
contractor," the Company may provide certain services with respect to the
Initial Properties or the Lease-up Assisted Living Facilities or Initial
Assisted Living Development Projects, but the Company believes (and has
represented) that all such services would be considered "usually or customarily
rendered" in connection with the rental of space for occupancy only, so that
the provision of such services would not jeopardize the qualification of rent
from the Initial Properties or the Lease-up Assisted Living Facilities or
Initial Assisted Living Development Projects as "rents from real property." In
the case of any services that are not "usual and customary" under the foregoing
rules, the Company intends to employ "independent contractors" to provide such
services.

Except for interest on obligations secured by real property, such as the
Construction Loans, the Term Loans and the Penn Mortgage, "interest" will not
qualify under the 75% gross income test (but will qualify under the 95% gross
income test). For interest received from the Construction Loans, the Term Loans
and the Penn Mortgage to qualify for both the 75% and 95% gross income test,
they must be secured by real property and must be treated as debt for federal
income tax purposes. In this regard, the Construction Loans, the Term Loans and
the Penn Mortgage are secured by real property, the terms of each are typical
of a debt instrument and the Company believes that the fair market value of the
real property securing each of the Term Loans, the Construction Loans and the
Penn Mortgage will exceed the principal amount of the loan or mortgage at the
time the Loan is made by the Company or, if acquired by the Company from
Genesis, did exceed the principal amount of the loan or mortgage at the time it
was made. (Interest on loans, whether secured by real property or not, that is
based on the income or profits of any person will not qualify under either the
75% or the 95% gross income test. The Company, however, does not anticipate
making any loans where interest payable is based upon the income or profits of
any person.)

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet
such tests were due to reasonable cause and not due to willful neglect and (ii)
the Company attaches a schedule of the sources of its income to its federal
income tax return and any incorrect information on the schedule was not due to
fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross
income tests because non-qualifying income that the Company intentionally
incurs exceeds the limits on such income, the IRS could conclude that the
Company's failure to satisfy the tests was not due to reasonable cause. If
these relief provisions are inapplicable to a particular set of circumstances
involving the Company, the Company will not qualify as a REIT. As discussed
above under "-- Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income.

Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the
ordinary course of business (including the Company's share of any such gain
realized by the Operating Partnership) will be treated as income from a
"prohibited transaction" that is subject to a 100% penalty tax. Such prohibited
transaction income may also have an adverse effect upon the Company's ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold the Initial Properties, the Lease-up
Assisted Living Facilities and the Initial Assisted Living Development Projects
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning and operating the Initial Properties, the
Lease-up Assisted Living Facilities and Initial Assisted Living Development
Projects (and other properties) and to make such occasional sales of the
Initial Properties or the Lease-up Assisted Living Facilities or Initial
Assisted Living Development Projects as are consistent with the Operating
Partnership's investment objectives. There can be no assurance, however, that
the IRS might not contend that one or more of such sales is subject to the 100%
penalty tax.

Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy the following three tests relating to the nature of its
assets.

o First, at least 75% of the value of the Company's total assets must be
represented by real estate assets including (i) its allocable share of
real estate assets held by partnerships in which the Company owns

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an interest (including its allocable share of the assets held directly or
indirectly through the Operating Partnership) and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of
a stock offering or long-term (at least five years) debt offering of the
Company, cash, cash items and government securities.

o Second, not more than 25% of the Company's total assets may be represented
by securities other than those in the 75% asset class.

o Third, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities.

The Operating Partnership owns 100% of the nonvoting stock of ET Capital
Corp. and a note issued by ET Capital Corp. The Company believes that the
Company's pro rata share of the value of the securities of ET Capital Corp.
does not exceed 5% of the total value of the Company's assets. There can be no
assurance, however, that the IRS will not contend either that the value of the
securities of ET Capital Corp. held by the Company (through the Operating
Partnership) exceeds the 5% value limitation or that nonvoting stock of ET
Capital Corp. held by the Operating Partnership should be considered "voting
stock" for this purpose.

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter (including, for example, as a
result of the Company increasing its interest in the Operating Partnership as a
result of the exercise of a Unit Redemption Right or an additional capital
contribution of proceeds of an offering of Common Shares by the Company), the
failure can be cured by disposition of sufficient nonqualifying assets within
30 days after the close of that quarter. The Company intends to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance. If the Company fails to
cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.

As discussed above, the assets held by the Company include the
Construction Loans, the Term Loans and the Penn Mortgage. For these loans and
the mortgage to qualify as "real estate assets" for the purpose of the asset
test, they must be secured by real property and must be treated as debt for
federal income tax purposes. As discussed above, the Construction Loans, the
Term Loans and the Penn Mortgage are secured by real property, the terms of
each are typical of a debt instrument and the Company believes that the fair
market value of the real property securing each of the Term Loans, the
Construction Loans and the Penn Mortgage will or did exceed the principal
amount of the loan or mortgage at the time it is or was made.

Annual Distribution Requirements. The Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (a) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the Company's net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income. In
addition, if the Company disposes of any Built-In Gain Asset during its
Recognition Period, the Company will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-In Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment date after such declaration.

To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. The Company, however, may designate some or
all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a shareholder
would include its proportionate share of such amount in income, as long-term
capital gain, and would be treated as having paid its proportionate share of
the tax paid by the Company with respect to such amount. The shareholder's
basis in its shares would be increased by the amount

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the shareholder included in income and decreased by the amount of the tax the
shareholder is treated as having paid. The Company would make an appropriate
adjustment to its earnings and profits. For a more detailed description of the
tax consequences to a shareholder of such a designation, see "-- Taxation of
Taxable U.S. Shareholders of the Company Generally."

The Company intends to make timely distributions sufficient to satisfy
these annual distribution requirements. In this regard, the Operating
Partnership Agreement authorizes the Company, as managing general partner, to
take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit the Company to meet
these distribution requirements.

It is expected that the Company's REIT taxable income will be less than
its cash flow due to the allowance of depreciation and other non-cash charges
in computing REIT taxable income. Accordingly, the Company anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the distribution requirements described above. It is possible, however, that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet these distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses
in arriving at taxable income of the Company. If such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to
pay dividends in the form of taxable share dividends.

A portion of the cash to be used by the Company to fund distributions is
expected to come from ET Capital Corp. through payments of dividends on the
stock of ET Capital Corp. held by the Operating Partnership. ET Capital Corp.
pays federal and state income tax at the applicable corporate rates. To the
extent that ET Capital Corp. is required to pay federal, state or local taxes,
the cash available for distribution by the Company to its shareholders will be
reduced accordingly.

Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon the
amount of any deduction taken for deficiency dividends.

Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.

Failure of the Company to Qualify as a REIT

If the Company fails to qualify for taxation as a REIT in any taxable
year, and if the relief provisions do not apply, the Company will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash available for distribution by the Company
to its shareholders. In addition, if the Company fails to qualify as a REIT,
all distributions to shareholders will be taxable as ordinary income to the
extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.

Taxation of Taxable U.S. Shareholders of the Company Generally

As used herein, the term "U.S. Shareholder" means a holder of Common
Shares who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership

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or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who would have the authority to control all substantial decisions of
the trust.

Distributions Generally. As long as the Company qualifies as a REIT,
distributions made by the Company out of its current or accumulated earnings
and profits (and not designated as capital gain dividends) will constitute
dividends taxable to its taxable U.S. Shareholders as ordinary income.

Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Shareholders
that are individuals, estates or trusts as gain from the sale or exchange of a
capital asset held for more than one year (to the extent such capital gain
dividends do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which such U.S. Shareholder has held the
Common Shares with respect to which any such distribution is made.

On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital gain
dividend as (i) a 20% rate gain distribution (which would be taxed as long-term
capital gain in the 20% group), (ii) an unrecaptured Section 1250 gain
distribution (which would be taxed as long-term capital gain in the 25% group)
or (iii) a 28% rate gain distribution (which would be taxed as long-term
capital gain in the 28% group). (If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate gain
distribution. For a discussion of the 20%, 25% and 28% tax rates applicable to
individuals, estates and trusts, see "-- 1997 Act Changes to Capital Gain
Taxation" below.) IRS Notice 97-64 also provides that the Company must
determine the maximum amounts that it may designate as 20% and 25% rate capital
gain dividends by performing the computation required by the Code as if the
Company were an individual whose ordinary income were subject to a marginal tax
rate of at least 28%. The Notice further provides that designations made by the
Company only will be effective to the extent that they comply with Revenue
Ruling 89-81, which requires that distributions made with respect to different
classes of shares be composed proportionately of dividends of a particular
type.

Distributions that are properly designated by the Company as capital gain
dividends will be taxable to taxable corporate U.S. Shareholders as long-term
capital gain (to the extent that such capital gain dividends do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which such corporate U.S. Shareholder has held the Common Shares
with respect to which any such distribution is made. The tax rate designations
described in the preceding paragraph do not apply to corporate shareholders.
Such corporate U.S. Shareholders may, however, be required to treat up to 20%
of certain capital gain dividends as ordinary income.

To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in its Common Shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in its Common Shares taxable as capital gains
(provided that the Common Shares have been held as a capital asset). Dividends
declared by the Company in October, November, or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company on or before January 31 of the following calendar year. U.S.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against future income
(subject to certain limitations). The Company will notify Shareholders after
the close of the Company's taxable year as to the portions of distributions
attributable to that year that constitute ordinary income, return of capital
and capital gain.

The Company may designate by written notice to its Shareholders its net
capital gain so that, with respect to any retained net capital gains, a U.S.
Shareholder would include its proportionate share of such retained net capital
gains in income as long-term capital gain and would be treated as having paid
its proportionate share of the tax paid by the Company with respect to such
retained net capital gains. The U.S.

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Shareholder's basis in its shares would be increased by its share of such
retained net capital gains and decreased by its share of such tax. With respect
to such long-term capital gain of a U.S. Shareholder that is an individual or
an estate or trust, the IRS, as described above in this section, has authority
to issue regulations that should apply to such long-term capital gain the
special tax rate applicable generally to the portion of the long-term capital
gains of an individual or an estate or trust attributable to deductions for
depreciation taken with respect to depreciable real property.

Passive Activity Loss and Investment Limitations. Distributions made by
the Company and gain arising from the sale or exchange by a U.S. Shareholder of
Common Shares will not be treated as passive activity income, and, as a result,
U.S. Shareholders generally will not be able to apply any "passive losses"
against such income or gain. Dividends from the Company (to the extent they do
not constitute a return of capital) generally will be treated as investment
income for purposes of the investment income limitation. Under recently enacted
legislation, net capital gain from the disposition of Common Shares and capital
gain dividends generally will be excluded from investment income unless the
U.S. Shareholder makes an election to the contrary.

Certain Dispositions of Shares. In general, upon any sale or other
disposition of Common Shares, a U.S. Shareholder will recognize gain or loss
for federal income tax purposes in an amount equal to the difference between
(i) the amount of cash and the fair market value of any property received on
such sale or other disposition and (ii) the holder's adjusted basis in such
Common Shares for tax purposes. Such gain or loss will be capital gain or loss
if the Common Shares have been held by the U.S. Shareholder as a capital asset,
and such gain or loss will be long-term capital gain or loss if such Common
Shares have been held for more than one year. In general, any loss recognized
by a U.S. Shareholder upon the sale or other disposition of Common Shares that
have been held for six months or less (after applying certain holding period
rules) will be treated as long-term capital loss to the extent of distributions
received by such U.S. Shareholder from the Company which were required to be
treated as long-term capital gains. For a U.S. Shareholder that is an
individual, trust or estate, the long-term capital loss will be apportioned
among the applicable long-term capital gain groups to the extent that
distributions received by such U.S. Shareholder were previously so treated.

1997 Act Changes to Capital Gain Taxation. The 1997 Act alters the
taxation of capital gain income. Under the 1997 Act, individuals, trusts and
estates that hold certain investments for more than 18 months may be taxed at a
maximum long-term capital gain rate of 20% on the sale or exchange of those
investments. Individuals, trusts and estates that hold certain assets for more
than one year but no more than 18 months may be taxed at a maximum long-term
capital gain rate of 28% on the sale or exchange of those investments. The 1997
Act also provides for a maximum rate of 25% for "unrecognized section 1250
gain" for individuals, trusts and estates, special rules for "qualified 5-year
gain" and certain other changes to prior law. The 1997 Act allows the IRS to
prescribe regulations on how the 1997 Act's new capital gain rates will apply
to sales of capital assets by "pass-through entities." To date such regulations
have not been prescribed. For a discussion of new rules under the 1997 Act that
apply to the taxation of distributions by the Company to its U.S. Shareholders
that are designated by the Company as "capital gain dividends," see "--
Distributions Generally" above. U.S. Shareholders are urged to consult with
their own tax advisors with respect to the new rules contained in the 1997 Act.

Backup Withholding for Company Distributions

The Company will report to its U.S. Shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such
holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Shareholder that does not provide the Company with
its correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to the Company. See
"-- Taxation of Non-U.S. Shareholders of the Company."

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Taxation of Tax-Exempt Shareholders of the Company

The IRS has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income ("UBTI") when received
by a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder (except certain tax-exempt shareholders described below) has not
held its Common Shares as "debt financed property" within the meaning of the
Code and such Common Shares are not otherwise used in a trade or business, the
dividend income from the Company will not be UBTI to a tax-exempt shareholder.
Similarly, income from the sale of Common Shares will not constitute UBTI
unless such tax-exempt shareholder has held such Common Shares as "debt
financed property" within the meaning of the Code or has used the Common Shares
in a trade or business.

For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts or qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) or (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.

Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code and (iii) holds more than 10% (by value) of the interests in
the REIT. Tax-exempt pension funds that are described in Section 401(a) of the
Code are referred to below as "qualified trusts." A REIT is a "pension-held
REIT" if (i) it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Code provides that stock owned by qualified trusts
shall be treated for purposes of the "not closely held" requirement as owned by
the beneficiaries of the trust (rather than by the trust itself) and (ii)
either (a) at least one such qualified trust holds more than 25% (by value) of
the interests in the REIT or (b) one or more such qualified trusts, each of
which owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the UBTI
earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (ii) the total gross income of the REIT. A
de minimis exception applies where the percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts.

Based on the anticipated ownership of Common Shares immediately following
the Offering, and as a result of certain limitations on transfer and ownership
of Common Shares contained in the Declaration of Trust, the Company does not
expect to be classified as a "pension-held REIT."

Taxation of Non-U.S. Shareholders of the Company

The rules governing United States federal income taxation of the ownership
and disposition of Common Shares by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Shareholders") are complex, and no attempt is made herein to provide more than
a brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States federal income taxation that may be applicable to
Non-U.S. Shareholders and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income
tax laws with regard to an investment in Common Shares, including any reporting
requirements.

Distributions by the Company. Distributions by the Company to a Non-U.S.
Shareholder that are neither attributable to gain from sales or exchanges by
the Company of United States real property interests nor designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the

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extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance
for deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Shareholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance for
deductions) at graduated rates, in the same manner as domestic shareholders are
taxed with respect to such dividends, and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Shareholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
The Company expects to withhold United States income tax at the rate of 30% on
the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form or certification
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming that
the distribution is effectively connected income.

Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to gain from the sale or exchange of its Common
Shares, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution
in excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate)
will nevertheless be subject to withholding at a rate of 10%. However, the
Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company and that the amount
withheld exceeded the Non-U.S. Shareholder's United States tax liability, if
any, with respect to the distribution.

Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) investment in the Common Shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax, as discussed above), or (ii)
the Non-U.S. Shareholder is a nonresident alien individual who is present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gains.

Under the Foreign Investment in Real Property Tax Act ("FIRPTA")
distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus generally be taxed at the same rates applicable to
domestic shareholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Shareholder that is a
corporation, as discussed above. The Company is required to withhold 35% of any
such distribution. That amount is creditable against the Non-U.S. Shareholder's
United States federal income tax liability.

Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of a Non-U.S. Shareholder's Common Shares (see "--
Requirements for Qualification as a REIT -- Annual Distribution Requirements"
above) would be treated with respect to Non-U.S. Shareholders in the manner
outlined in the preceding two paragraphs for actual distributions by the
Company of capital gain dividends. Under that approach, Non-U.S.

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Shareholders would be able to offset as a credit against their United States
federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on such undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate share of such tax paid
by the Company exceeds their actual United States federal income tax
liability).

Sale of Common Shares. Gain recognized by a Non-U.S. Shareholder upon the
sale or exchange of Common Shares generally will not be subject to United
States taxation unless such shares constitute a "United States real property
interest" within the meaning of FIRPTA. The Common Shares will not constitute a
"United States real property interest" as long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Shareholders. The Company
believes that at the closing of the Offering it will be a "domestically
controlled REIT," and therefore that the sale of Common Shares will not be
subject to taxation under FIRPTA. However, because the Common Shares are
expected to become publicly traded, no assurance can be given that the Company
will continue to be a "domestically controlled REIT." Notwithstanding the
foregoing, gain from the sale or exchange of Common Shares not otherwise
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if the Non-U.S.
Shareholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States. In such case, the nonresident alien individual will be subject
to a 30% United States withholding tax on the amount of such individual's gain.

Even if the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Shareholder of Common Shares would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest" if
(i) the Common Shares are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and (ii) such Non-U.S. Shareholder owned 5% or less of the value of
the Common Shares throughout the five-year period ending on the date of the
sale or exchange. If gain on the sale or exchange of Common Shares were subject
to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States federal income tax with respect to such gain in the same manner
as a U.S. Shareholder (subject to any applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident alien individuals
and the possible application of the 30% branch profits tax in the case of
foreign corporations), and the purchaser of the Common Shares would be required
to withhold and remit to the IRS 10% of the purchase price.

Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Shares by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Shares by a foreign office of
a broker that (a) is a United States person, (b) derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the
United States or (c) is a "controlled foreign corporation" (generally, a
foreign corporation controlled by United States shareholders) for United States
tax purposes, unless the broker has documentary evidence in its records that
the holder is a Non-U.S. Shareholder and certain other conditions are met, or
the shareholder otherwise establishes an exemption. Payment to or through a
United States office of a broker of the proceeds of a sale of Common Shares is
subject to both backup withholding and information reporting unless the
shareholder certifies under penalty of perjury that the shareholder is a
Non-U.S. Shareholder, or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.

The United States Treasury has recently finalized regulations regarding
the withholding and information reporting rules discussed above. In general,
these regulations do not alter the substantive withholding and

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information reporting requirements but unify certification procedures and forms
and clarify and modify reliance standards. These regulations generally are
effective for payments made after December 31, 1998, subject to certain
transition rules. Valid withholding certificates that are held on December 31,
1998, will remain valid until the earlier of December 31, 1999 or the date of
expiration of the certificate under rules currently in effect (unless otherwise
invalidated due to changes in the circumstances of the person whose name is on
such certificate). A Non-U.S. Shareholder should consult its own advisor
regarding the effect of the new Treasury Regulations.

Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership

General. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of
the REIT asset tests, the Company will include its proportionate share of
assets held through the Operating Partnership. See "-- Tax Aspects of the
Company's Ownership of Interests in the Operating Partnership."

Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would
be subject to an entity level tax on its income. In such a situation, the
character of the Company's assets and items of gross income would change and
would preclude the Company from qualifying as a REIT (see "-- Requirements for
Qualification as a REIT -- Asset Tests" and "-- Income Tests"). The same result
could occur if any subsidiary partnership or LLC of the Operating Partnership
failed to qualify for treatment as a partnership.

Prior to January 1, 1997, an organization formed as a partnership or an
LLC was treated as a partnership for federal income tax purposes rather than as
a corporation only if it had no more than two of the four corporate
characteristics that the Treasury Regulations in effect at that time used to
distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
Treasury Regulations which became effective January 1, 1997, the four factor
test has been eliminated and an entity formed as a partnership or as an LLC
will be taxed as a partnership for federal income tax purposes, unless it
specifically elects otherwise. The Treasury Regulations provide that the IRS
will not challenge the classification of an existing partnership or LLC for tax
periods prior to January 1, 1997 so long as (1) the entity had a reasonable
basis for its claimed classification, (2) the entity and all its members
recognized the federal income tax consequences of any changes in the entity's
classification within the 60 months prior to January 1, 1997 and (3) neither
the entity nor any member of the entity had been notified in writing on or
before May 8, 1996 that the classification of the entity was under examination
by the IRS.

Hogan & Hartson L.L.P., tax counsel to the Company, is of the opinion,
based upon certain factual assumptions and representations described in the
opinion, that the Operating Partnership will be treated as a partnership for
federal income tax purposes (and not as an association taxable as a
corporation).

Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic
arrangement of the partners.

If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income
and loss provided for in the Operating Partnership Agreement is intended to
comply with the requirements of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.

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Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Initial Properties and the Lease-up Assisted
Living Facilities and Initial Assisted Living Development Projects) that is
contributed to a partnership in exchange for an interest in the partnership,
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at such time (a
"Book-Tax Difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or legal
arrangements among the partners. The Operating Partnership will receive
contributions of appreciated property (including the Initial Properties and the
Lease-up Assisted Living Facilities and Initial Assisted Living Development
Projects). Consequently, the Operating Partnership Agreement requires that such
allocations be made in a manner consistent with Section 704(c) of the Code.

In general, the partners in the Operating Partnership who contributed
depreciable assets having adjusted tax bases less than their fair market values
at the time of contribution will be allocated depreciation deductions for tax
purposes which are lower than such deductions would be if determined on a pro
rata basis. In addition, in the event of the disposition of any of the
contributed assets which have such a Book-Tax Difference, all income
attributable to such Book-Tax Difference generally will be allocated to such
partners. These allocations will tend to eliminate the Book-Tax Difference over
the life of the Operating Partnership. However, the special allocation rules of
Section 704(c) of the Code do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the
hands of the Operating Partnership may cause the Company to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of such contributed assets in excess of the economic or
book income allocated to it, as a result of such sale. Such an allocation might
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "-- Requirements for Qualification as a REIT."

Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to
be entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the properties initially contributed to the
Operating Partnership. This method is generally the most favorable method from
the perspective of the limited partners at the time of the contribution and
will be less favorable from the perspective of the Company to the extent it
subsequently contributes cash (such as the proceeds of this Offering) to the
Operating Partnership.

Other Tax Consequences for the Company and its Shareholders

The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.

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ERISA CONSIDERATIONS

Employment Benefit Plans, Tax-Qualified Pension, Profit Sharing or Stock Bonus
Plans and IRAs

Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Shares is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investment, inter alia, to be (i) for the exclusive purpose of providing
benefits to the ERISA Plan's participants and their beneficiaries and defraying
reasonable expenses of administering the ERISA Plan, (ii) prudent and solely in
the interests of the participants and beneficiaries of the ERISA Plan, (iii)
diversified in order to minimize the risk of large losses, unless it is clearly
prudent not to do so, and (iv) authorized under the terms of the governing
documents of the ERISA Plan. In addition, a fiduciary of an ERISA Plan should
not cause or permit such ERISA Plan to enter into transactions prohibited under
Section 406 of ERISA or Section 4975 of the Code. In determining whether an
investment in the Common Shares is prudent for purposes of ERISA, the
appropriate fiduciary of an ERISA Plan should consider whether such investment
is reasonably designed, as part of an ERISA Plan's investment portfolio for
which the fiduciary has responsibility, to further the purposes of the ERISA
Plan, taking into consideration the risk of loss and opportunity for gain (or
other return) associated with the investment, the diversification, cash flow
and funding requirements of the ERISA Plan and the liquidity and current return
of the ERISA Plan's investment portfolio. A fiduciary should also take into
account the nature of the Company's business, the length of the Company's
operating history, the terms of the management agreements, the fact that
certain investment properties may not have been identified yet, other matters
described under "Risk Factors" and the possibility of UBTI.

The fiduciary of an ERISA Plan, or of an IRA or a qualified pension,
profit sharing or stock bonus plan, or medical savings account which is not
subject to ERISA but is subject to Section 4975 of the Code ("Other Plans"),
should ensure that the purchase of Common Shares will not constitute a
prohibited transaction under ERISA or the Code.

Status of the Company and the Operating Partnership under ERISA

The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the entity's equity interests is an ERISA Plan or Other Plan.
The fiduciary of an ERISA Plan should also consider the relevance of these
principles to ERISA's prohibition on improper delegation of control over or
responsibility for Plan assets and ERISA's imposition of co-fiduciary liability
on a fiduciary who participates in, permits (by action or inaction) the
occurrence of or fails to remedy a known breach by another fiduciary.

If the underlying assets of the Company are deemed to be assets of an
ERISA Plan ("Plan Assets"), (i) the prudence standards and other provisions of
Part 4 of Title I of ERISA and the prohibited transaction provisions of ERISA
and the Code would be applicable to any transactions involving the Company's
assets and (ii) persons who exercise any authority or control over the
Company's assets, or who provide investment advice for a fee or other
compensation to the Company, would be (for purposes of ERISA and the Code)
fiduciaries of ERISA Plans and Other Plans that acquire Common Shares. The
United States Department of Labor (the "DOL"), which has administrative
responsibility over ERISA Plans and certain Other Plans, has issued a
regulation defining plan assets for certain purposes (the "DOL Regulation").
The DOL Regulation generally provides that when an ERISA Plan acquires a
security that is an equity interest in an entity and that security is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the 1940 Act, the assets of the ERISA Plan include both the
equity interest and an undivided interest in each of the underlying assets of
the entity, unless it is established either that the entity is an "operating
company" (as defined in the DOL Regulation) or that equity participation in the
entity by "benefit plan investors" is not significant.

The DOL Regulation defines a "publicly-offered security" as a security
that is "widely held," "freely transferable" and either part of a class of
securities registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or sold pursuant to an effective registration statement
under the Securities Act

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(provided the securities are registered under the Exchange Act within 120 days,
or such later time as may be allowed by the SEC (the "registration period"),
after the end of the fiscal year of the issuer during which the offering to the
public occurred). The Common Shares are being sold in an offering registered
under the Securities Act and the Company intends to register the Common Shares
under the Exchange Act within the registration period.

The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control.

The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulation further provides that
where a security is part of an offering in which the minimum investment is
$10,000 or less, certain restrictions ordinarily will not, alone or in
combination, affect a finding that such securities are "freely transferable."
The Offering will not impose a minimum investment requirement. The restrictions
on transfer enumerated in the DOL Regulation as ordinarily not affecting a
finding that the securities are "freely transferable" include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in a termination or reclassification of the Company for federal or state
tax purposes, or that would otherwise violate any state or federal law or court
order; (ii) any requirement that advance notice of a transfer or assignment be
given to the Company; (iii) any requirement that either the transferor or
transferee, or both, execute documentation setting forth representations as to
compliance with any restrictions on transfer that are among those enumerated in
the DOL Regulation as not affecting free transferability; (iv) any
administrative procedure that established an effective date, or an event (such
as completion of the Offering) prior to which a transfer or assignment will not
be effective; (v) any prohibition against transfer or assignment to an
ineligible or unsuitable investor; (vi) any limitation or restriction on
transfer or assignment that is not imposed by the issuer or a person acting for
or on behalf of the issuer; (vii) any restriction or substitution of an
assignee as a limited partner of a partnership, including a general partner
consent requirement, provided that the economic benefits of ownership of the
assignee may be transferred or assigned without regard to such restriction or
consent (other than any restriction described in the DOL Regulation); and
(viii) any requirement that not less than a minimum number of shares of such
security be transferred or assigned by any investor, provided that such
requirement does not prevent transfer of all of the then remaining shares or
units held by an investor. The Company believes that the restrictions imposed
under the Declaration of Trust on the transfer of Common Shares are of the type
of restrictions on transfer generally permitted under the DOL Regulation or are
not otherwise material and should not result in the failure of the Common
Shares to be "freely transferable" within the meaning of the DOL Regulation.
See "Shares of Beneficial Interest -- Restrictions on Ownership and Transfer."
The Company also believes that certain restrictions on transfer that derive
from the securities laws, from contractual arrangements with the Underwriters
in connection with the Offering and from certain provisions should not result
in the failure of the Common Shares to be "freely transferable." See
"Underwriting." Furthermore, the Company is not aware of any other facts or
circumstances limiting the transferability of the Common Shares that are not
included among those enumerated as not affecting their free transferability
under the DOL Regulation, and the Company does not expect to impose in the
future (or to permit any person to impose on its behalf) any other limitations
or restrictions on transfer that would not be among the enumerated permissible
limitations or restrictions.

Assuming (i) that the Common Shares are "widely held" within the meaning
of the DOL Regulation and (ii) that no facts and circumstances other than those
referred to in the preceding paragraph exist that restrict transferability of
the Common Shares, the Company believes that, under the DOL Regulation, the
Common Shares should be considered "publicly-offered securities" and,
therefore, that the underlying assets of the Company should not be deemed to be
plan assets of any ERISA Plan or Other Plan that invests in the Common Shares.

In addition, the Declaration of Trust provides that if, in the future, the
Board of Trustees authorizes the creation of any class of equity interests
other than Common Shares, and such class of equity interests will not be
"publicly-offered securities," the Board of Trustees will limit the equity
participation in such class by

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"benefit plan investors" so that their participation will not become
"significant." For these purposes, the DOL Regulation provides that equity
participation becomes "significant" once 25 percent or more of the value of the
class is held by "benefit plan investors," and the term "benefit plan
investors" means any employee benefit plan (as defined in ERISA section 3(3))
or any plan described in section 4975(e) of the Code, or any entity whose
underlying assets include benefit plan investments.

The DOL Regulation will also apply in determining whether the underlying
assets of the Operating Partnership will be deemed to be plan assets. The
partnership interests in the Operating Partnership will not be publicly offered
securities. Nevertheless, if the Common Shares constitute publicly offered
securities, the Company believes that the indirect investment in the Operating
Partnership by ERISA Plans or Other Plans through their ownership of the Common
Shares will not cause the assets of the Operating Partnership to be treated as
plan assets. Similarly, the Operating Partnership Agreement provides that no
interests in the Operating Partnership may be acquired by "benefit plan
investors" if immediately after such acquisition investment in the Operating
Partnership by "benefit plan investors" would be "significant."

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UNDERWRITING

Subject to the terms and conditions in the United States purchase
agreement (the "U.S. Purchase Agreement"), between the Company and each of the
underwriters named below (the "U.S. Underwriters"), and concurrently with the
sale of 1,210,000 Common Shares to the International Managers (as defined
below), the Company has agreed to sell to each of the U.S. Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Alex. Brown
Incorporated and Goldman, Sachs & Co. are acting as representatives (the "U.S.
Representatives"), and each of the U.S. Underwriters has severally agreed to
purchase from the Company, the respective number of Common Shares set forth
below opposite their respective names:

Number of
Underwriter Common Shares
- ---------------------------------------------------- --------------
Merrill Lynch, Pierce, Fenner & Smith ......
Incorporated
BT Alex. Brown Incorporated ...............
Goldman, Sachs & Co. ........................
Total ................................. 4,840,000
=========

The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with certain underwriters outside the United States and
Canada (the "International Managers" and, together with the U.S. Underwriters,
the "Underwriters") for whom Merrill Lynch International, BT Alex. Brown
International, division of Bankers Trust International PLC and Goldman Sachs
International are acting as lead managers. Subject to the terms and conditions
set forth in the International Purchase Agreement and concurrently with the
sale of 4,840,000 Common Shares to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers have severally agreed to purchase from
the Company, an aggregate of 1,210,000 Common Shares. The initial public
offering price per share and the total underwriting discount per share are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.

In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers have agreed, respectively, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the Common
Shares being sold pursuant to such Purchase Agreement if any of such Common
Shares are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers (as the case may be)
may be increased. The sale of Common Shares pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement are conditioned upon each
other.

The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the Common Shares to the public at the
public offering price per share set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $------
per share. The U.S. Underwriters may allow, and such dealers may re-allow, a
discount not in excess of $------ per share on sales to certain other dealers.
After the date of this Prospectus, the initial public offering price,
concession and discount may be changed.

The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and the International
Managers are permitted to sell Common Shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than
the selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are United States persons or
Canadian persons or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S. Underwriters and any
dealer to whom they sell Common Shares will not offer to sell or sell Common
Shares to persons who are non-United States and non-Canadian persons or to
persons they believe intend to resell to non-United States and non-Canadian
persons, except in each case for transactions pursuant to such agreement.

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The Company has granted to the U.S. Underwriters an option, exercisable
for 30 days after the date of this Prospectus, to purchase up to 726,000
additional Common Shares to cover overallotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this Prospectus. If the U.S. Underwriters exercise this option, each U.S.
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of Common
Shares to be purchased by it shown in the foregoing table bears to such Common
Shares initially offered hereby. The Company also has granted an option to the
International Managers, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to 181,500 additional Common Shares to cover
overallotments, if any, on terms similar to those granted to the U.S.
Underwriters.

Until the distribution of the Common Shares is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Shares. As an exception to these rules, the
U.S. Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Shares.

If the Underwriters create a short position in the Common Shares in
connection with the Offering, i.e., if they sell more Common Shares than are
set forth on the cover page of this Prospectus, the U.S. Representatives and
the International Managers, respectively, may reduce that short position by
purchasing Common Shares in the open market. The U.S. Representatives and the
International Managers, respectively, may also elect to reduce any short
position by exercising all or part of the overallotment option described above.

The U.S. Representatives and the International Managers, respectively, may
also impose a penalty bid on certain Underwriters and selling group members.
This means that if the U.S. Representatives or the International Managers
purchase Common Shares in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Shares, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Shares. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives or the International Managers will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.

In the Purchase Agreements, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification of the Underwriters for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provision, the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

At the request of the Company, the U.S. Underwriters have reserved up to
10% of the shares offered hereby for sale at the initial public offering price
to trustees, officers and employees of the Company, its and their business
affiliates and related parties who have expressed an interest in purchasing
shares. Such purchases will be made under the same terms and conditions as will
be initially offered by the U.S. Underwriters to others in the Offering. The
number of shares available to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares that are not so
purchased by such persons at the completion of the Offering will be offered by
the U.S. Underwriters to the general public on the same terms as the other
shares offered by this Prospectus.

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or otherwise dispose of any Common Shares or Units or any securities
convertible into or exchangeable for Common Shares or Units for a period of 12
months from the date of the Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Company has granted
certain registration rights to Messrs. Walker and Romanov and the Continuing
Investors pursuant to which such persons may require the Company to file a
registration statement with the SEC with respect to Common Shares owned by
Messrs. Walker and Romanov or received by the Continuing Investors in exchange
for their Units after the expiration of such 14-month period.

The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.

Prior to the Offerings, there has been no public market for the Common
Shares of the Company. The initial public offering price will be determined
through negotiations between the Company and the U.S. Representatives. Among
the factors to be considered in such negotiations, in addition to prevailing
market conditions, will be dividend yields and financial characteristics of
publicly traded REITs that the Company and the U.S. Representatives believe to
be comparable to the Company, the expected results of operations of the Company
(which will be based on the results of operations of the Initial Investments),
estimates of the future business potential and earnings prospects of the
Company as a whole and the current state of the real estate market in the
Company's primary markets and the economy as a whole.

The Company has applied for listing of the Common Shares on the New York
Stock Exchange under the symbol "ETT." In order to meet one of the requirements
for listing the Common Shares on the New York Stock Exchange, the Underwriters
will undertake to sell lots of 100 or more Common Shares to a minimum of 2,000
beneficial holders.

The Company will pay to Merrill Lynch, Pierce, Fenner & Smith Incorporated
an advisory fee equal to 0.5% of the gross proceeds received from the sale of
Common Shares to public investors in the Offering for financial advisory
services rendered in connection with the Company's formation as a REIT.

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EXPERTS

The balance sheet of ElderTrust as of September 30, 1997 has been included
herein and in the Registration Statement in reliance on the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

LEGAL MATTERS

The validity of the Common Shares will be passed upon for the Company by
Hogan & Hartson L.L.P., Washington, DC. In addition, the description of federal
income tax considerations under the heading "Federal Income Tax Considerations"
is based upon the opinion of Hogan & Hartson L.L.P. Certain legal matters will
be passed upon for the Underwriters by Brown & Wood LLP, New York, New York. In
addition to providing services to the Company, Hogan & Hartson L.L.P. also
provides legal services to Genesis, including in connection with certain of the
Formation Transactions.

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement on Form S-11
(of which this Prospectus is a part) under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. Statements
contained in this Prospectus as to the content of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
such reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Shares offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, which may
be obtained from the SEC at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the SEC. The SEC
maintains a website at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the SEC. In addition, the Company
intends to file an application to list the Common Shares on the NYSE and, if
the Common Shares are listed on the NYSE, similar information concerning the
Company can be inspected and copies at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by independent
certified public auditors.

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GLOSSARY

The following are definitions of certain terms used in this Prospectus.
Unless the context otherwise requires, the following terms shall have the
meanings set forth below for purposes of this Prospectus.

"ACBM" means asbestos-containing building materials.

"Acquisition Corp." means Genesis ElderCare Acquisition Corp., a wholly
owned subsidiary of Genesis ElderCare Corp. which, in turn, is owned 44% by
Genesis and owned 56% by The Cypress Group, L.L.C. and TPG Partners II, L.P.

"Acquisition Loan" means the $45.0 million loan made by Genesis in August
1996 to finance the Age Institute of Florida's acquisition of 11 skilled
nursing facilities.

"Additional Rent" means, for both Percentage Rent Leases and Minimum Rent
Leases, adjustments equal to the difference between the tenant's payment of
estimated Percentage Rent or Incremental Percentage Rent, as the case may be,
during a particular period and the actual Percentage Rent or Incremental
Percentage Rent, as applicable, payable with respect to such period and certain
other costs a tenant agrees to pay under the applicable lease.

"Age Institute of Florida" means the Age Institute of Florida, Inc., a
Florida not-for-profit corporation.

"Available Cash" means, generally, net cash flow from operations plus any
reduction in reserves and minus interest and principal payments on debt,
capital expenditures, any additions to reserves and other adjustments.

"Beneficiary" means the qualified charitable organization selected by the
Company as the beneficiary of the trust which will automatically receive any
shares purportedly transferred to a Prohibited Transferee in violation of the
Ownership Limit or other restrictions in the Declaration of Trust.

"Book-Tax Difference" means the difference between the fair market value
of contributed property at the time of contribution and the adjusted tax basis
of such property at such time.

"Built-In Gain Asset" means any asset acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax).

"Bylaws" means the Bylaws of the Company.

"CCMC" means Crozer Chester Medical Center, a Pennsylvania nonprofit
organization.

"CKHS" means Crozer-Keystone Health System, a Pennsylvania nonprofit
corporation.

"CMBS" means a collateralized mortgage-backed security.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the Share Option Committee of the Board of Trustees of
the Company.

"Common Shares" means the common shares of beneficial interest, $.01 par
value per share, of the Company.

"Company" means ElderTrust, a Maryland real estate investment trust, and
one or more of its subsidiaries (including the Operating Partnership and ET
Capital Corp.), or, as the context may require, ElderTrust only or the
Operating Partnership only.

"Construction Loan Commitments" means financing commitments made by the
Company for nine assisted living development and expansion projects which are
in the planning stage.

"Construction Loans" means construction loans made by the Company to
provide funding for the development and construction of the Initial Assisted
Living Development Projects.

"Continuing Investors" means certain persons contributing interests in the
Initial Properties to the Operating Partnership in exchange for Units. The
Continuing Investors include Messrs. Walker and Howard, individually, and
Senior LifeChoice and three other individuals not affiliated with the Company
or

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Genesis. Following completion of the Offering and the Formation Transactions,
Messrs. Walker, Dauten, Howard, Barr and Hager will own, in the aggregate,
approximately 62.8% of the interests in Senior LifeChoice Corp., and six other
individuals not affiliated with the Company or Genesis will own the remaining
interests in Senior LifeChoice.

"Credit Facility" means the Company's proposed secured credit facility in
the amount of up to $140. million.

"Crozer/Genesis" means Crozer/Genesis ElderCare Limited Partners, a
Pennsylvania limited partnership.

"DCMH" means the Delaware County Memorial Hospital.

"Declaration of Trust" means the Declaration of Trust of the Company, as
amended from time to time, and as filed with the State Department of
Assessments and Taxation of Maryland.

"DOL" means the United States Department of Labor.

"DOL Regulation" means a regulation, issued by the DOL, defining plan
assets for certain purposes under ERISA.

"Environmental Laws" means the federal, state and local laws and
regulations relating to protection of the environment.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Plan" means an employee benefit plan subject to ERISA.

"ET Partnership" means ET Partnership, a Pennsylvania partnership and
(along with Messrs. Romanov and McCreary) one of the organizational limited
partners of the Operating Partnership. The partners in ET Partnership are
Genesis, Mr. Romanov and MGI Limited Partnership.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Excluded Holder Limit" means the 15.0% limit on the amount of Common
Shares which may be owned by Mr. Romanov.

"Facility Revenues" means revenue generated with respect to the applicable
leased property (adjusted to exclude: (a) revenues from professional fees or
charges by physicians and all providers of ancillary services (including Genesis
and its affiliates), including, without limitation, physical therapy services,
whether or not such providers are employees of the tenant; (b) non-operating
revenues, such as interest income or income from the sale of assets not sold in
the ordinary course of business; (c) federal, state or local excise taxes
imposed upon, and any tax based upon or measured by, such revenues which is
added to or made a part of the amount billed to the resident, client or other
recipient of such services or goods, whether included in the billing or stated
separately; (d) contractual allowances (relating to any period during the Term)
for billings not paid by or received from the appropriate governmental agencies
or third party providers; and (e) all proper patient billing credits and
adjustments (including, without limitation, allowances for uncollectable
accounts) according to generally accepted accounting principles relating to
healthcare accounting).

"15% Personal Property Test" means the test under the Code to determine
whether rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease.

"FIRPTA" means the Foreign Investment in Real Property Tax Act.

"Fixed Rent Leases" means the tenant leases for the medical office and
other buildings which provide for specified annual rent, subject to increases
in rent in certain of the leases.

"Florida Facilities Note" means the $7.5 million note of the Age Institute
of Florida to be purchased by ET Capital Corp. from Genesis and in which the
Operating Partnership will have substantially all of the economic interest.

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"Formation Transactions" means all of the transactions described under
"Structure and Formation of the Company -- Formation Transactions."

"Funds from Operations" means net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. Funds from Operations does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make cash distributions.

"GAAP" means Generally Accepted Accounting Principles.

"Genesis" means Genesis Health Ventures, Inc., a Pennsylvania corporation,
and its subsidiaries that will lease or manage a substantial portion of the
properties and other assets acquired by the Company in its formation or, as the
context may require, Genesis only or such subsidiaries of Genesis only.

Impermissible Tenant Service Income" means the amounts received by a REIT
for operating or managing a property or furnishing or rendering services to a
tenant at a property other than through an independent contractor from whom the
REIT derives no revenue (not including services "usually or customarily
rendered" in connection with the rental of real property and not otherwise
considered "rendered to the occupant").

"Incentive Options" means options to purchase Common Shares which are
granted under the Plan and which are intended to qualify as incentive options
under Section 422 of the Code.

"Incremental Percentage Rent" means, with respect to certain of the
Minimum Rent Leases, incremental percentage rent equal to a specified
percentage of increased gross revenues during any lease year over the gross
revenues during the first lease year for a facility.

"Independent Trustee" means an individual serving as a trustee who is not
an affiliate of the Company and is not an employee of the Company.

"Initial Assisted Living Development Projects" means assisted living
facilities in development subject to Construction Loans.

"Initial Investments" means the Company's investments in the Initial
Properties, the Term and Construction Loans, the Penn Mortgage and the Florida
Facilities Note.

"Initial Properties" means the 21 assisted and independent living
facilities, skilled nursing facilities and medical office and other buildings
being acquired by the Company in the Formation Transactions.

"Initial Property Acquisition Agreement" means each of the acquisition
agreements between the Company and the current owner of an Initial Property and
the acquisition agreements among the Company and the holders of all interests
in the current owner of an Initial Property.

"Interested Shareholder" means any person who beneficially owns ten
percent or more of the voting power of the Company's then outstanding shares or
an affiliate of the Company who, at any time within the two-year period prior
to the date in question, was the beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of beneficial interest of
the Company.

"International Purchase Agreement" means the purchase agreement among the
Company and the International Managers.

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"International Managers" means the underwriters outside the United States
and Canada named in this Prospectus for whom Merrill Lynch International, BT
Alex. Brown International, division of Bankers Trust International PLC and
Goldman Sachs International are acting as lead managers.

"Intersyndicate Agreement" means the agreement between the U.S.
Underwriters and the International Managers providing for the coordination of
their activities.

"IRS" means the Internal Revenue Service.

"Lake Washington" means Lake Washington, Ltd., a Florida limited
partnership in which Genesis owns a 49% interest.

"Lease-up Assisted Living Facilities" means assisted living facilities in
lease-up subject to Term Loans.

"Lender" means the lender under the Credit Facility which will be an
affiliate of Deutsche Morgan Grenfell.

"LIBOR" means the London Interbank Offered Rate.

"MGCL" means the Maryland General Corporation Law.

"MGI Limited Partnership" mean MGI Limited Partnership, a Delaware limited
partnership and a partner in ET Partnership. Mr. Walker owns all of the
interests in the corporate general partner of MGI Limited Partnership, and all
of the limited partner interests in MGI Limited Partnership are owned by Mr.
Walker and the following additional four executive officers of Genesis: (i)
Richard R. Howard, President and a director of Genesis; (ii) David C. Barr,
Executive Vice President and Chief Operating Officer of Genesis; (iii) John F.
DePodesta, Senior Vice President, Law & Public Policy of Genesis; and (iv)
George V. Hager, Jr., Senior Vice President and Chief Financial Officer of
Genesis.

"Minimum Rent" means the rent which is set at the beginning of the term of
a Minimum Rent Lease and escalates based on the Consumer Price Index, a fixed
percentage increase per year or a fixed percentage of the increase in the gross
revenues for a facility during the immediately preceding year.

"Minimum Rent Leases" means the long-term, triple net leases for certain
of the Initial Properties which are skilled nursing or assisted living
facilities and which will provide for base rent, plus scheduled base rent
step-ups and, in the case of certain of the Minimum Rent Leases, additional
rent based upon incremental revenues over the base year.

"Multicare" means The Multicare Companies, Inc., a 44% owned subsidiary of
Genesis, and its subsidiaries.

"Named Executive Officers" means the Company's Chief Executive Officer and
the Company's other executive officer.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"1997 Act" means the Taxpayer Relief Act of 1997.

"Non-Qualified Options" means options to purchase Common Shares which are
granted under the Plan and which are not intended to qualify as incentive
options under Section 422 of the Code.

"Non-U.S. Shareholders" means persons that are, for United States federal
income taxation purposes, nonresident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts.

"Offering" means the offering of Common Shares of the Company pursuant to
and as described in this Prospectus.

"Operating Partnership" means ElderTrust Operating Limited Partnership, a
Delaware limited partnership.

"Operating Partnership Agreement" means the Agreement of Limited
Partnership of the Operating Partnership, as amended from time to time.

141
<PAGE>

"Other Plans" means an IRA or a qualified pension, profit sharing or stock
bonus plan, or medical savings account which is not subject to ERISA but is
subject to Section 4975 of the Code.

"Ownership Limit" means the restrictions in the Declaration of Trust which
generally will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any single shareholder of more than 8.6% of the
issued and outstanding Common Shares and generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
shareholder of more than 9.9% of the issued and outstanding shares of any class
or series of the Company's Preferred Shares.

"Partnership Act" means the Delaware Revised Uniform Limited Partnership
Act.

"Penn Mortgage" means the $800,000 mortgage note made by Philadelphia
Development Corporation and secured by a first lien on an unoccupied 180 bed
personal care facility to be purchased by the Company from Genesis.

"Percentage Rent" means the rent calculated by multiplying a specified
fixed percentage by the Facility Revenues.

"Percentage Rent Leases" means the long-term, triple net leases for
certain of the Initial Properties which are assisted living or independent
living facilities and which will be based on a specified percentage of facility
revenues with no required minimum rent.

"Plan" means the ElderTrust 1998 Share Option and Incentive Plan.

"Plan Assets" means assets of an ERISA Plan.

"POB I" means Professional Office Building I.

"Preference Units" means preferred units and other partnership interests
of different classes and series having such rights, preferences and other
privileges, variations and designations as may be determined by the Company and
which may be issued by the Operating Partnership under the Operating
Partnership Agreement.

"Preferred Shares" means the preferred shares of beneficial interest,
$0.01 par value per share, of the Company.

"Private Partnership" means a privately held partnership formed to acquire
skilled nursing facilities or other healthcare facilities and which would
finance up to 90% of the purchase price of the facilities by years of a REMIC
Loan and would finance the remainder of the purchase price of the facilities by
means of an equity investment by the partners in the Private Partnership, who
may include Genesis and one or more of the Company's officers and trustees.

"Prohibited Owner" means a person or entity holding record title to any
shares in excess of the Ownership Limit.

"Prohibited Transferee" means a transferee of a purported transfer of
shares of beneficial interest of the Company which would result in any person
violating the Ownership Limit or the other restrictions in the Declaration of
the Trust.

"Prospectus" means this prospectus, as the same may be amended.

"Purchase Agreement" means the purchase agreement between the Company and
the Underwriters.

"Recognition Period" means the ten-year period beginning on the date on
which the Company acquires a Built-In Gain Asset.

"REIT" means a real estate investment trust as defined under Sections 856
through 860 of the Code and applicable Treasury regulations.

"Related Party Tenant" means a tenant of the Company which also is an
actual or constructive owner of 10% or more of the Company, or of which the
Company actually or constructively owns 10% or more.

"REMIC" means a real estate mortgage conduit.

"REMIC Loan" means a mortgage loan from a REMIC to a Private Partnership.

142
<PAGE>

"Rent" means, with respect to a Percentage Rent Lease, (i) Percentage Rent
and (ii) Additional Rent, and, with respect to a Minimum Rent Lease, (i)
Minimum Rent, (ii) Incremental Percentage Rent and (iii) Additional Rent.

"Restricted Common Shares" means Common Shares which are "restricted"
securities under the meaning of Rule 144 or any Common Shares acquired in
redemption of Units.

"Retained Note" means the $2.5 million working capital term note made by
the Age Institute of Florida and retained by Genesis.

"Right of First Refusal Agreement" means the agreement between the Company
and Genesis pursuant to which, among other things, for a period of three years
from the closing of the Offering (subject to annual renewals thereafter),
Genesis has granted the Company a right of first refusal to purchase and
leaseback to Genesis any assisted or independent living facility which Genesis
determines to sell and leaseback.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Senior CMBS Interests" means senior interests in a REMIC.

"Senior LifeChoice" means Senior LifeChoice Corp., a privately held
Pennsylvania corporation. Following completion of the Offering and the
Formation Transactions, Messrs. Walker, Dauten, Howard, Barr and Hager will
own, in the aggregate, approximately 62.8% of the interests in Senior
LifeChoice, and six other individuals not affiliated with the Company or
Genesis will own the remaining interests in Senior LifeChoice.

"Series 1994 Bonds" and "Series 1995 Bonds" mean, together, the tax-exempt
bond financings relating to the Highgate and Woodbridge assisted living
facilities.

"SLC" means Senior LifeChoice, LLC, a privately held Pennsylvania limited
liability company.

"SMOBGP" means Salisbury Medical Office Building General Partnership, a
Pennsylvania general partnership.

"Stabilized Occupancy" means average monthly occupancy for a facility of
at least 90% for three consecutive months.

"Subordinated CMBS Interests" means a subordinated interest in a REMIC.

"Subordinated Notes" means the Florida Facilities Note and the Retained
Note.

"Term Loans" means term mortgage loans made by the Company with respect to
the Lease-up Assisted Living Facilities.

"Treasury Regulations" means the applicable regulations that have been
promulgated under the Code.

"U.S. Shareholder" means a holder of Common Shares who (for United States
federal income tax purposes) (i) is a citizen or resident of the United States,
(ii) is a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof or
(iii) is an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.

"UBTI" means unrelated business taxable income.

"Underwriters" means the U.S. Underwriters and the International Managers.

"Unit" means a unit of partnership interest in the Operating Partnership.

"U.S. or United States" means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.

143
<PAGE>

"U.S. Purchase Agreement" means the purchase agreement among the Company
and the U.S. Underwriters.

"Unit Redemption Right" means the right of holders of Units to require the
redemption of their Units at any time more than 14 months after the closing of
the Offering.

"U.S. Representatives" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BT Alex. Brown Incorporated and Goldman, Sachs & Co.

"USTs" means underground storage tanks.

"U.S. Underwriters" means the underwriters for the United States and
Canada named in this Prospectus for whom the U.S. Representatives are acting as
representatives.

144
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
ELDERTRUST
Independent Auditors' Report ....................................... F-2
Balance Sheet as of September 30, 1997 .............................. F-3
Notes to Balance Sheet ............................................. F-4
Pro Forma Balance Sheet and Statements of Operations ............... F-7
Notes to Pro Forma Balance Sheet and Statements of Operations ...... F-10
</TABLE>

F-1
<PAGE>

Independent Auditors' Report

The Board of Trustees and Shareholders
ElderTrust:

We have audited the accompanying balance sheet of ElderTrust as of September
30, 1997. This balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this balance sheet based upon
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ElderTrust as of September 30,
1997, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Washington, DC
October 1, 1997

F-2
<PAGE>

ELDERTRUST

Balance Sheet

September 30, 1997

<TABLE>
<S> <C>
Assets
Cash ............................................................ $ 100
-----
Shareholders' equity
Preferred shares of beneficial interest, $.01 par value:
20,000,000 shares authorized; none issued or outstanding ...... $ --
Common shares of beneficial interest, $.01 par value:
100,000,000 shares authorized; 100 issued and outstanding ...... 1
Additional paid-in-capital ....................................... 99
-----
Total shareholders' equity ....................................... $ 100
=====
</TABLE>

See accompanying notes to balance sheet.

F-3
<PAGE>

ELDERTRUST

Notes to Balance Sheet

September 30, 1997

(1) Organization

ElderTrust was formed in the State of Maryland on September 23, 1997 and
issued a total of 100 shares to the Company's chief financial officer for a
total consideration of $100. The Company is in the process of an initial public
offering pursuant to which it plans to issue approximately 6,050,000 additional
shares (the "Offering"). The Company intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with the
proposed offering of shares to the public.

The Company has had no operations. Upon consummation of the Offering, the
Company intends to begin operations by 1) purchasing a diversified portfolio of
healthcare properties, consisting primarily of assisted living and skilled
nursing facilities which will be leased back to the current owners or other
third parties; 2) making construction loans collateralized by healthcare
properties under construction and making term loans collateralized by
healthcare properties on which construction has been recently completed, but
which are still in transition to occupancy levels required under
purchase/leaseback agreements, and 3) acquiring a 95% interest in an entity
which will acquire a second mortgage loan.

(2) Federal Income Taxes

At the earliest possible date, the Company intends to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Accordingly, it will not be subject to federal income taxes on amounts
distributed to shareholders provided it distributes at least 95 percent of its
taxable income and meets certain other conditions. The Company may, however, be
subject to state or local taxation in various jurisdictions.

(3) Planned Transactions

The Company intends to contribute the proceeds of the Offering to an
operating partnership in exchange for the sole general partner interest. The
operating partnership will use the contributions from the Company and
borrowings under a proposed bank credit facility to purchase 21 healthcare
properties for an aggregate cost of $155.8 million and to fund construction and
term loans on nine healthcare properties with an aggregate balance of $35.6
million. In addition, the Company will make a $5.6 million loan to ET Capital
Corp. (ET Capital) and will invest an additional $1.8 million to acquire a 95%,
nonvoting equity interest in ET Capital. ET Capital will use proceeds from the
loan and the contributed capital from the Company and the Company's chief
executive officer to purchase a $7.5 million working capital term note from
Genesis Health Ventures, Inc. ("Genesis") which is secured by a second lien on
11 skilled nursing facilities and related accounts receivable and other working
capital assets. The Company also will acquire a $800,000 first mortgage note
from Genesis. Nine of the properties to be purchased with an aggregate cost of
$61.7 million are owned by Genesis and will be leased back to affiliates of
Genesis or other third parties under long-term operating leases. A construction
loan of approximately $2.0 million will be purchased from Genesis. Affiliates
of Genesis will be the borrowers on the construction and term loans, and
Genesis manages the properties securing the working capital term note. The
Chairman and chief executive officer of Genesis is chairman of the board of
directors of the Company.

The operating partnership has agreements to purchase the properties and
the construction, term and second mortgage loans, subject to certain terms and
conditions including, among other things, successful completion of the Offering
and obtaining a bank credit facility. The Company is negotiating with a
commercial bank for a secured credit facility which would be used to pay a
portion of the purchase price of the properties and to fund the construction
and term loans and which would be available for working capital needs and other
general corporate purposes. Management believes that the Company will be able
to obtain sufficient credit on acceptable terms.

F-4
<PAGE>

(3) Planned Transactions -- (Continued)

The Company has agreed to reimburse actual costs incurred on its behalf by
Genesis upon consummation of the Offering. These costs relate to organizing the
Company, negotiating property acquisitions, performing due diligence related to
the properties, performing corporate work in contemplation of the Offering, and
preparing the registration statement. This amount is estimated to be
approximately $3,000,000 and will be payable upon the closing of the Offering
from the proceeds of the Offering.

The Company and Genesis have entered into an agreement for a period of
three years from the closing of the Offering (subject to annual renewal),
pursuant to which Genesis has granted the Company a right of first refusal to
purchase and leaseback to Genesis any assisted living facility which Genesis
determines to sell and leaseback. The agreement also provides the Company with
a right to offer financing to Genesis and other developers of assisted and
independent living facilities which, once developed, will be operated by
Genesis. The Company has provided Genesis with a first right of refusal to
lease or manage any assisted or independent living facility financed or
acquired by the Company within Genesis' markets unless the facility will be
leased or managed by the developing or selling company or an affiliate.

(4) Employee Benefit Plans and Related Matters

The Company's board of directors intends to adopt deferred compensation
and retirement plans and has adopted a share option and incentive plan. The
Company has reserved 9.9% of the total number of common shares and operating
partnership units outstanding from time to time for issuance under the share
option and incentive plan. As of the effective date of the Offering, the
Company intends to grant options to purchase 497,500 shares. Of these options,
150,000 will vest immediately, and the remainder will vest over three to five
years. The Company intends to adopt the intrinsic value approach to accounting
for stock-based compensation.

The Company's president and chief executive officer and its chief
financial officer were issued limited partnership interests in the operating
partnership in consideration for services rendered in connection with the
formation of the Company. It is anticipated that the operating partnership will
issue 130,750 limited partnership units in respect of these interests at the
time of the Offering. The operating partnership will recognize compensation
expense equal to the estimated fair market value of the units awarded which
will be reported in the Company's statement of operations upon completion of
the Offering. These units are redeemable beginning fourteen months after
completion of the Offering for either cash or, at the option of the Company,
common shares on a one-for-one basis.

The Company will enter into an employment agreement with its president and
chief executive officer upon consummation of the offering. The agreement will
have an initial term of three years, subject to automatic renewal for
subsequent two year terms, and will cover matters including compensation,
disability and termination. The agreement will also contain provisions which
are intended to limit the president from competing with the Company throughout
the term of the agreement and for a period of two years thereafter.

The Company will also enter into a non-competition agreement with the
chairman of the board of directors. The agreement will be in effect during the
period that he serves as chairman and for a period of one year thereafter.

F-5
<PAGE>

ElderTrust

Pro Forma Balance Sheet and Statements of Operations

(Unaudited)

The unaudited pro forma balance sheet is based on the balance sheet of the
Company included elsewhere in the Prospectus, has been prepared as if the
Company were formed on September 30, 1997 and gives effect to the Offering,
investment in the Operating Partnership and acquisition of the Initial
Investments as if they had occurred on September 30, 1997. The unaudited pro
forma statements of operations for the year ended December 31, 1996, and nine
months ended September 30, 1997, give effect to the Offering, the Initial
Investments and the respective leases as if they had been in effect on January
1, 1996 and January 1, 1997. The pro forma adjustments are based upon available
information and certain estimates and assumptions that management of the
Company believes are reasonable. The unaudited pro forma balance sheet and
statements of operations do not purport to present what the Company's financial
position or results of operations and cash available for distribution would
actually have been if the Offering and related transactions had occurred on
September 30, 1997, January 1, 1996 or January 1, 1997, or to project the
Company's financial position or results of operations for any future period.

The unaudited pro forma balance sheet and statements of operations should
be read in conjunction with the balance sheet of the Company and related notes
thereto, and other financial information pertaining to the Company, including
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this Prospectus.

F-6
<PAGE>

ELDERTRUST
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
(In thousands)

<TABLE>
<CAPTION>
EXISTING
RENTAL
ELDERTRUST PROPERTIES
(HISTORICAL) (HISTORICAL)
-------------- --------------
<S> <C> <C>
ASSETS
Initial properties .............................. $ -- $ 14,371
Investment in ET Capital Corp. .................. -- --
Loans receivable ................................. -- --
Note receivable ................................. -- --
Cash and cash equivalents ........................ -- 2,463
Other assets .................................... -- 1,027
Total assets .................................... $ -- $ 17,861
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable .............................. $ -- 7,721
Bank credit facility ........................... --
Accounts payable and accrued expenses ............ -- 944
Minority interest .............................. -- --
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $.01 par
value:
20,000,000 shares authorized; none issued
Common shares of beneficial interest, $.01
par value:
100,000,000 shares authorized; 100 issued
and outstanding (historical) 6,482,600 issued
and outstanding (pro forma) ..................... -- --
Additional paid-in-capital ..................... -- --
Note receivable-officer ........................ -- --
Owners' equity ................................. 9,196
Retained deficit ................................. -- --
--------- --------
Total liabilities and shareholders' equity ...... $ -- $ 17,861
========= ========

<CAPTION>
PRO FORMA
ADJUSTMENTS ELDERTRUST,
FOR THE ADJUSTED
OFFERING AND FOR THE OFFERING
THE INITIAL AND THE
INVESTMENTS INITIAL INVESTMENTS
---------------------- --------------------
<S> <C> <C>
ASSETS
Initial properties .............................. $ 141,467 (2) $155,838
Investment in ET Capital Corp. .................. 7,406 (4) 7,406
Loans receivable ................................. 30,629 (3) 30,629
Note receivable ................................. 800 (11) 800
Cash and cash equivalents ........................ 110,921 (1) 6,466
(66,602)(2)
3,388 (2)
(2,463)(2)
(30,629)(3)
(800)(11)
(7,406)(4)
(2,406)(5)
Other assets .................................... (1,027)(2) 2,406
2,406 (5)
----------
Total assets .................................... $ 185,684 $203,545
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable .............................. (7,230)(2) 34,239
33,748 (2)
Bank credit facility ........................... 43,471 (2) 43,471
Accounts payable and accrued expenses ............ (944)(2)
3,388 (2) 3,388
Minority interest .............................. 2,615 (10) 9,641
7,026 (2)
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $.01 par
value:
20,000,000 shares authorized; none issued
Common shares of beneficial interest, $.01
par value:
100,000,000 shares authorized; 100 issued
and outstanding (historical) 6,482,600 issued
and outstanding (pro forma) ..................... 61 (1) 65
2 (2)
2 (6)
Additional paid-in-capital ..................... 110,860 (1) 119,506
4,498 (2)
3,998 (6)
150(10)
Note receivable-officer ........................ (4,000)(6) (4,000)
Owners' equity ................................. (9,196)(2) --
Retained deficit ................................. (2,765) (10) (2,765)
------------- --------
Total liabilities and shareholders' equity ...... $ 185,684 $203,545
============= ========
</TABLE>

See notes to unaudited pro forma balance sheet and statements of operations.

F-7
<PAGE>

ELDERTRUST
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(In thousands except per share data)

<TABLE>
<CAPTION>
EXISTING
RENTAL
ELDERTRUST PROPERTIES
(HISTORICAL) (HISTORICAL)
-------------- --------------
<S> <C> <C>
Revenues:
Rental revenues ................................. $ -- $ 2.266
Interest income ................................. -- 72
Total revenues .................................... -- 2,338
-------
Expenses:
Property operating expenses ..................... -- 831
Administrative expenses ........................... -- --
Interest .......................................... -- 497
Depreciation .................................... -- 398
Total expenses .................................... -- 1,726
-------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ -- 612
Equity in earnings of ET Capital Corp. ............ -- --
-------
Net operating income before minority interest ...... -- 612
Minority interest ................................. -- --
-------
Net income ....................................... $ -- $ 612
=======
Earnings per share ................................. $ --
Weighted average number of common shares of
beneficial interest outstanding .................. 100
====

<CAPTION>
PRO FORMA
ADJUSTMENTS ELDERTRUST,
FOR THE ADJUSTED
OFFERING AND FOR THE OFFERING
THE INITIAL AND THE
INVESTMENTS INITIAL INVESTMENTS
---------------------- --------------------
<S> <C> <C>
Revenues:
Rental revenues ................................. $ 9,150 (2) $ 11,040
(376)(2)
Interest income ................................. 1,793 (3) 2,000
(72)(2)
207 (6)
-----------
Total revenues .................................... 10,702 13,040
----------- -----------
Expenses:
Property operating expenses ..................... (160)(2) 671
Administrative expenses ........................... 1,647 (9) 1,647
Interest .......................................... (497)(2) 4,472
2,167 (7)
2,305 (8)
Depreciation .................................... (82)(2) 3,331
3,015 (2)(5)
-----------
Total expenses .................................... 8,395 10,121
----------- -----------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ 2,307 2,919
Equity in earnings of ET Capital Corp. ............ 659 (4) 659
----------- -----------
Net operating income before minority interest ...... 2,966 3,578
Minority interest ................................. 248 248
----------- -----------
Net income ....................................... $ 2,718 $ 3,330
=========== ===========
Earnings per share ................................. $ 0.51
===========
Weighted average number of common shares of
beneficial interest outstanding .................. 6,482,500 6,482,600
=========== ===========
</TABLE>

See notes to unaudited pro forma balance sheet and statements of operations.

F-8
<PAGE>

ELDERTRUST
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(Unaudited)
(In thousands except per share data)

<TABLE>
<CAPTION>
EXISTING
RENTAL
ELDERTRUST PROPERTIES
(HISTORICAL) (HISTORICAL)
-------------- --------------
<S> <C> <C>
Revenues:
Rental revenues ................................. $ -- $ 2,955
Interest income ................................. -- 58
Total revenues .................................... -- 3,013
-------
Expenses:
Property operating expenses ..................... -- 1,203
Administrative expenses ........................... -- --
Interest .......................................... -- 692
Depreciation and amortization ..................... -- 544
Total expenses .................................... -- 2,439
-------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ -- 574
Equity in earnings of ET Capital Corp. ............ -- --
-------
Net operating income before minority interest ...... -- 574
Minority interest ................................. -- --
-------
Net income ....................................... $ -- $ 574
=======
Earnings per share ................................. $ --
Weighted average number of common shares of
beneficial interest outstanding .................. 100
====

<CAPTION>
PRO FORMA
ADJUSTMENTS ELDERTRUST,
FOR THE ADJUSTED
OFFERING AND FOR THE OFFERING
THE INITIAL AND THE
INVESTMENTS INITIAL INVESTMENTS
---------------------- --------------------
<S> <C> <C>
Revenues:
Rental revenues ................................. $ 10,922 (2) $ 13,377
(500) (2)
Interest income ................................. 831 (3) 1,107
(58)(2)
276 (6)
----------
Total revenues .................................... 11,471 14,484
---------- -----------
Expenses:
Property operating expenses ..................... (217)(2) 986
Administrative expenses ........................... 2,200 (9) 2,200
Interest .......................................... (692)(2) 5,811
140 (5)
2,486 (7)
3,185 (8)
Depreciation and amortization ..................... (103)(2) 4,097
3,656 (2)(5)
----------
Total expenses .................................... 10,655 13,094
---------- -----------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ 816 1,390
Equity in earnings of ET Capital Corp. ............ 294 (4) 294
---------- -----------
Net operating income before minority interest ...... 1,110 1,684
Minority interest ................................. 117 117
---------- -----------
Net income ....................................... $ 993 $ 1,567
========== ===========
Earnings per share ................................. $ 0.24
===========
Weighted average number of common shares of
beneficial interest outstanding .................. 6,482,500 6,482,600
========== ===========
</TABLE>

See notes to unaudited pro forma balance sheet and statements of operations.

F-9
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)

(Dollars in thousands)

(A) Background and Basis of Presentation

ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in a diversified portfolio of healthcare-related real estate and
mortgages. The Company will be self-administered and self-managed and expects
to qualify as a REIT for federal income tax purposes. Upon completion of the
Offering, the Company intends to make Initial Investments consisting of a
portfolio of 21 assisted and independent living facilities, skilled nursing
facilities and medical office and other buildings in operation (the "Initial
Properties"), term mortgage and construction loans secured by nine assisted
living facilities in lease-up or development and a 95% interest in ET Capital
Corp. (ET Capital), a company which will acquire a $7.5 million note secured by
a second lien on 11 skilled nursing facilities and related patient receivables
(the "Florida Facilities Note").

The assisted, independent living and skilled nursing facilities included
in the Initial Properties will be leased back to the sellers or joint ventures
between the sellers and others under long-term operating leases which will be
Percentage Rent Leases or Minimum Rent Leases. Rental revenues under the
Percentage Rent Leases will be based on a specified percentage of facility
operating revenues. Rental revenues under the Minimum Rent Leases will be based
on (i) base rent (increasing each year by 1.5%) and additional rent based upon
a specified percentage of annual revenues over revenues for the first year of
the lease or (ii) base rent, increasing each year by the lesser of 5% of the
increase in facility revenues for the immediately preceding year or one-half of
the increase in the Consumer Price Index for the immediately preceding year, or
(iii) in the case of the assisted living facilities secured by the Multicare
Loans, base rent, increasing each year by 2.5%. Both types of leases are triple
net leases that require the lessees to pay all operating expenses, taxes and
insurance. The medical office and other buildings included in the Initial
Properties (the "Existing Rental Properties") are subject to existing tenant
leases that provide for specified annual rents, subject to increases in certain
leases. The Company has agreed to or has options to purchase the nine assisted
living facilities securing the term and construction loans included in the
Initial Investments, subject to certain terms and conditions, and these
facilities will also be leased back to the sellers pursuant to Percentage Rent
Leases or Minimum Rent Leases.

The accompanying unaudited pro forma balance sheet is provided to
illustrate the effects of the Offering, the acquisition and funding of the
Initial Investments and related transactions on the Company. It reflects how
the balance sheet might have appeared if the Company had been formed and the
Initial Investments had been made on September 30, 1997. The accompanying pro
forma statements of operations for the year ended December 31, 1996, and the
nine months ended September 30, 1997, give effect to the Offering, the Initial
Investments and related transactions and the various tenant leases as if they
had been in effect on January 1, 1996 and January 1, 1997, respectively. The
statements include historical revenues and expenses of the Existing Rental
Properties, adjustments to record the estimated rental revenues under the
Percentage Rent Leases and Minimum Rent Leases, the Company's equity in the
estimated earnings of ET Capital, estimated interest income under the term
mortgage and construction loans and estimated expenses and adjustments to give
effect to matters directly attributable to the Offering and related
transactions. The pro forma adjustments are explained in detail in note B. As
more fully discussed therein, certain of the Initial Properties (Willowbrook,
Heritage Woods and Lacey Bank) were under development or in the lease-up stage
during the pro forma periods. The pro forma statements of operations have been
prepared assuming that the Company made construction or term loans on these
properties; however, these properties are now operating and will be acquired at
the time of the Offering and leased back to the lessees under Minimum or
Percentage Rent Leases. In addition, the term and construction loans the
Company will fund either were not in existence during part of the pro forma
periods or would have been funded at lower levels (due to the earlier stage of
development of the related facilities) than will be the case upon closing of
the Offering, and the Florida Facilities Note was not in existence until
September 1, 1996. For these and other reasons, the unaudited pro forma balance
sheet

F-10
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)

(Dollars in thousands) -- (Continued)

(A) Background and Basis of Presentation -- (Continued)

and statements of operations do not purport to present what the Company's
financial position or results of operations would actually have been if the
Offering and related transactions had occurred on September 30, 1997 or January
1, 1996 or to project the Company's financial position or results of operations
for any future period.

(B) Pro Forma Adjustments

The accompanying unaudited pro forma balance sheet as of September 30,
1997, and unaudited pro forma statements of operations for the year ended
December 31, 1996, and the nine months ended September 30, 1997, reflect
various adjustments which are required to give effect to the Offering, the
Initial Investments and related transactions and to record estimated rental
revenues from Percentage Rent Leases and Minimum Rent Leases, equity in the
estimated net earnings of ET Capital, estimated interest on loans receivable
and estimated expenses. Explanations of the adjustments are as follows:

(1) Record issuance of 6,050,000 shares of common shares of beneficial
interest at an assumed price of $20 per share. The estimated transaction
expenses of the offering, including the underwriting discount and estimated
offering expenses totaling $10,079 have been reflected as a offset to
additional paid-in capital. The Units issued to management upon formation have
been reflected as an increase to minority interest. The resulting cash proceeds
of the Offering total $110,921.

(2) Record the acquisition of the Initial Properties, eliminate assets and
liabilities of the Existing Rental Properties which will not be acquired or
assumed by the Company and record related depreciation and rental revenues.

The aggregate cost of the Initial Properties is $155,838, consisting of
$66,602 paid from proceeds of the Offering, $43,471 paid from borrowings on the
Bank Credit Facility, $34,239 in debt assumed and $11,526 paid by issuance of
576,280 limited partnership units in the Operating Partnership. Concurrent with
the offering, 225,000 units totalling $4,500 will be converted into Common
Shares. The remaining minority interest of 351,280 units totalling $7,026
represents a 5.0% minority interest in the Company. The aggregate cost of the
Initial Properties is allocated as follows:

<TABLE>
<S> <C>
Buildings ................................................... $132,462
Land improvements ............................................. 7,792
Land ......................................................... 15,584
--------
Less historical book value of existing rental properties ...... 14,371
--------
$141,467
========
</TABLE>

Buildings and land improvements are depreciated using the straight-line
method over the estimated useful lives of the assets, generally 15 to 35 years.

Rental revenues from the Initial Properties (excluding the Existing Rental
Properties) are estimated based on terms of the applicable Percentage Rent
Leases and Minimum Rent Leases for properties which were open and operating
during the periods. The lease commencement dates are based on the date each
property commenced operations. The pro forma rental revenues for the Initial
Properties are summarized as follows:

F-11
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)

(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)

Rental Income

<TABLE>
<CAPTION>
1996
Assumed Lease ---------------------------------
Commencement Fixed Minimum Percentage
Date(4) Rent Rent Rent
Property Sources --------------- -------- --------- ------------
<S> <C> <C> <C> <C>
(1) Genesis - Owned & Operated ............... $ 2,371 $ 369
Pleasant View .............................. 1/96 369
Lopatcong ................................. 1/96 1,251
Phillipsburg .............................. 1/96 569
Wayne .................................... 1/96 551
(1) Crozer/Genesis Acquired/Operated ......... 4,164
CKHS SNFs ................................. 1/96 4,164
(2) Genesis - Acquired/Operated ............ $ 787 804 --
POB1 ....................................... 1/96 787
Lacey .................................... 2/97
Heritage Woods ........................... 6/97
Rittenhouse .............................. 1/96 804
(1) Senior LifeChoice - Owned/Operated ...... -- 1,152 --
Highgate ................................. 1/96 1,152
(3) Senior LifeChoice - Acquired/Operated ... -- 606 --
The Woodbridge ........................... 7/96 606
(1) Age Institute - Genesis Managed ......... -- 746 --
Silver Lake .............................. 1/96 746
(1) Crozer - Multiple Tenant ............... 1,401 -- --
DCMH ....................................... 1/96 1,401
(1) Susquehanna Holdings - Genesis Managed . -- -- 650
Riverview Ridge ........................... 1/96 650
(a1) GHV Associates - Genesis Occupied ...... 192 -- --
Windsor .................................... 1/96 192
(1) SMOBGP - Genesis Occupied ............... 135 -- --
SMOB ....................................... 1/96 135
- ----------------------------------------------- ---- ------
Total rental revenues per pro forma statements
of operations .............................. $2,515 $ 9,843 $1,019
====== ======= ======
Total $13,377
=======

<CAPTION>
1997
--------------------------------
Fixed Minimum Percentage
Rent Rent Rent
Property Sources -------- --------- -----------
<S> <C> <C> <C>
(1) Genesis - Owned & Operated ............... $ 1,804 $291
Pleasant View .............................. 291
Lopatcong ................................. 952
Phillipsburg .............................. 433
Wayne .................................... 419
(1) Crozer/Genesis Acquired/Operated ......... 3,168
CKHS SNFs ................................. 3,168
(2) Genesis - Acquired/Operated ............ $ 699 990 --
POB1 ....................................... 659
Lacey .................................... 40
Heritage Woods ........................... 378
Rittenhouse .............................. 612
(1) Senior LifeChoice - Owned/Operated ...... -- 873 --
Highgate ................................. 873
(3) Senior LifeChoice - Acquired/Operated ... -- 927 --
The Woodbridge ........................... 927
(1) Age Institute - Genesis Managed ......... -- 568 --
Silver Lake .............................. 568
(1) Crozer - Multiple Tenant ............... 961 -- --
DCMH ....................................... 961
(1) Susquehanna Holdings - Genesis Managed . -- -- 505
Riverview Ridge ........................... 505
(a1) GHV Associates - Genesis Occupied ...... 145 -- --
Windsor .................................... 145
(1) SMOBGP - Genesis Occupied ............... 109 -- --
SMOB ....................................... 109
- ----------------------------------------------- ------
Total rental revenues per pro forma statements
of operations .............................. $1,914 $ 8,330 $796
====== ======= ====
$11,040
=======
</TABLE>

(1) These properties have owned and operated since the beginning of the Pro
Forma periods by the same entity.
(2) These properties were either placed in service or acquired by a new
operator during the Pro Forma periods.
(a) POB1 was acquired by Genesis on June 30, 1997 from Crozer.
(b) Lacey was placed in service during February, 1997.
(c) Heritage Woods was placed in service in June 1997 as a minimum rent
property until it reaches stabilization.
(d) Rittenhouse was purchased by Genesis from Geri-Med during the pro
forma periods.
* Property will be operated comparably by acquirer as by seller.
(3) Woodridge was placed into service in July 1996.
(4) No rental revenues have been included in the table for periods prior
to the date the properties commenced operations.

The above table reflects rental revenues for properties not historically
subject to leases of $10,900 and $9,150 for the year ended December 31, 1997
and the nine months ended September 30, 1997, respectively. The net reductions
of $500 and $376 in revenues from Existing Rental Properties for the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively,
is due to (i) an increase in revenues from leasing owner-occupied space in two
medical office buildings to the current owner under fixed rent leases and (ii)
a decrease in revenues due to the Company not acquiring two floors of space in
one of the buildings. Property operating expenses were also reduced by $217 and
$160 for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively, for the estimated effect of the reduction in space.

F-12
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)

(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)

(3) Record loans receivable and related interest income. Loans receivable
consist of the following:

Construction loans .................. $ 3,226
Term loans ........................... 27,403
-------
$30,629
=======

Interest income on construction and term loans is based on the three year
United States Treasury Bill rate plus 3.5%. The following is a summary of the
estimated income on construction and term loans based on the estimated loan
commencement dates indicated (representing the commencement date of
construction of the related facility if after January 1996 in the case of
construction loans, and the commencement date of operations of the related
facility for the term loans) and estimated draws required to fund development
costs incurred during the year ended December 31, 1996 and nine months ended
September 30, 1997:

<TABLE>
<CAPTION>
Pro Forma
Period Ended
Commencement -----------------------------------------
Date December 31, 1996 September 30, 1997
-------------- ------------------- -------------------
Construction Loans
- -------------------------
<S> <C> <C> <C>
Harbor Place ......... 1/96 201 67
Mifflin ............ 10/96 3 98
Coquina Center ...... 10/96 19 171
Heritage Woods ...... 1/96 102 184
Lehigh ............... 3/96 42 310
Sanatoga ............ 3/96 13 73
Berkshire ............ 3/96 39 280
Oaks ............... 7/97 -- 3
Montchanin ......... 6/97 -- 42
Term Loans
- --------------------------
Willowbrook ......... 1/96 412 309
Harbor Place ......... 3/97 -- 256
--- ---
$ 831 $ 1,793
===== =======
</TABLE>

As indicated above, a number of the Initial Properties were under
development or in the lease-up stage during the year ended December 31, 1996,
and/or the nine months ended September 30, 1997, and accordingly, the
construction and term loans either were not in existence or were funded at
lower levels (due to the earlier stages of development of the related
facilities) than will be the case upon closing of the Offering, and the Florida
Facilities Note described in note 4 was not in existence until September 1,
1996. As a result, and because of the assumed level of net offering proceeds,
the Company's cash balances average $52,472 during the year ended December 31,
1996 and $26,241 during the nine months ended September 30, 1997, and are
substantially higher during the periods than they are anticipated to be in
future periods. The Company has not assumed that it will earn income from the
investment of these balances during the pro forma periods.

(4) Record investment in ET Capital and related estimated earnings. ET
Capital will acquire from Genesis the Florida Facilities Note. The Company will
make a loan of $5,625 to ET Capital which will bear interest at 13% and will
invest $1,781 to acquire a 95%, nonvoting equity interest in ET Capital. The
Company will account for its investment using the equity method. The Company's
equity in the earnings of ET Capital in the pro forma statements of operations
includes interest on the loan of $244 during the year ended December 31, 1996,
and $545 during the nine months ended September 30, 1997, and the Company's 95%
share of estimated net earnings of ET Capital, which are summarized as follows:

F-13
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)

(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)

<TABLE>
<CAPTION>
Period Ended
-----------------------------------------
December 31, 1996 September 30, 1997
------------------- -------------------
<S> <C> <C>
Interest income on Florida Facilities Note ...... $ 325 $ 732
Interest expense on loan from the Company ...... (244) (545)
Income taxes .................................... (28) (66)
------ ------
Net income ....................................... $ 53 $ 121
====== ======
</TABLE>

Interest income on the Florida Facilities Note and interest expense on the
loan from the Company are recorded only from September 1, 1996, the date the
Florida Facilities Note was acquired by Genesis.

(5) Record other assets and related amortization. Other assets consist of
the following:

Financing Fee ........................ $ 140
Reserve Funds ........................ 2,209
Organization costs .................. 25
Other assets ........................ 32
------
$2,406
======

Deferred costs are amortized using the straight-line method over the
period benefited by the expenditures. The financing fee is amortized to
interest expense using the straight-line method over the anticipated term of
the bank credit facility (one year). Organization costs are amortized over five
years.

(6) Record note receivable from sale of 200,000 common shares of
beneficial interest to the Company's president and chief executive officer (at
an assumed price of $20 per share) and related interest income. The note will
bear interest at 7% and require quarterly payments of interest only until
maturity ten years from the date of issuance.

(7) Record interest expense on debt assumed by the Company. The debt
assumed matures at various dates to 2021 and provides for interest at stated
rates ranging from 8% to 11%. The aggregate contract value of the debt was
$32,942 at September 30, 1997; the recorded amount of $34,239 is the present
value of future amounts payable in accordance with the loan terms discounted at
a weighted average market rate of 8.5%.

(8) Record interest expense on borrowings under the Credit Facility. As
described in 2 above, it is assumed that the Facility will be used to fund
$43,471 of the cost of the Initial Properties. These borrowings are assumed to
bear interest at a variable rate based on a specified spread over short-term
Eurodollar rates (7.33% based on the specified spread over the average
one-month LIBOR rate for the year ended December 31, 1996 and 7.09% based on
the specified spread over the average one-month LIBOR rate for the nine months
ended September 30, 1997). A 1/8% fluctuation in the assumed interest rate
would change interest expense by $54.3 and $40.7 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.

(9) Administrative expenses of $2,200 for the year ended December 31, 1996
and $1,647 for the nine months ended September 30, 1997 consist of compensation
and related benefits, professional fees, travel, rent and other administrative
costs.

(10) The Operating Partnership will issue 130,750 limited partnership
units in Operating Partnership (representing a minority interest of 1.9% in the
Company) to officers of the Company at an assumed value of $20 per unit. The
units will be issued in consideration for services relating to the formation of
the Company and, accordingly, the Company will recognize compensation expense
equal to the fair value of the units ($2,615,000). In addition, the Company
will issue 7,500 shares to trustees under the Company's 1998 Share Option and
Incentive Plan. These expenses are nonrecurring items and, accordingly, have
not been included in the pro forma statements of operations.

(11) Record purchase of $800 Penn Mortgage note from Genesis.

F-14
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Prospectus in
connection with the offering made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Shares in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.

--------------------------------------------
SUMMARY TABLE OF CONTENTS

Page
---------
Summary .......................................... 1
Risk Factors .................................... 18
The Company ....................................... 34
Business and Growth Strategies .................. 35
Conflicts of Interest ........................... 37
Use of Proceeds ................................. 38
Distributions .................................... 38
Capitalization .................................... 42
Dilution .......................................... 43
Selected Historical and Pro Forma Financial
Information .................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 46
Business and Properties ........................... 50
Management ....................................... 83
Certain Relationships and Related Transactions 89
Structure and Formation of the Company ............ 91
Benefits to Related Parties ..................... 93
Policies with Respect to Certain Activities ...... 97
Partnership Agreement ........................... 100
Principal Shareholders ........................... 104
Shares of Beneficial Interest ..................... 105
Certain Provisions of Maryland Law and the
Company's Declaration of Trust and Bylaws 110
Shares Available for Future Sale .................. 113
Federal Income Tax Considerations ............... 114
ERISA Considerations .............................. 131
Underwriting .................................... 134
Experts .......................................... 137
Legal Matters .................................... 137
Additional Information ........................... 137
Glossary .......................................... 138
Index to Financial Statements ..................... F-1

--------------------------------------------

Until , 1998 (25 days after the commencement of this Offering), all
dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

6,050,000 Common Shares

ElderTrustSM

Common Shares
of Beneficial Interest

--------------------------------------------

PROSPECTUS
--------------------------------------------
Merrill Lynch & Co.

BT Alex. Brown

Goldman, Sachs & Co.

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

INTERNATIONAL TRANCHE PAGE

SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
PROSPECTUS

6,050,000 Common Shares

o The possibility that the Company may not be able effectively to manage its
intended rapid growth; the Company's lack of operating history and
management's lack of experience in operating a REIT.

o Operating risks inherent in the highly regulated healthcare industry
which may affect the operations of the Company's lessees and tenants;

o General real estate investment risks, the possibility of defaults under
leases, and defaults under term and construction loans and the lack of
minimum rent provisions in certain of the facility leases;

o The Board of Trustees may change the Company's investment, financing and
other policies without shareholder approval;

- --------------------------------------------------------------------------------

Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Common Share ...... $ $ $
- ------------------------- ---------- -------------- ------------
Total (3) ............ $ $ $

(2) Before deducting estimated expenses of $_____________ payable by the
Company.

(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an additional 726,000 Common Shares, and has granted the
International Managers a 30-day option to purchase up to an additional
181,500 Common Shares, on the same terms and conditions as set forth
above, solely to cover overallotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-------------------
The Common Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York
on or about , 1998.
-------------------
Merrill Lynch International
BT Alex. Brown International
Goldman Sachs International
-------------------
The date of this Prospectus is , 1998.

<PAGE>

INTERNATIONAL TRANCHE PAGE

UNDERWRITING

Subject to the terms and conditions in the international purchase
agreement (the "International Purchase Agreement"), between the Company and
each of the underwriters named below (the "International Managers"), and
concurrently with the sale of 4,840,000 Common Shares to the U.S. Underwriters
(as defined below), the Company has agreed to sell to each of the International
Managers, for whom Merrill Lynch International, BT Alex. Brown International,
division of Bankers Trust International PLC and Goldman Sachs International are
acting as lead managers (the "Lead Managers"), and each of the International
Managers has severally agreed to purchase from the Company, the respective
number of Common Shares set forth below opposite their respective names:

Number of
Underwriter Common Shares
- ------------------------------------------------ --------------
Merrill Lynch International ............
---------
BT Alex. Brown International, division of
Bankers Trust International PLC ......
Goldman Sachs International ............
Total .............................. 1,210,000
=========

The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain underwriters in the United States (the
"U.S. Underwriters" and, together with the International Underwriters, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT
Alex. Brown Incorporated and Goldman, Sachs & Co. are acting as
representatives. Subject to the terms and conditions set forth in the U.S.
Purchase Agreement and concurrently with the sale of 1,210,000 Common Shares to
the International Managers pursuant to the International Purchase Agreement,
the Company has agreed to sell to the U.S. Underwriters, and the U.S.
Underwriters have severally agreed to purchase from the Company, an aggregate
of 4,840,000 Common Shares. The initial public offering price per share and the
total underwriting discount per share are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.

The Lead Managers have advised the Company that the International Managers
propose initially to offer the Common Shares to the public at the public
offering price per share set forth on the cover page of this Prospectus, and to
certain banks, brokers and dealers (the "Selling Group") at such price less a
concession not in excess of $______ per share. The International Managers may
allow, and such dealers may re-allow with the consent of Merrill Lynch
International, a discount not in excess of $______ per share on sales to
certain other International Managers and members of the Selling Group. After
the date of this Prospectus, the initial public offering price, concession and
discount may be changed.

134
<PAGE>

INTERNATIONAL TRANCHE PAGE

The Company has granted to the International Managers an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to
181,500 additional Common Shares to cover overallotments, if any, at the
initial public offering price, less the underwriting discount set forth on the
cover page of this Prospectus. If the International Managers exercise this
option, each International Manager will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof which
the number of Common Shares to be purchased by it shown in the foregoing table
bears to such International Managers' initial amount reflected in the foregoing
table. The Company also has granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 726,000 additional Common Shares to cover overallotments, if
any, on terms similar to those granted to the International Managers.

Each of the Company and the International Managers has represented and
agreed that (a) it has not offered or sold, and prior to the date six months
after the date of this Prospectus will not offer or sell any Common Shares to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purpose of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995,
(b) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the Common Shares in, from or otherwise involving the United Kingdom and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue or sale of the
Common Shares to a person who is of a kind described in Article II(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom the document may otherwise lawfully be issued or passed
on.

135
<PAGE>

INTERNATIONAL TRANCHE PAGE

The Company, its trustees and executive officers, the Operating
Partnership and the Continuing Investors have agreed, subject to certain
exceptions, not to sell, offer or contract to sell, grant any option for the
sale of, or otherwise dispose of any Common Shares or Units or any securities
convertible into or exchangeable for Common Shares or Units for a period of 12
months from the date of the Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Company has granted
certain registration rights to Messrs. Walker and Romanov and the Continuing
Investors pursuant to which such persons may require the Company to file a
registration statement with the SEC with respect to Common Shares owned by
Messrs. Walker and Romanov or received by the Continuing Investors in exchange
for their Units after the expiration of such 14-month period.

The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.

The Company has applied to listing of the Common Shares on the New York
Stock Exchange under the symbol "ETT." In order to meet one of the requirements
for listing the Common Shares on the New York Stock Exchange, the Underwriters
will undertake to sell lots of 100 or more Common Shares to a minimum of 2,000
beneficial holders.

136
<PAGE>

INTERNATIONAL TRANCHE PAGE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Shares in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.

--------------------------------------------
SUMMARY TABLE OF CONTENTS

Page
-----------
Summary ............................................. 1
Risk Factors ....................................... 18
The Company ....................................... 34
Business and Growth Strategies ..................... 35
Conflicts of Interest .............................. 37
Use of Proceeds .................................... 38
Distributions ....................................... 38
Capitalization .................................... 42
Dilution .......................................... 43
Selected Historical and Pro Forma Financial
Information .................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................... 46
Business and Properties ........................... 50
Management .......................................... 83
Certain Relationships and Related Transactions . 89
Structure and Formation of the Company ............ 91
Benefits to Related Parties ........................ 93
Policies with Respect to Certain Activities . 97
Partnership Agreement .............................. 100
Principal Shareholders .............................. 104
Shares of Beneficial Interest ..................... 105
Certain Provisions of Maryland Law and the
Company's Declaration of Trust and
Bylaws .......................................... 110
Shares Available for Future Sale .................. 113
Federal Income Tax Considerations .................. 114
ERISA Considerations .............................. 131
Underwriting ....................................... 134
Experts ............................................. 137
Legal Matters ....................................... 137
Additional Information .............................. 137
Glossary .......................................... 138
Index to Financial Statements ..................... F-1

--------------------------------------------

Until , 1998 (25 days after the commencement of this Offering), all dealers
effecting transactions in the Common Shares, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

6,050,000 Common Shares

ElderTrustSM

Common Shares
of Beneficial Interest

--------------------------------------------
PROSPECTUS
--------------------------------------------
Merrill Lynch International

BT Alex. Brown International Goldman Sachs International

, 1998

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 30. Other Expenses of Issuance and Distribution

The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.

Registration Fee .................................... $47,394
NASD Fee .......................................... 16,140
New York Stock Exchange Listing Fee ............... *
Printing and Engraving Expenses ..................... *
Legal Fees and Expenses ........................... *
Accounting Fees and Expenses ........................ *
Blue Sky Fees and Expenses ........................ *
Environmental and Engineering Expenses ............ *
Miscellaneous ....................................... *
-------
TOTAL .......................................... $ *
=======
Indemnification Insurance Costs (see Item 33) ...... *
-------

- ------------
*To be completed by amendment.

Item 31. Sales to Special Parties

See Item 32.

Item 32. Recent Sales of Unregistered Securities

1. On September 23, 1997, the Company was capitalized with the issuance to
Mr. McCreary of 100 Common Shares for an aggregate purchase price of $100. The
issuance of such Common Shares was effected in reliance on an exemption from
registration under Section 4(2) of the Securities Act. See "Structure and
Formation of the Company."

2. On July 30, 1997, the Operating Partnership was capitalized with the
issuance of a general partnership interest to ElderTrust Realty Group, Inc. in
exchange for a capital contribution in the amount of $200 and with the issuance
of a limited partnership interest to ET Partnership in exchange for a capital
contribution in the amount of $200,000. The issuance of such limited
partnership interests in the Operating Partnership was effected in reliance on
an exemption from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder. See "Structure and Formation of the
Company."

3. On September 10, 1997, the Operating Partnership issued additional
limited partnership interests to Messrs. Romanov and McCreary in exchange for
capital contributions in the aggregate amount of $200. The issuance of such
limited partnership interests in the Operating Partnership was effected in
reliance on an exemption from registration under Section 4(2) of the Securities
Act, and Regulation D promulgated thereunder. See "Structure and Formation of
the Company."

4. Immediately prior to the closing of the Offering, ET Partnership will
be dissolved and the Operating Partnership will be recapitalized and will issue
Units to (i) Messrs. Romanov and McCreary and the former partners in ET
Partnership (including Messrs. Walker and Romanov in respect of the Genesis
interest in ET Partnership which will be purchased by Messrs. Walker and
Romanov immediately prior to the dissolution of ET Partnership) in respect of
the limited partnership interests in the Operating Partnership previously
issued to such partners and (ii) the Continuing Investors in exchange for the
interests of the Continuing Investors in certain of the Initial Properties.
Messrs. Romanov and McCreary will receive a total of 112,000 Units in respect
of the limited partnership interests in the Operating Partnership issued to
them on September 10, 1997. The number of Units to be issued to the former
partners in ET Partnership (including Messrs. Walker and Romanov in respect of
the Genesis interest in ET Partnership which will be purchased by Messrs.
Walker and Romanov immediately prior to the dissolution of ET Partnership) in
respect of the limited partnership interest

II-1
<PAGE>

in the Operating Partnership previously issued to ET Partnership will be
determined based upon the initial public offering price per Common Share in the
Offering. Immediately following completion of the Offering, the Units issued to
Messrs. Walker and Romanov in respect of the Genesis interest in ET Partnership
will be exchanged for Common Shares on a one-for-one basis pursuant to the Unit
Redemption Right as provided in the Operating Partnership Agreement. The number
of Units to be issued to the Continuing Investors in the Formation transactions
will be determined at the time the final preliminary prospectus relating to the
Offering (the "Final Preliminary Prospectus") is circulated to prospective
investors and will be a number of Units having an aggregate value equal to
$4,400,600, based on a per Unit value equal to the midpoint of the price range
per Common Share set forth in the Final Preliminary Prospectus. The issuance of
such Units and Common Shares to Messrs. Romanov and McCreary, the former
partners in ET Partnership (including Messrs. Walker and Romanov in respect of
the Genesis interest in ET Partnership which will be purchased by Messrs.
Walker and Romanov immediately prior to the dissolution of ET Partnership) and
the Continuing Investors will be effected in reliance on an exemption from
registration under Section 4(2) of the Securities Act, and Regulation D
promulgated thereunder. See "Structure and Formation of the Company."

Item 33. Indemnification of Directors and Officers

The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the Declaration of Trust and Bylaws of the Company
and the Partnership Agreement of the Operating Partnership against certain
liabilities. The Declaration of Trust of the Company requires it to indemnify
its directors and officers to the fullest extent permitted from time to time
under Maryland law.

The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former trustee or officer or (b) any individual who,
while a trustee of the Company and at the request of the Company, serves or has
served as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her
status as a present or former trustee or officer of the Company. The Bylaws of
the Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer who
is made party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a trustee or officer of the Company and at the
request of the Company, serves or has served another real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a trustee, director, officer or partner of such real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity, against any claim or
liability to which he may become subject by reason of such status. The
Declaration of Trust and Bylaws also permit the Company to indemnify and
advance expenses to any person who served as a predecessor of the Company in
any of the capacities described above and to any employee or agent of the
Company or a predecessor of the Company. The Bylaws require the Company to
indemnify a trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.

The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In accordance with
the MGCL, the Bylaws of the Company require it, as a condition to

II-2
<PAGE>

advancing expenses, to obtain (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the Bylaws and
(b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met.

Item 34. Treatment of Proceeds from Stock Being Registered

Not Applicable.

Item 35. Financial Statements and Exhibits

(a) Financial Statements, all of which are included in the Prospectus:

ELDERTRUST
Independent Auditors' Report
Balance Sheet as of September 30, 1997
Notes to Balance Sheet
Pro Forma Balance Sheet and Statements of Operations
Notes to Pro Forma Balance Sheet and Statements of Operations

(b) Exhibits

<TABLE>
<S> <C>
1.1 * Form of U.S. Purchase Agreement
1.2 * Form of International Purchase Agreement
3.1 * Form of Amended and Restated Declaration of Trust of the Company
3.2 * Form of Bylaws of the Company
5.1 * Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being registered
8.1 * Opinion of Hogan & Hartson L.L.P. regarding tax matters
10.1 * Form of Second Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 * Form of Registration Rights Agreement between the Company and the persons named therein
10.3 * 1998 Share Option and Incentive Plan
10.4 * Employment and Non-Competition Agreement between the Company and Edward B. Romanov, Jr.
10.5 * Non-Competition Agreement between the Company and Michael R. Walker
10.6 * Form of Indemnification Agreement
10.7 * Asset Transfer Agreements between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc. (Heritage Woods, Willowbrook, Riverview Ridge, Pleasant View, Rittenhouse,
Lopatcong, Phillipsburg, Wayne, POB I and Lacey Bank Building)
10.8 * Minimum Rent Leases between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc. (Heritage Woods, Highgate at Paoli Pointe, Rittenhouse, Lopatcong, Phillipsburg
and Wayne)
10.9 * Percentage Rent Leases between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc. (Willowbrook, Riverview Ridge and Pleasant View)
10.10* Fixed Rent Leases between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc. (Salisbury Medical Office Building, Windsor Office Building and Windsor Clinic
and Training Facility)
10.11* Term Loan Agreements between ElderTrust Operating Limited Partnership Agreement and Genesis
Health Ventures, Inc. (Mifflin and Coquina Center)
10.12* Construction Loan Agreement between ElderTrust Operating Limited Partnership Agreement and
Genesis Health Ventures, Inc. (Oaks)
</TABLE>

II-3
<PAGE>

<TABLE>
<S> <C>
10.13* Form of Loan Commitments between ElderTrust Operating Limited Partnership Agreement and
Genesis Health Ventures, Inc.
10.14* Right of First Offer Agreement between ElderTrust Operating Limited Partnership and Genesis
Health Ventures, Inc.
10.15* Option Agreement to purchase Holton Point facility between ElderTrust Operating Limited
Partnership and Genesis Health Ventures, Inc.
10.16* Form of Asset Transfer Agreement between ElderTrust Operating Limited Partnership and certain
parties who are selling partnership interests for cash
10.17* Plan of Asset Transfer and Contribution Agreement between ElderTrust Operating Limited
Partnership and Senior LifeChoice Corp. dated as of September 25, 1997
10.18* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating Limited
Partnership, GHV Associates and the partners in GHV Associates dated as of September 25, 1997.
10.19* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating Limited
Partnership and the partners in Salisbury Medical Office Building General Partnership dated as of
September 25, 1997.
10.20* Stock Purchase Agreement between the Company and Edward B. Romanov, Jr. dated as of
October 8, 1997
21.1 * List of Subsidiaries
23.1 * Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.4 * Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 8.1)
23.5 * Consent of Kent P. Dauten
23.6 * Consent of Rodman W. Moorhead, III
23.7 * Consent of Timothy T. Weglicki
24.1 + Power of Attorney
27.1 Financial Data Schedule
</TABLE>

- ------------
*To be filed by amendment.
+Previously filed.

Item 36. Undertakings

The Registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act of 1933,
as amended (the "Act"), the information omitted from the form of Prospectus
filed as part of the Registration Statement in reliance upon rule 430A and
contained in the form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery of each purchaser.

(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in Kennett
Square, Pennsylvania on this 12th day of December, 1997.

ELDERTRUST

By: /s/ Edward B. Romanov, Jr.
-----------------------------------

Edward B. Romanov, Jr.
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated as of the
12th day of December, 1997.

<TABLE>
<CAPTION>
Signature Title
- --------------------------------------------------------------------- -------------------------------------------
<S> <C>
/s/ Edward B. Romanov, Jr. -------------------------------------- President, Chief Executive Officer and
Edward B. Romanov, Jr. Trustee (principal executive officer)
/s/ D. Lee McCreary, Jr. -------------------------------------- Chief Financial Officer (principal
D. Lee McCreary, Jr. financial officer and principal accounting
officer)
/s/ Michael R. Walker -------------------------------------- Chairman of the Board of Trustees
Michael R. Walker
</TABLE>

II-5
<PAGE>

EXHIBIT INDEX

Exhibits Page No.

<TABLE>
<S> <C> <C>
1.1 * Form of U.S. Purchase Agreement
1.2 * Form of International Purchase Agreement
3.1 * Form of Amended and Restated Declaration of Trust of the Company
3.2 * Form of Bylaws of the Company
5.1 * Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being
registered
8.1 * Opinion of Hogan & Hartson L.L.P. regarding tax matters
10.1 * Form of Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 * Form of Registration Rights Agreement between the Company and the persons
named therein
10.3 * 1998 Share Option and Incentive Plan
10.4 * Employment and Non-Competition Agreement between the Company and
Edward B. Romanov, Jr.
10.5 * Non-Competition Agreement between the Company and Michael R. Walker
10.6 * Form of Indemnification Agreement
10.7 * Asset Transfer Agreements between ElderTrust Operating Limited Partnership
and Genesis Health Ventures, Inc. (Heritage Woods, Willowbrook, Riverview
Ridge, Pleasant View, Rittenhouse, Lopatcong, Phillipsburg, Wayne, POB I and
Lacey Bank Building)
10.8 * Minimum Rent Leases between ElderTrust Operating Limited Partnership and
Genesis Health Ventures, Inc. (Heritage Woods, Highgate at Paoli Pointe,
Rittenhouse, Lopatcong, Phillipsburg and Wayne)
10.9 * Percentage Rent Leases between ElderTrust Operating Limited Partnership and
Genesis Health Ventures, Inc. (Willowbrook, Riverview Ridge and Pleasant
View)
10.10* Fixed Rent Leases between ElderTrust Operating Limited Partnership and
Genesis Health Ventures, Inc. (Salisbury Medical Office Building, Windsor Office
Building and Windsor Clinic and Training Facility)
10.11* Term Loan Agreements between ElderTrust Operating Limited Partnership
Agreement and Genesis Health Ventures, Inc. (Mifflin and Coquina Center)
10.12* Construction Loan Agreement between ElderTrust Operating Limited Partnership
Agreement and Genesis Health Ventures, Inc. (Oaks)
10.13* Form of Loan Commitments between ElderTrust Operating Limited Partnership
Agreement and Genesis Health Ventures, Inc.
10.14* Right of First Offer Agreement between ElderTrust Operating Limited
Partnership and Genesis Health Ventures, Inc.
10.15* Option Agreement to purchase Holton Point facility between ElderTrust
Operating Limited Partnership and Genesis Health Ventures, Inc.
</TABLE>

<PAGE>

<TABLE>
<S> <C>
10.16* Form of Asset Transfer Agreement between ElderTrust Operating Limited
Partnership and certain parties who are selling partnership interests for cash
10.17* Plan of Asset Transfer and Contribution Agreement between ElderTrust
Operating Limited Partnership and Senior LifeChoice Corp. dated as of
September 25, 1997
10.18* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating
Limited Partnership, GHV Associates and the partners in GHV Associates dated
as of September 25, 1997.
10.19* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating
Limited Partnership and the partners in Salisbury Medical Office Building
General Partnership dated as of September 25, 1997.
10.20* Stock Purchase Agreement between the Company and Edward B. Romanov, Jr.
dated as of October 8, 1997
21.1 * List of Subsidiaries
23.1 * Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.4 * Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 8.1)
23.5 * Consent of Kent P. Dauten
23.6 * Consent of Rodman W. Moorhead, III
23.7 * Consent of Timothy T. Weglicki
24.1 + Power of Attorney
27.1 Financial Data Schedule
</TABLE>

- ------------
*To be filed by amendment.
+Previously filed.

<PAGE>

EXHIBIT 23.2

ACCOUNTANTS' CONSENT

The Board of Trustees
ElderTrust:

We consent to the use of our report on the balance sheet of ElderTrust as of
September 30, 1997 included herein and to the reference to our firm under the
heading "Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP
----------------------------------------
KPMG Peat Marwick LLP

Washington, D.C.

December 15, 1997

<ARTICLE> 5
<CIK> 0001043236
<NAME> ElderTrust
<MULTIPLIER> 1
<CURRENCY> US DOLLARS

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-23-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 99
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>