##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark
One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 1-12566



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G & L REALTY CORP.

(Exact name of Registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Maryland                                                      |  | 95-4449388                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|439 N. Bedford Drive Beverly Hills, California                |  | 90210                              
|(Address of Principal Executive Offices)                      |  | (Zip Code)                         



Registrants
telephone number, including area code: (310) 273-9930



---



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



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).    Yes ̈No x



Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.):    Yes ̈No x



As of November 14, 2005, 710,199 shares of common stock of G&L
Realty Corp. were outstanding.



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##### Table of Contents

G&L REALTY CORP.



INDEX



|          |  |                                                                                                                                    |  |            
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|          |  |                                                                                                                                    |  | Page Number
|Part I    |  | Financial Information                                                                                                              |  |            
|          |  |                                                                                                                                   
|Item 1    |  | Financial Statements                                                                                                               |  |            
|          |  | Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004                                   |  | 3          
|          |  | Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2005 and 2004 (unaudited) |  | 4          
|          |  | Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2005 and 2004 (unaudited)           |  | 5 - 6      
|          |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 7  17     
|Item 2    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                              |  | 18  27    
|Item 3    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                         |  | 28         
|Item 4    |  | Controls and Procedures                                                                                                            |  | 28         
|          |  |                                                                                                                                   
|Part II   |  | Other Information                                                                                                                  |  |            
|Item 1    |  | Legal Proceedings                                                                                                                  |  | 29         
|Item 2    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                        |  | 29         
|Item 3    |  | Defaults Upon Senior Securities                                                                                                    |  | 29         
|Item 4    |  | Submission of Matters to a Vote of Security Holders                                                                                |  | 29         
|Item 5    |  | Other Information                                                                                                                  |  | 29         
|Item 6    |  | Exhibits                                                                                                                           |  | 30  31    
|          |  |                                                                                                                                   
|Signature |  |                                                                                                                                    |  | 32         



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##### Table of Contents

G&L REALTY CORP.



CONDENSED
CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                 |  | September 30, 2005 |         |   | December 31, 2004 |  
|                                                                                                                                                                 |  | (Unaudited)        |         |   |                   |  
|ASSETS                                                                                                                                                           |  |                    |         |   |                   |   |         |  
|Rental properties (Note 3):                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Land                                                                                                                                                             |  | $                  | 18,012  |   |                   | $ | 18,012  |  
|Buildings and improvements, net (Note 3)                                                                                                                         |  |                    | 67,051  |   |                   |   | 67,796  |  
|Projects under development                                                                                                                                       |  |                    | 387     |   |                   |   | 288     |  
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|Total rental properties                                                                                                                                          |  |                    | 85,450  |   |                   |   | 86,096  |  
|Assets held for sale (Note 3)                                                                                                                                    |  |                    |        |   |                   |   | 10,410  |  
|Cash and cash equivalents                                                                                                                                        |  |                    | 9,772   |   |                   |   | 10,508  |  
|Restricted cash                                                                                                                                                  |  |                    | 3,004   |   |                   |   | 2,177   |  
|Tenant rent, reimbursements and other receivables, net                                                                                                           |  |                    | 635     |   |                   |   | 625     |  
|Unbilled rent receivable, net                                                                                                                                    |  |                    | 2,326   |   |                   |   | 2,472   |  
|Mortgage loans, bonds and notes receivable, net                                                                                                                  |  |                    | 1,352   |   |                   |   | 1,161   |  
|Notes receivable from related parties (Note 9)                                                                                                                   |  |                    | 7,883   |   |                   |   | 6,497   |  
|Investments in unconsolidated affiliates (Note 6)                                                                                                                |  |                    |        |   |                   |   | 2,461   |  
|Deferred charges and other assets, net (Note 4)                                                                                                                  |  |                    | 3,002   |   |                   |   | 3,315   |  
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                     |  | $                  | 113,424 |   |                   | $ | 125,722 |  
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|                                                                                                                                                                 |  |                   
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                            |  |                    |         |   |                   |   |         |  
|LIABILITIES:                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|Notes payable                                                                                                                                                    |  | $                  | 153,320 |   |                   | $ | 144,140 |  
|Liabilities of assets held for sale (Note 3)                                                                                                                     |  |                    |        |   |                   |   | 13,629  |  
|Accounts payable and other liabilities                                                                                                                           |  |                    | 1,665   |   |                   |   | 3,018   |  
|Tenant security deposits                                                                                                                                         |  |                    | 1,488   |   |                   |   | 1,460   |  
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                |  |                    | 156,473 |   |                   |   | 162,247 |  
|Minority interest in consolidated affiliates                                                                                                                     |  |                    | (1,426  | ) |                   |   | (1,381  | )
|Minority interest in Operating Partnership                                                                                                                       |  |                    |        |   |                   |   |        |  
|Commitments and contingencies (Note 8)                                                                                                                           |  |                    |        |   |                   |   |        |  
|                                                                                                                                                                 |  |                   
|STOCKHOLDERS EQUITY (DEFICIT) (Note 5):                                                                                                                         |  |                    |         |   |                   |   |         |  
|Preferred shares - $.01 par value, 10,000,000 shares authorized, liquidation preference of $25.00 per share, aggregate liquidation preference
of $67,047,825     |  |                    |         |   |                   |   |         |  
|      Series A Preferred - 1,404,203 shares issued and outstanding as of September 30, 2005 and
December 31, 2004, respectively                                 |  |                    | 14      |   |                   |   | 14      |  
|      Series B Preferred - 1,277,710 shares issued and outstanding as of September 30, 2005 and
December 31, 2004, respectively                                 |  |                    | 13      |   |                   |   | 13      |  
|Common shares - $.01 par value, 50,000,000 shares authorized, 710,199 shares issued and outstanding as of September 30, 2005 and
December 31, 2004, respectively |  |                    | 7       |   |                   |   | 7       |  
|Additional paid-in capital                                                                                                                                       |  |                    | 36,388  |   |                   |   | 36,388  |  
|Distributions in excess of net income                                                                                                                            |  |                    | (78,045 | ) |                   |   | (66,452 | )
|Notes receivable from stockholders                                                                                                                               |  |                    |        |   |                   |   | (5,114  | )
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|Total stockholders deficit                                                                                                                                      |  |                    | (41,618 | ) |                   |   | (35,144 | )
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                      |  | $                  | 113,424 |   |                   | $ | 125,722 |  
|                                                                                                                                                                 |  |                    |         |   |                   |   |         |  



See accompanying notes
to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)



|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                        |  | Three Month Period Ended September 30, |        |   | Nine Month Period Ended September 30, |  
|                                                                                                                                        |  | 2005                                   |        |   | 2004                                  |   |        | 2005 |  |   | 2004   |  
|                                                                                                                                        |  | (Unaudited)                            |       
|REVENUES:                                                                                                                               |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Rent                                                                                                                                    |  | $                                      | 5,656  |   |                                       | $ | 7,838  |      |  | $ | 16,575 |   |  | $ | 20,316 |  
|Patient revenues (Note 7)                                                                                                               |  |                                        |       |   |                                       |   |       |      |  |   |       |   |  |   | 6,736  |  
|Tenant reimbursements                                                                                                                   |  |                                        | 869    |   |                                       |   | 860    |      |  |   | 2,529  |   |  |   | 2,551  |  
|Reimbursements from related party (Note 9)                                                                                              |  |                                        |       |   |                                       |   |       |      |  |   | 949    |   |  |   |       |  
|Parking                                                                                                                                 |  |                                        | 440    |   |                                       |   | 451    |      |  |   | 1,369  |   |  |   | 1,301  |  
|Interest and loan fees                                                                                                                  |  |                                        | 370    |   |                                       |   | 121    |      |  |   | 1,147  |   |  |   | 526    |  
|Other income                                                                                                                            |  |                                        | 93     |   |                                       |   | 328    |      |  |   | 163    |   |  |   | 783    |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                                                                          |  |                                        | 7,428  |   |                                       |   | 9,598  |      |  |   | 22,732 |   |  |   | 32,213 |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|EXPENSES:                                                                                                                               |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Property operations                                                                                                                     |  |                                        | 2,068  |   |                                       |   | 2,108  |      |  |   | 5,769  |   |  |   | 5,886  |  
|Skilled nursing operations                                                                                                              |  |                                        |       |   |                                       |   |       |      |  |   |       |   |  |   | 6,287  |  
|Depreciation and amortization                                                                                                           |  |                                        | 774    |   |                                       |   | 1,204  |      |  |   | 2,324  |   |  |   | 3,619  |  
|Provision for doubtful accounts, notes and bonds receivable                                                                             |  |                                        | 12     |   |                                       |   | 341    |      |  |   | 15     |   |  |   | 1,252  |  
|Interest                                                                                                                                |  |                                        | 2,244  |   |                                       |   | 2,798  |      |  |   | 7,493  |   |  |   | 8,208  |  
|General and administrative                                                                                                              |  |                                        | 630    |   |                                       |   | 1,448  |      |  |   | 3,298  |   |  |   | 3,704  |  
|Impairment of assets (Note 9)                                                                                                           |  |                                        |       |   |                                       |   |       |      |  |   | 4,094  |   |  |   |       |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Total expenses                                                                                                                          |  |                                        | 5,728  |   |                                       |   | 7,899  |      |  |   | 22,993 |   |  |   | 28,956 |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests and equity in earnings of unconsolidated affiliates and discontinued
operations |  |                                        | 1,700  |   |                                       |   | 1,699  |      |  |   | (261   | ) |  |   | 3,257  |  
|Equity in earnings of unconsolidated affiliates (Note 6)                                                                                |  |                                        |       |   |                                       |   | 189    |      |  |   | 591    |   |  |   | 26     |  
|Minority interest in consolidated affiliates                                                                                            |  |                                        | (126   | ) |                                       |   | (162   | )    |  |   | (392   | ) |  |   | (423   | )
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations before discontinued operations                                                                            |  |                                        | 1,574  |   |                                       |   | 1,726  |      |  |   | (62    | ) |  |   | 2,860  |  
|Discontinued operations:                                                                                                                |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Net income from operations of discontinued operations                                                                                   |  |                                        |       |   |                                       |   | 142    |      |  |   | 105    |   |  |   | 197    |  
|Gain from sale of discontinued operations                                                                                               |  |                                        |       |   |                                       |   | 2,097  |      |  |   | 7,712  |   |  |   | 2,536  |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Total income from discontinued operations                                                                                               |  |                                        |       |   |                                       |   | 2,239  |      |  |   | 7,817  |   |  |   | 2,733  |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                                                              |  |                                        | 1,574  |   |                                       |   | 3,965  |      |  |   | 7,755  |   |  |   | 5,593  |  
|Dividends on preferred stock                                                                                                            |  |                                        | (1,670 | ) |                                       |   | (1,790 | )    |  |   | (5,009 | ) |  |   | (5,371 | )
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|Net (loss) income available to common stockholders                                                                                      |  | $                                      | (96    | ) |                                       | $ | 2,175  |      |  | $ | 2,746  |   |  | $ | 222    |  
|                                                                                                                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  



See accompanying notes
to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                  |  |                                       |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Month Period Ended September 30, |        
|                                                                                  |  | 2005                                  |         |   | 2004 |  
|                                                                                  |  | (Unaudited)                           |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                       |         |   |      |   |         |  
|Net income                                                                        |  | $                                     | 7,755   |   |      | $ | 5,593   |  
|Adjustments to reconcile net income to net cash provided by Operating activities: |  |                                       |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                                       | 2,326   |   |      |   | 4,059   |  
|Amortization of deferred loan costs                                               |  |                                       | 177     |   |      |   | 271     |  
|Net gain from sale of discontinued operations                                     |  |                                       | (7,712  | ) |      |   | (2,536  | )
|Impairment of assets                                                              |  |                                       | 4,094   |   |      |   |        |  
|Write-off of deferred loan costs                                                  |  |                                       | 39      |   |      |   |        |  
|Minority interests                                                                |  |                                       | 392     |   |      |   | 423     |  
|Equity in earnings of unconsolidated affiliates                                   |  |                                       | (591    | ) |      |   | (26     | )
|Distributions from operations of investments in unconsolidated affiliates         |  |                                       | 25      |   |      |   |        |  
|Provision for doubtful accounts, notes and bonds receivable                       |  |                                       | 15      |   |      |   | 1,252   |  
|Unbilled rent receivable, net                                                     |  |                                       | 146     |   |      |   | 114     |  
|(Increase) decrease in:                                                           |  |                                       |         |   |      |   |         |  
|Tenant rent and reimbursements receivable                                         |  |                                       | (179    | ) |      |   | 1,672   |  
|Prepaid expense and other assets                                                  |  |                                       | 471     |   |      |   | (410    | )
|Accrued interest and loan fees receivable                                         |  |                                       | (22     | ) |      |   | (285    | )
|Increase (decrease) in:                                                           |  |                                       |         |   |      |   |         |  
|Accounts payable and other liabilities                                            |  |                                       | (583    | ) |      |   | (865    | )
|Tenant security deposits                                                          |  |                                       | 30      |   |      |   | 67      |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                       | 6,383   |   |      |   | 9,329   |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                       |         |   |      |   |         |  
|Sale of real estate assets                                                        |  |                                       | 4,535   |   |      |   | 13,808  |  
|Purchase of real estate assets                                                    |  |                                       |        |   |      |   | (7,661  | )
|Additions to rental properties                                                    |  |                                       | (1,484  | ) |      |   | (2,017  | )
|Deferred charges                                                                  |  |                                       | (2,729  | ) |      |   | (199    | )
|Construction in progress                                                          |  |                                       | (127    | ) |      |   | (655    | )
|Increase in restricted cash                                                       |  |                                       | (871    | ) |      |   | (929    | )
|Leasing commissions                                                               |  |                                       | (42     | ) |      |   | (69     | )
|Investments in notes and bonds receivable                                         |  |                                       | (3,799  | ) |      |   | (1,442  | )
|Contributions to unconsolidated affiliates                                        |  |                                       | (505    | ) |      |   | (742    | )
|Distributions from investments in unconsolidated affiliates                       |  |                                       | 2,475   |   |      |   |        |  
|Principal payments received from notes and bonds receivable                       |  |                                       | 2,298   |   |      |   |        |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash (used in) provided by investing activities                               |  |                                       | (249    | ) |      |   | 94      |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                       |         |   |      |   |         |  
|Notes payable proceeds                                                            |  |                                       | 17,800  |   |      |   | 7,600   |  
|Repayment of notes payable                                                        |  |                                       | (8,620  | ) |      |   | (9,070  | )
|Payment of deferred loan costs                                                    |  |                                       | (401    | ) |      |   | (366    | )
|(Distributions to) contributions from minority interests                          |  |                                       | (437    | ) |      |   | 164     |  
|Distributions to stockholders                                                     |  |                                       | (15,212 | ) |      |   | (8,740  | )
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                                       | (6,870  | ) |      |   | (10,412 | )
|                                                                                  |  |                                       |         |   |      |   |         |  



Continued



See accompanying notes to Condensed Consolidated Financial
Statements



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G&L REALTY CORP.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                     |  |                                       |        |   |      |   |        |  
|-------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                     |  | Nine Month Period Ended September 30, |       
|                                                                     |  | 2005                                  |        |   | 2004 |  
|                                                                     |  | (Unaudited)                           |       
|NET DECREASE IN CASH AND CASH EQUIVALENTS                            |  |                                       | (736   | ) |      |   | (989   | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       |  |                                       | 10,508 |   |      |   | 11,950 |  
|                                                                     |  |                                       |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                             |  | $                                     | 9,772  |   |      | $ | 10,961 |  
|                                                                     |  |                                       |        |   |      |   |        |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                   |  |                                       |        |   |      |   |        |  
|Cash paid during the period for interest                             |  | $                                     | 6,643  |   |      | $ | 8,584  |  
|                                                                     |  |                                       |        |   |      |   |        |  
|Cash paid during the period for mortgage loan prepayment penalties   |  | $                                     | 766    |   |      | $ |       |  
|                                                                     |  |                                       |        |   |      |   |        |  
|NONCASH INVESTING AND FINANCING ACTIVITIES                           |  |                                       |        |   |      |   |        |  
|Assumption of notes payable by buyer upon sale of real estate assets |  | $                                     | 13,550 |   |      | $ | 8,687  |  
|                                                                     |  |                                       |        |   |      |   |        |  
|Distribution of G&L Realty Corp., LLC                                |  |                                       |        |   |      |   |        |  
|Cash                                                                 |  | $                                     | 203    |   |      |   |        |  
|Tenant rent, reimbursements and other receivables, net               |  |                                       | 170    |   |      |   |        |  
|Investments in unconsolidated affiliates                             |  |                                       | 994    |   |      |   |        |  
|Mortgage loans, bonds and notes receivable, net                      |  |                                       | (54    | ) |      |   |        |  
|Deferred charges and other assets, net                               |  |                                       | 2,765  |   |      |   |        |  
|Accounts payable and other liabilities                               |  |                                       | (759   | ) |      |   |        |  
|Notes receivable from stockholders                                   |  |                                       | 5,114  |   |      |   |        |  
|Distributions in excess of net income                                |  |                                       | (4,094 | ) |      |   |        |  
|                                                                     |  |                                       |        |   |      |   |        |  
|Total                                                                |  | $                                     | 4,339  |   |      |   |        |  
|                                                                     |  |                                       |        |   |      |   |        |  
|Distribution of G&L Realty Corp., LLC                                |  |                                       |        |   |      |   |        |  
|Distributions                                                        |  | $                                     | 4,339  |   |      |   |        |  
|                                                                     |  |                                       |        |   |      |   |        |  



Concluded.



See accompanying notes to Condensed Consolidated Financial Statements



Page 6



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##### Table of Contents

G&L REALTY CORP.



NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | GENERAL
|-- | -------



G&L Realty Corp. (the Company) was formed as a Maryland corporation to continue the ownership, management, acquisition and development
activities previously conducted by G&L Development, a California general partnership, the Companys predecessor. All of the Companys assets are held by, and all of its operations are conducted through, the following entities:



G&L Realty Partnership, L.P., a Delaware limited
partnership (the Operating Partnership)

G&L Senior Care Partnership, L.P., a Delaware limited partnership (the Senior
Care Partnership)

G&L Medical Partnership, L.P., a Delaware limited partnership (the Medical Partnership)

435 North Roxbury Drive, Ltd., a California limited partnership (the Roxbury Partnership)

G&L Valencia, LLC, a California limited liability company (Valencia)

G&L Tustin, LLC, a California limited liability company (Tustin)

G&L Holy Cross, LLC, a California limited liability company (Holy Cross)

G&L Lyons, LLC, a California limited liability company (Lyons)

G&L Coronado (1998), LLC, a California limited liability company (Coronado) (until March 24, 2005)

G&L Tustin II, LLC, a Delaware limited liability company (Tustin II)

G&L Tustin III, LLC, a Delaware limited liability company (Tustin III)

405 Bedford, LLC, a Delaware limited liability company (405 Bedford)

415 Bedford, LLC, a Delaware limited liability company (415 Bedford)

416 Bedford, LLC, a Delaware limited liability company (416 Bedford)

435 Bedford, LLC, a Delaware limited liability company (435 Bedford)

G&L 436 Bedford, LLC, a Delaware limited liability company (436 Bedford)

G&L Sherman Oaks, LLC, a Delaware limited liability company (Sherman Oaks)

G&L 4150 Regents, LLC, a Delaware limited liability company (Regents)

G&L Realty Corp., LLC, a Nevada limited liability company (until June 30, 2005)



Prior to November 1, 2004, the Company also held interests in the following entities:



G&L Gardens, LLC, an Arizona limited liability company (Maryland
Gardens)

G&L Hampden, LLC, a Delaware limited liability company (Hampden)

G&L Hoquiam, LLC, a California limited liability company (Hoquiam)

G&L Massachusetts, LLC, a Delaware limited liability company (Massachusetts)

G&L Aspen, LLC, a California limited liability company (Aspen)

G&L St. Thomas More, LLC, a Nevada limited liability company (G&L St. Thomas More) and successor to G&L St. Thomas More, Inc.

St. Thomas More, LLC, a Nevada limited liability company (St. Thomas More) and successor to St. Thomas More, Inc.

G&L Gardens  Apt., LLC, an Arizona limited liability company (Winter Gardens)

G&L Chestnut, LLC, a Massachusetts limited liability company (Chestnut)

G&L Mary Lyon, LLC, a Massachusetts limited liability company (Mary Lyon)

Palm Valley Senior Care, LLC, an Arizona limited liability company (Palm Valley)

G&L Senior Care Properties, LLC, a Nevada limited liability company



The Company, as the sole general partner and as owner of an approximately 95% ownership interest, controls the Operating
Partnership and the Senior Care Partnership. References in these consolidated financial statements to the Company include its operations, assets and liabilities including the operations, assets and liabilities of the Operating Partnership, the
Senior Care Partnership, the Medical Partnership, the Roxbury Partnership (in which the Operating Partnership owns a 32.81% partnership interest and is the sole general partner), Valencia, Tustin, Holy Cross, Lyons, Coronado, Tustin II, Tustin III,
405 Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436 Bedford, Sherman Oaks and Regents and prior to November 1, 2004, Maryland Gardens, Hampden, Hoquiam, Massachusetts,



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(Unaudited)



Aspen, G&L St. Thomas More, St. Thomas More, Winter Gardens, Chestnut, Mary Lyon and Palm Valley (in which the Senior Care Partnership owned a 75%
membership interest).



In addition to the Subsidiaries, the
Company also owns interests in various unconsolidated affiliates. Although the Companys investment represents a significant portion of the capital of such unconsolidated affiliates and the Company exercises influence over the activities of
these entities, either the affiliates are not considered variable interest entities or the Company does not have the requisite level of voting control to include the assets, liabilities and operating activities of these entities in the consolidated
financial statements of the Company. The entities in which the Company has unconsolidated financial interests are as follows:



G&L Grabel San Pedro, LLC (San Pedro)

Lakeview Associates, LLC (Lakeview) (until September 30, 2004)

Paradigm Housing, LLC (Paradigm)
(until June 30, 2005)



On June 27, 2005, the
Operating Partnership contributed its investment in Paradigm to G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company. On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC to its common
stockholders. See footnote 9 for further discussion.



Prior to
November 1, 2004, the Company also held interests in the following entities:



G&L Penasquitos, LLC (Penasquitos)

G&L Radius Realty, LLC (Radius)

Encanto Senior Care, LLC (Encanto)



San Pedro, Lakeview, Heritage Place, Paradigm, and prior to November 1, 2004, Penasquitos, Radius and Encanto are herein collectively referred to as
the Unconsolidated Affiliates and individually as an Unconsolidated Affiliate.



In 2004, the Company decided to focus in the future on the development, ownership and operation of medical office buildings. Accordingly, on
November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record on November 1, 2004. In total, skilled nursing and assisted living assets having a net
equity of $9.0 million, derived from current independent property appraisals less the existing property debt, have been spun-off to these stockholders. At the time of the spin-off, these assets were held by the Companys consolidated
subsidiary, G&L Senior Care Properties, LLC, and the spin-off was effectuated by a distribution of the Companys membership interests in G&L Senior Care Properties, LLC. The spin-off has not been presented as discontinued operations in
the financial statements due to the Companys continuing involvement in the operations of G&L Senior Care Properties, LLC as discussed below. In addition to these skilled nursing facility and assisted living facility assets, G&L Senior
Care Properties, LLC had cash of approximately $2 million, and indebtedness to the Company of $6 million as of the effective date of the spin-off. Accordingly, G&L Senior Care Properties, LLC at the time of the spin-off, had a net asset value
(based on fair market valuations of its skilled nursing and assisted living facilities) of approximately $5.0 million, as compared to a carrying value of $13.1 million. The excess of the carrying value of the net assets over the fair value in the
amount of $8.1 million was recognized as an impairment loss. See the Companys Form 8-K filed on November 4, 2004 for certain pro forma information giving effect to the spin-off.



Incident to the spin-off, the Company converted G&L St. Thomas More and
St. Thomas More into limited liability companies and formed G&L Senior Care Properties, LLC. The spin off consisted of the Companys membership interests in G&L Senior Care Properties, LLC which holds the membership interests in
Maryland Gardens, Hampden, Hoquiam, G&L St. Thomas More, St. Thomas More, Winter Gardens, Chestnut, Mary Lyon, Palm Valley, Penasquitos, Radius and Encanto and in the subsidiaries that served as the managing members of Maryland Gardens and
Hampden. Following the spin-off, G&L Senior Care Properties, LLC is now owned and managed primarily by Daniel Gottlieb and Steven Lebowitz, the CEO and President, respectively, of the Company. Due to the substantial management overlap between
the Company and G&L Senior Care Properties, LLC, the two companies had entered into a cost sharing agreement to allocate to G&L Senior Care Properties, LLC each year the



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(Unaudited)



general and administrative costs incurred by the Company on behalf of G&L Senior Care Properties, LLC. Under this agreement, the Company, through
June 30, 2005, had a significant continuing involvement in the management and operations of G&L Senior Care Properties, LLC. Both the Company and G&L Senior Care Properties, LLC share the same offices, accounting and administrative
personnel and key decision makers. Management estimates that, through the date of the spin off of G&L Realty Corp., LLC on June 30, 2005 as discussed in Note 9, the skilled nursing facility and the assisted care living facility assets now
owned by G&L Senior Care Properties, LLC, accounted for approximately 65% of the general and administrative costs of the Company. Following the distribution to the Companys stockholders on June 30, 2005, of the management company
through which these services were provided, there remains significant continuing involvement due to the commonality of ownership of the Company, G&L Senior Care Properties, LLC and G&L Realty Corp., LLC.



Upon the spin-off of G&L Senior Care Properties, LLC, the Company held
two promissory notes issued by G&L Senior Care Properties, LLC, a short term promissory note in the amount of $2 million and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum. The
short term promissory note had a term of six months, interest only payable monthly, and was unsecured. This note was repaid in full by G&L Senior Care Properties, LLC on April 1, 2005. The long term promissory note has a term of 12 years,
provides for flat monthly payments of interest and principal on a 25 year amortization basis, with a balloon payment of $3.3 million at the end of the term, and is secured by the interests of G&L Senior Care Properties, LLC in the various
special purpose entities through which it holds its interest in its skilled nursing facility and assisted care living facility assets. As of September 30, 2005, the unpaid balance on this note was $3.97 million. The Company will continue to be
a creditor of G&L Senior Care Properties, LLC for some time.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Business - The Company is a Real Estate Investment Trust (REIT) that acquires, develops, manages and leases healthcare properties.
Historically, the Companys business has consisted of investments in a variety of healthcare properties. Prior to the spin-off on November 1, 2004, the Companys investments in healthcare properties consisted of acquisitions, made
either directly or through joint ventures, in medical office buildings (MOBs), skilled nursing facilities (SNFs) and assisted living facilities (ALFs). After the spin-off of the SNF and ALF assets on
November 1, 2004, the Companys business consisted only of MOBs.



Basis of Presentation - The accompanying condensed consolidated financial statements include the accounts of the Company and its Subsidiaries. The interests in the Roxbury Partnership, the Operating Partnership
and the Senior Care Partnership that are not owned by the Company, have been reflected as minority interests in the Operating and Senior Care Partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation.
Prior year amounts have been reclassified to conform to the current years presentation.



The information presented as of and for the nine-month periods ended September 30, 2005 and 2004 has not been audited by independent accountants, but includes all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. The results of operations for the nine months ended September 30, 2005 are not necessarily indicative of results that might
be expected for the full fiscal year.



Certain information and
footnote disclosures normally included in annual financial statements have been omitted. The Company believes that the disclosures included in these financial statements are adequate for a fair presentation and conform to reporting requirements
established by the Securities and Exchange Commission (SEC). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in the Companys
annual report on Form 10-K as filed with the SEC.



Recent
accounting pronouncements - In December 2004, the FASB issued SFAS No. 123(R), Share Based Payments (SFAS No. 123(R)) which replaces SFAS 123, Accounting for Stock-Based Compensation, and



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows.
SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. As such, pro forma disclosure in lieu of expensing is no
longer an alternative. The Company does not grant any share-based payments to its employees and thus this Statement will not have any impact on our financial statements.



|3. | BUILDINGS AND IMPROVEMENTS
|-- | --------------------------



Buildings and improvements consist of the following:



|                                               |  |                    |         |   |                   |   |         |  
|---------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                               |  | September 30, 2005 |         |   | December 31, 2004 |  
|                                               |  | (in thousands)     |        
|Buildings and improvements                     |  | $                  | 90,426  |   |                   | $ | 89,790  |  
|Tenant improvements                            |  |                    | 12,414  |   |                   |   | 11,639  |  
|Furniture, fixtures and equipment              |  |                    | 1,084   |   |                   |   | 1,022   |  
|                                               |  |                    |         |   |                   |   |         |  
|                                               |  |                    | 103,924 |   |                   |   | 102,451 |  
|Less accumulated depreciation and amortization |  |                    | (36,873 | ) |                   |   | (34,655 | )
|                                               |  |                    |         |   |                   |   |         |  
|Total                                          |  | $                  | 67,051  |   |                   | $ | 67,796  |  
|                                               |  |                    |         |   |                   |   |         |  



Rental property is
recorded at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:



|                                  |  |              
|--------------------------------- |  | -------------
|Buildings and improvements        |  | 40 years     
|Tenant improvements               |  | Life of lease
|Furniture, fixtures and equipment |  | 5 years      



Expenditures for
maintenance and repairs are charged to operations as incurred. Significant renovations and all external costs directly related to acquisitions are capitalized.



As of December 31, 2004, the Company was under contract to sell its three-story, 47,000 square foot office and retail complex located in Coronado,
California (Coronado Plaza). On March 24, 2005, the Company sold Coronado Plaza for $18.2 million and recognized a gain of $7.7 million from the sale. For presentation purposes, the assets and liabilities relating to this property
have been included in assets held for sale and liabilities of assets held for sale, respectively, on the balance sheet as of December 31, 2004. The following table summarizes assets held for sale and liabilities of assets held for sale for
Coronado Plaza as of December 31, 2004:



|                                               |  |                                                |       
|---------------------------------------------- |  | ---------------------------------------------- | ------
|                                               |  | Assets and Liabilities of Assets Held for Sale
|                                               |  | December 31, 2004                             
|                                               |  | (In thousands)                                
|ASSETS:                                        |  |                                                |       
|Rental properties:                             |  |                                                |       
|Land                                           |  | $                                              | 809   
|Buildings and improvements, net                |  |                                                | 8,203 
|Projects under development                     |  |                                                | 71    
|                                               |  |                                                |       
|Total rental properties                        |  |                                                | 9,083 
|Restricted cash                                |  |                                                | 904   
|Tenant rent and reimbursements receivable, net |  |                                                | 116   
|Unbilled rent receivable, net                  |  |                                                | 43    
|Deferred charges and other assets, net         |  |                                                | 264   
|                                               |  |                                                |       
|Total assets held for sale                     |  | $                                              | 10,410
|                                               |  |                                                |       
|LIABILITIES:                                   |  |                                                |       
|Notes payable                                  |  | $                                              | 13,550
|Accounts payable and other liabilities         |  |                                                | 79    
|                                               |  |                                                |       
|Total liabilities of assets held for sale      |  | $                                              | 13,629
|                                               |  |                                                |       



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



|4. | DEFERRED CHARGES AND OTHER ASSETS
|-- | ---------------------------------



Deferred charges and other assets consist of the following:



|                                 |  |                    |        |   |                   |   |        |  
|-------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                 |  | September 30, 2005 |        |   | December 31, 2004 |  
|                                 |  | (in thousands)     |       
|Deferred loan costs              |  | $                  | 2,294  |   |                   | $ | 2,024  |  
|Leasing commissions              |  |                    | 1,587  |   |                   |   | 1,552  |  
|Prepaid expense and other assets |  |                    | 967    |   |                   |   | 1,401  |  
|                                 |  |                    |        |   |                   |   |        |  
|                                 |  |                    | 4,848  |   |                   |   | 4,977  |  
|Less accumulated amortization    |  |                    | (1,846 | ) |                   |   | (1,662 | )
|                                 |  |                    |        |   |                   |   |        |  
|Total                            |  | $                  | 3,002  |   |                   | $ | 3,315  |  
|                                 |  |                    |        |   |                   |   |        |  



|5. | STOCKHOLDERS EQUITY
|-- | --------------------



Distributions in excess of net incomeThe Company has elected to be treated, for federal income tax purposes, as a REIT. As such, the Company
is required to distribute annually, in the form of distributions to its stockholders, at least 90% of its taxable income. In reporting periods in which distributions exceed net income, stockholders equity will be reduced by the distributions
in excess of net income in such period and will be increased by the excess of net income over distributions in reporting periods in which net income exceeds distributions. For tax reporting purposes, a portion of the dividends declared represents a
return of capital. The following table reconciles net income and distributions in excess of net income for the nine months ended September 30, 2005 and for the year ended December 31, 2004:



|                                                             |  |                    |         |   |                  |   |         |  
|------------------------------------------------------------ |  | ------------------ | ------- | - | ---------------- | - | ------- | -
|                                                             |  | September 30, 2005 |         |   | December 31,2004 |  
|                                                             |  | (in thousands)     |        
|Distributions in excess of net income at beginning of period |  | $                  | (66,452 | ) |                  | $ | (50,042 | )
|Net income (loss) during period                              |  |                    | 7,755   |   |                  |   | (1,217  | )
|Less: Distributions declared                                 |  |                    | (19,348 | ) |                  |   | (15,193 | )
|                                                             |  |                    |         |   |                  |   |         |  
|Distributions in excess of net income (loss)                 |  | $                  | (78,045 | ) |                  | $ | (66,452 | )
|                                                             |  |                    |         |   |                  |   |         |  



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|6. | INVESTMENTS IN UNCONSOLIDATED AFFILIATES
|-- | ----------------------------------------



The Company has investments in various unconsolidated affiliates as described in Note 1. The following table provides a summary of the Companys investment in each
of these entities for the nine months ended September 30, 2005. (In thousands).



|                                                          |  |          |        |   |          |   |      |       |  |   |        |  
|--------------------------------------------------------- |  | -------- | ------ | - | -------- | - | ---- | ----- |  | - | ------ | -
|                                                          |  | SanPedro |        |   | Paradigm |   |      | Total | 
|Balance at beginning of period                            |  | $        | 783    |   |          | $ | 550  |       |  | $ | 1,333  |  
|Equity in earnings of affiliates                          |  |          | 541    |   |          |   | 50   |       |  |   | 591    |  
|Non-cash distributions                                    |  |          |       |   |          |   | (994 | )     |  |   | (994   | )
|Cash contributions                                        |  |          |       |   |          |   | 431  |       |  |   | 431    |  
|Cash distributions                                        |  |          | (2,463 | ) |          |   | (37  | )     |  |   | (2,500 | )
|                                                          |  |          |        |   |          |   |      |       |  |   |        |  
|Balance at end of period, before intercompany adjustments |  |          | (1,139 | ) |          |   |     |       |  |   | (1,139 | )
|                                                          |  |          |        |   |          |   |      |       |  |   |        |  
|Intercompany adjustments:                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Receivable, net                                           |  |          | 1,139  |   |          |   |     |       |  |   | 1,139  |  
|                                                          |  |          |        |   |          |   |      |       |  |   |        |  
|Investment in unconsolidated affiliates                   |  | $        |       |   |          | $ |     |       |  | $ |       |  
|                                                          |  |          |        |   |          |   |      |       |  |   |        |  



The Companys investment in
Paradigm was distributed to its common stockholders on June 30, 2005 as part of the distribution of G&L Realty Corp., LLC.



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



Following is a summary of the condensed financial information of each of the unconsolidated
affiliates as of and for the nine months ended September 30, 2005. (In thousands).



|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|-------------------------------- |  | -------- | ------ | - | -------- | - | ---- | ----- |  | - | ------ | -
|                                 |  | SanPedro |        |   | Paradigm |   |      | Total | 
|Financial Position:              |  |          |        |   |          |   |      |       |  |   |        |  
|Land                             |  | $        | 2,017  |   |          | $ |     |       |  | $ | 2,767  |  
|Buildings                        |  |          | 4,529  |   |          |   |     |       |  |   | 4,529  |  
|Other assets                     |  |          | 475    |   |          |   |     |       |  |   | 713    |  
|Notes payable                    |  |          | (7,700 | ) |          |   |     |       |  |   | (8,640 | )
|Other liabilities                |  |          | (201   | ) |          |   |     |       |  |   | (249   | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Net assets                       |  | $        | (880   | ) |          | $ |     |       |  | $ | (880   | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Partners equity:                |  |          |        |   |          |   |      |       |  |   |        |  
|Company                          |  | $        | (1,139 | ) |          | $ |     |       |  | $ | (1,139 | )
|Others                           |  |          | 259    |   |          |   |     |       |  |   | 259    |  
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Total equity                     |  | $        | (880   | ) |          | $ |     |       |  | $ | (880   | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Operations:                      |  |          |        |   |          |   |      |       |  |   |        |  
|Revenues                         |  | $        | 939    |   |          | $ | 843  |       |  | $ | 1,782  |  
|Expenses                         |  |          | (1,318 | ) |          |   | (543 | )     |  |   | (1,861 | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Net (loss) income                |  | $        | (379   | ) |          | $ | 300  |       |  | $ | (79    | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Allocation of net (loss) income: |  |          |        |   |          |   |      |       |  |   |        |  
|Company                          |  | $        | 541    |   |          | $ | 50   |       |  | $ | 591    |  
|Others                           |  |          | (920   | ) |          |   | 250  |       |  |   | (670   | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  
|Net (loss) income                |  | $        | (379   | ) |          | $ | 300  |       |  | $ | (79    | )
|                                 |  |          |        |   |          |   |      |       |  |   |        |  



The Companys investment in
Paradigm was distributed to its common stockholders on June 30, 2005 as part of the distribution of G&L Realty Corp., LLC.





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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|7. | SEGMENT INFORMATION
|-- | -------------------



Prior to November 1, 2004, the Companys business consisted of the following segments:



| |  |  | Medical office buildings  These investments consist of 21 high quality MOBs, an office and retail facility (which was sold on March 24, 2005) and one parking facility
totaling approximately 785,000 rentable square feet and all located in Southern California. These properties are owned either directly by the Company or indirectly through joint ventures.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Skilled nursing facilities  These investments consisted of eight SNFs and one apartment complex. The Company previously held the operating license in three of the eight SNFs.
On March 15, 2000, the Company obtained licenses from the Commonwealth of Massachusetts to operate the three SNFs owned by the Company in Hampden, Massachusetts. The Company then entered into a management agreement with a third-party company to
manage the facility. As a result, from March 15, 2000 through March 31, 2004, all of the assets, liabilities, revenues and expenses of these SNFs were reflected in the condensed consolidated financial statements of the Company and the
segment information provided below. In February 2004, the manager of these facilities received approval from the Massachusetts Department of Health to obtain the operating licenses for the three facilities from the Company. The manager subsequently
entered into lease agreements with the Company for these facilities effective on the date of the license transfers which occurred on April 1, 2004. Subsequent to the transfer of the licenses, the Company no longer reflects the assets,
liabilities, revenues and expenses related to the operations of these three SNFs in its consolidated financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assisted living facilities  These investments consisted of two ALFs owned through joint ventures. The two ALFs contain 172 units that are typically occupied by residents who
require a less intense level of care in comparison to the SNFs. On September 30, 2004, the ALF owned by Lakeview was sold for $10.6 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt obligations  These investments initially consisted of short-term secured and unsecured loans made to third parties to facilitate the acquisition of healthcare facilities.
As of September 30, 2005, the Company had seven loans outstanding with a net book value of $1.4 million, excluding notes receivable from related parties as discussed in footnote 9.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



After the spin-off of the SNF and ALF assets on November 1, 2004, the
Company has one reportable segment  MOBs.



The table on
the following page reconciles the Companys income and expense activity for the nine months ended September 30, 2004.



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2004 Reconciliation of
Reportable Segment Information

For the nine months ended September 30, 2004



|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|------------------------------------------------------------ |  | -------------- | ------ | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | --- | ----- | - | ------ | - |  | - | ------
|                                                             |  | MedicalOffice  |        | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |     | Total
|                                                             |  | (In thousands)
|Revenue:                                                     |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Rents, tenant reimb. and parking                             |  | $              | 19,872 |                | $ | 4,296  |                |  | $ |                |   |       | $ |    |       | $ |       |   |  | $ | 24,168
|Patient revenues                                             |  |                |       |                |   | 6,736  |                |  |   |                |   |       |   |    |       |   |       |   |  |   | 6,736 
|Interest and loan fees                                       |  |                | 22     |                |   | 88     |                |  |   |                |   |       |   | 326 |       |   | 90     |   |  |   | 526   
|Other income                                                 |  |                | 178    |                |   | 11     |                |  |   |                |   |       |   |    |       |   | 594    |   |  |   | 783   
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Total revenues                                               |  |                | 20,072 |                |   | 11,131 |                |  |   |                |   |       |   | 326 |       |   | 684    |   |  |   | 32,213
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Expenses:                                                    |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Property operations                                          |  |                | 5,536  |                |   | 339    |                |  |   |                |   |       |   | 11  |       |   |       |   |  |   | 5,886 
|Skilled nursing operations                                   |  |                |       |                |   | 6,287  |                |  |   |                |   |       |   |    |       |   |       |   |  |   | 6,287 
|Depreciation and amortization                                |  |                | 2,408  |                |   | 1,199  |                |  |   |                |   |       |   |    |       |   | 12     |   |  |   | 3,619 
|Provision for doubtful accounts and notes receivable         |  |                | 90     |                |   | 881    |                |  |   |                |   |       |   | 281 |       |   |       |   |  |   | 1,252 
|Interest                                                     |  |                | 6,533  |                |   | 1,675  |                |  |   |                |   |       |   |    |       |   |       |   |  |   | 8,208 
|General and administrative                                   |  |                |       |                |   |       |                |  |   |                |   |       |   |    |       |   | 3,704  |   |  |   | 3,704 
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Total expenses                                               |  |                | 14,567 |                |   | 10,381 |                |  |   |                |   |       |   | 292 |       |   | 3,716  |   |  |   | 28,956
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Income (loss) from operations                                |  |                | 5,505  |                |   | 750    |                |  |   |                |   |       |   | 34  |       |   | (3,032 | ) |  |   | 3,257 
|Equity in earnings (loss) of unconsolidated affiliates       |  |                | 33     |                |   | 84     |                |  |   | (91             | ) |       |   |    |       |   |       |   |  |   | 26    
|Net income (loss) from operations of discontinued operations |  |                | 239    |                |   | (12    | )              |  |   | (30             | ) |       |   |    |       |   |       |   |  |   | 197   
|Gain (loss) from sale of discontinued operations             |  |                | 2,430  |                |   | (147   | )              |  |   | 253             |   |       |   |    |       |   |       |   |  |   | 2,536 
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       
|Income (loss) from operations before minority interests      |  | $              | 8,207  |                | $ | 675    |                |  | $ | 132             |   |       | $ | 34  |       | $ | (3,032 | ) |  | $ | 6,016 
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |     |       |   |        |   |  |   |       



|8. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



Neither the Company, the Operating Partnership, the Senior Care Partnership, the Roxbury Partnership, Valencia, Lyons, Coronado, Tustin II, Tustin III,
405 Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436 Bedford, Sherman Oaks, Regents, the Unconsolidated Affiliates nor any of the assets within their portfolios of MOBs, parking facilities, and retail space (the Properties) is
currently a party to any material litigation.



The Company was
the guarantor on a $513,602 letter of credit issued by U.S. Bank National Association (U.S. Bank) in favor of Fannie Mae c/o Greystone Servicing Corporation under which the Companys maximum liability is approximately $410,000. In
December 1999, the Company purchased $1.3 million of subordinated bonds secured by an apartment complex located in Tulsa, Oklahoma. At the time, a letter of credit for $513,602 was issued by the Bank of Oklahoma in favor of the issuer of the
subordinated bonds in order to pay the interest payments on the secured debt of the property in the event the cash flow of the property was insufficient to meet such payments. The Company guaranteed $250,000 of this letter of credit. In December
2003, June 2004 and December 2004, the borrower defaulted on the semi-annual interest payment to the holders of the subordinated bonds. In July 2004, the letter of credit issued by the Bank of Oklahoma was called upon and the Company was
required to fund the $250,000 that it had guaranteed. Subsequently, a new letter of credit was issued by U.S. Bank. The Companys partners in this investment are in the process of restructuring the management and operation of the property in
order to make it profitable once again. As part of the restructuring, the letter of credit was called upon in March 2005 and the Company was required to make a payment of $410,000. The Company recorded a reserve of $410,000 on



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its balance sheet as of December 31, 2004 related to its maximum liability with respect to the letter of credit against which the March 2005 payment was
applied.



|9. | RELATED PARTY TRANSACTIONS
|-- | --------------------------



On October 29, 2001, the Company completed a merger with G & L Acquisition, LLC, a Maryland limited liability company owned by Daniel M. Gottlieb
and Steven D. Lebowitz, Chief Executive Officer and President, respectively, of the Company. Upon completion of the Merger, each outstanding share of the Companys Common Stock, other than a portion of the shares held by Messrs. Gottlieb and
Lebowitz, was converted into the right to receive $13.00 in cash, without interest. After completion of the Merger, the Companys Common Stock was delisted from the New York Stock Exchange.



As part of the Merger, the Operating Partnership loaned $5.2 million to
Messrs. Gottlieb and Lebowitz to fund a $3.5 million tender offer for the Companys Series A and Series B Preferred Stock and to repay $1.7 million of personal debt. Each of the $2.6 million loans to Messrs. Gottlieb and Lebowitz are for a term
of ten years, due on October 31, 2011, bear interest at an annual rate of Libor plus 7.5% and require monthly interest only payments. For purposes of presentation in these consolidated financial statements, the $5.1 million balance has been
reflected on the balance sheet as a deduction to stockholders equity as of December 31, 2004.



On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of
record on November 1, 2004. Messrs. Gottlieb and Lebowitz are the sole common stockholders of the Company. In total, skilled nursing and assisted living assets having a net equity of $9.0 million, derived from current independent property
appraisals less the existing property debt, have been distributed as a dividend to these stockholders. This transaction is described in greater detail in Footnote 1 above.



On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC, a wholly-owned
subsidiary of the Company, to its common stockholders. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care Properties, LLC. As part of the distribution of G&L Realty Corp., LLC to the Companys
stockholders, the Company entered into a management agreement with G&L Realty Corp., LLC. The management agreement calls for G&L Realty Corp., LLC to continue to provide management services to the Company in exchange for the reimbursement of
the costs associated with such services through the end of 2005; and thereafter, upon mutually agreed upon terms. These costs currently represent approximately 35% of the total overhead costs of G&L Realty Corp., LLC. Messrs. Gottlieb and
Lebowitz, the Chief Executive Officer and President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making of G&L Realty Corp., LLC. Thus, the controlling stockholders
of the Company will continue to have significant involvement in the management and operations of G&L Realty Corp., LLC.



Prior to the distribution, the Operating Partnership contributed the two notes receivable due from Messrs. Gottlieb and Lebowitz totaling $5.1 million to
G&L Realty Corp., LLC, along with its $1 million investment in Paradigm and its $2.7 million investment in Triad Dublin Gateway, L.P. (Triad), a newly-formed joint venture that acquired a vacant parcel of land in Dublin, California,
to G&L Realty Corp., LLC. These assets were distributed to the Companys common stockholders as part of the distribution of G&L Realty Corp., LLC on June 30, 2005. In connection with the distribution, the Company obtained an
independent appraisal of the fair market value of G&L Realty Corp., LLC. The appraisal valued G&L Realty Corp., LLC at $4.3 million, as compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the
fair value in the amount of $4.1 million was recognized as an impairment loss on the Companys financial statements.



In connection with the Companys $2.7 million investment in Triad discussed above, the Company made a $3 million first mortgage loan to the joint
venture. The first mortgage calls for quarterly interest only payments at 9% per annum and is due on May 30, 2008. In the third quarter of 2005, the Company loaned $0.4 million to the joint venture under a second mortgage with a total
availability of $2.2 million. The second mortgage calls for quarterly interest only payments at 9% per annum and is due on



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March 31, 2006. The first and second mortgages were not contributed to G&L Realty Corp., LLC or distributed to the Companys common
stockholders and remain an asset of the Company. Both mortgages are included under notes receivable from related parties on the balance sheet as of September 30, 2005.



During the first two quarters of 2005, general and administrative costs totaling $949,367 were billed to G&L Senior Care
Properties, LLC pursuant to the cost sharing agreement between the two companies discussed in Footnote 1 above, which is included in reimbursements from related party. Subsequent to the distribution on June 30, 2005, G&L Realty Corp., LLC
now bills the Company and G&L Senior Care Properties, LLC for general and administrative expenses in the same ratio as was previously allocated between the two companies. During the third quarter of 2005, general and administrative costs
totaling $224,096 were billed to the Company by G&L Realty Corp., LLC. As of September 30, 2005, the Company owed G&L Realty Corp., LLC $74,800 related to these allocated general and administrative costs. This amount is recorded under
accounts payable and other liabilities on the balance sheet as of September 30, 2005 and was paid by the Company to G&L Realty Corp., LLC in October 2005.



During the first three quarters of 2005, the Company paid S. Craig Tompkins, a member of the Board of Directors, $85,300 for
services provided as Chairman of the Companys Strategic Planning Committee. These fees were in addition to the regular fees paid to the members of the Board of Directors.



|10. | ACQUISITIONS, DISPOSITIONS AND FINANCINGS
|--- | -----------------------------------------



On March 23, 2005, the Company refinanced the Holy Cross Medical Plaza, a 72,000 square foot MOB located in Mission Hills, California with a new
$17.8 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $9.7 million from the refinancing after repayment of the existing $7.1 million mortgage loan, prepayment penalties and closing costs. The
new loan is for ten years but is interest only for two years and bears interest at a fixed rate of 5.71% per annum.



On March 24, 2005, the Company sold Coronado Plaza, a 47,000 square foot office and retail center located in Coronado, California for $18.2 million.
The buyer assumed the existing mortgage loan of $13.6 million and the Company received net proceeds of $4.4 million after all closing costs. The Company recognized a gain of $7.7 million.



On April 7, 2005, San Pedro, a joint venture in which the Company owns a 50% interest, refinanced three MOBs with a new
$7.7 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $2.4 million from San Pedro after San Pedro repaid the existing $4.6 million mortgage loan, prepayment penalties and closing costs. The new
loan is for ten years but is interest only for two years and bears interest at a fixed rate of 5.64% per annum. The $2.4 million distribution was $0.5 million in excess of the Companys basis in its investment in San Pedro. Because the
Company has no obligation to return these monies to San Pedro, the Company has recognized the $0.5 million distribution in excess of investment as income and recorded this income as equity in earnings of unconsolidated affiliates in its consolidated
statement of operations.



|11. | SUBSEQUENT EVENTS
|--- | -----------------



On October 14, 2005, the Company refinanced its two properties located in Tustin, California with a new $13.5 million loan from Countrywide
Commercial Real Estate Finance, Inc. The Company received proceeds of $5.3 million from the refinancing after repayment of the existing $6.9 million mortgage loan, prepayment penalties and closing costs. The new loan bears interest at a fixed rate
of 5.29% and is due on October 8, 2015.



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



The following discussion should be read in conjunction with the Companys Unaudited Condensed Consolidated Financial
Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the Companys 2004 Annual Report on Form 10-K as previously filed with the SEC.



Information contained in Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. These statements can be identified by the use of forward-looking terminology such as may, will, expect, anticipate, estimate or
continue or the negative thereof or other comparable terminology. Any one factor or combination of factors could cause the Companys actual operating performance or financial results to differ substantially from those anticipated by
management. Factors influencing the Companys operating performance and financial results include, but are not limited to, changes in the general economy, the supply of, and demand for, healthcare related real estate in markets in which the
Company has investments, interest rate movements, the availability of financing, changes in tax laws and regulations affecting REITs, governmental regulations concerning, but not limited to, new construction and development, the creditworthiness of
tenants and borrowers, environmental issues, healthcare services and government participation in the financing thereof, and other risks and unforeseen circumstances affecting the Companys investments which may be discussed elsewhere in this
Quarterly Report on Form 10-Q and the Companys 2004 Annual Report on Form 10-K as previously filed with the SEC.



Recent Developments



On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of
record on November 1, 2004. Messrs. Gottlieb and Lebowitz are the sole common stockholders of the Company. In total, skilled nursing and assisted living assets having a net equity of $9.03 million, derived from current independent property
appraisals less the existing property debt, have been spun-off to these stockholders. At the time of the spin-off, these assets were held by the Companys consolidated subsidiary, G&L Senior Care Properties, LLC, and the spin-off was
effectuated by a distribution of the Companys membership interests in G&L Senior Care Properties, LLC. In addition to these skilled nursing facility and assisted living facility assets, G&L Senior Care Properties, LLC had cash of
approximately $2 million, and indebtedness to the Company of $6 million as of the effective date of the spin-off. Accordingly, G&L Senior Care Properties, LLC at the time of the spin-off, had a net asset value (based on fair market valuations of
its skilled nursing and assisted living facilities) of approximately $5.0 million.



Following the spin-off, G&L Senior Care Properties, LLC is now owned and managed primarily by Daniel Gottlieb and Steven Lebowitz, the CEO and President, respectively, of the Company. Due to the substantial
management overlap between the Company and G&L Senior Care Properties, LLC, the two companies had entered into a cost sharing agreement to allocate to G&L Senior Care Properties, LLC each year the general and administrative costs incurred by
the Company on behalf of G&L Senior Care Properties, LLC. Management estimates that, through the date of the distribution of G&L Realty Corp., LLC on June 30, 2005 (see below), the skilled nursing facility and the assisted care living
facility assets now owned by G&L Senior Care Properties, LLC, accounted for approximately 65% of the general and administrative costs of the Company.



Upon the spin-off, the Company held two promissory notes issued by G&L Senior Care Properties, LLC, a short term promissory note in the amount of $2
million and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum. The short term promissory note had a term of six months, interest only payable monthly, and was unsecured. This note was
paid in full on April 1, 2005. The long term promissory note has a term of 12 years, provides for flat monthly payments of interest and principal on a 25 year amortization basis, with a balloon payment of $3.3 million at the end of the term,
and is secured by the interests of G&L Senior Care Properties, LLC in the various special purpose entities through which it holds its interest in its skilled nursing facility and assisted care living facility assets. As of



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September 30, 2005, the unpaid balance on this note was $3.97 million. The Company will continue to be a creditor of G&L Senior Care Properties, LLC
for some time.



On June 30, 2005, the Company distributed
its membership interests in G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company, to its common stockholders. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care Properties, LLC. As part
of the distribution of G&L Realty Corp., LLC to the Companys stockholders, the Company entered into a management agreement with G&L Realty Corp., LLC. The management agreement calls for G&L Realty Corp., LLC to continue to provide
management services to the Company in exchange for the reimbursement of the costs associated with such services through the end of 2005; and thereafter, upon mutually agreed upon terms. These costs currently represent approximately 35% of the total
overhead costs of G&L Realty Corp., LLC. Messrs. Gottlieb and Lebowitz, the Chief Executive Officer and President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making
of G&L Realty Corp., LLC. Thus, the controlling stockholders of the Company will continue to have significant involvement in the management and operations of G&L Realty Corp., LLC.



Prior to the distribution, the Operating Partnership contributed the two
notes receivable due from Messrs. Gottlieb and Lebowitz totaling $5.1 million to G&L Realty Corp., LLC, along with its $1 million investment in Paradigm and its $2.7 million investment in a newly-formed joint venture that acquired a vacant
parcel of land in Dublin, California to G&L Realty Corp., LLC. These assets were distributed to the Companys common stockholders as part of the distribution of G&L Realty Corp., LLC on June 30. In connection with the distribution,
the Company obtained an independent appraisal of the fair market value of G&L Realty Corp., LLC as an independent company. The appraisal valued G&L Realty Corp., LLC at $4.3 million, as compared to a carrying value of $8.4 million. The
excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss on the Companys financial statements.



Critical Accounting Policies



Revenue recognition. Base rental income is recognized on a straight-line basis over the term of the lease regardless
of when payments are due. Certain leases include rent concessions and escalation clauses creating an effective rent that is included in unbilled rent receivable. Patient revenue is reported at the estimated net realizable amount from patients, third
party payors and others for services rendered, net of contractual adjustments.



Allowances for doubtful accounts, notes and bonds receivable. Tenant rents and reimbursements receivable, unbilled rent receivable and mortgage loans and bonds receivable are carried net of the allowances for
doubtful accounts, notes and bonds receivable. Managements determination of the adequacy of these allowances requires significant judgments and estimates. Tenant rents and reimbursements receivable consist of amounts due for contractual lease
payments and reimbursements for common area maintenance, property taxes, insurance and other expenses due from tenants. Management regularly reviews its tenant receivables and adjusts the allowance based on specific identification, in
managements opinion, of an individual tenants ability to pay its obligations under the terms of its lease. Unbilled rent receivable consists of the cumulative straight-line rental income recorded to date that exceeds the actual amounts
billed to date under the Companys lease agreements. Based on historical loss experience, management has typically maintained a reserve for unbilled rent receivable equal to 10% to 20% of the unbilled rent receivable balance. Mortgage loans and
bonds receivable consist of the Companys investment in loans secured by real property along with certain unsecured notes. Management regularly evaluates its loan portfolio and adjusts the allowance based on the specific identification, in
managements opinion, of a borrowers ability to pay its obligations under the terms of the loan.



Long-lived assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that an assets
book value exceeds the undiscounted expected future cash flows to be derived from that asset. Whenever undiscounted expected future cash flows are less than the book value, the asset will be reduced to estimated fair value and an impairment loss
will be recognized. The Company



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recorded an impairment loss of $4.1 million in the first three quarters of 2005 and an impairment loss of $8.1 million in 2004.



Results of Operations



Comparison of the Nine Month Period Ended September 30, 2005 versus
the Nine Month Period Ended September 30, 2004.



Total
revenues decreased by $9.5 million, or 30%, from $32.2 million in the first three quarters of 2004, to $22.7 million for the same period in 2005. The decrease was due to a $6.7 million decrease in patient revenues, a $3.7 million decrease in rental
revenue and a $0.6 million decrease in other income. These decreases were offset by a $0.9 million increase in other reimbursements and a $0.6 million increase in interest income.



Patient revenues decreased by $6.7 million, or 100%, from $6.7 million in the first three quarters of 2004, to $0 for the
same period in 2005. On April 1, 2004, the licenses to operate the three SNFs owned by the Company in Hampden, Massachusetts were transferred to the manager of the facilities. Upon the transfer of these licenses, the Company no longer reflects
the assets, liabilities, revenues and expenses related to the operations of these three SNFs in its consolidated financial statements. As of April 1, 2004 and through the date of the spin-off on November 1, 2004, the Company recorded
rental income per the terms of the leases it entered into with the new owners of the operating licenses. The Companys other skilled nursing and assisted living facilities had triple net leases in place prior to April 1, 2004.



Rents, tenant reimbursements, reimbursements from related party and
parking revenues decreased by $2.8 million, or 12%, from $24.2 million in the first three quarters of 2004, to $21.4 million for the same period in 2005. There was a $4.3 million decrease as a result of the spin-off of the Companys skilled
nursing facility and assisted living facility assets on November 1, 2004. After the spin-off, the Company no longer has any ownership in those assets, and thus does not recognize any rental revenue related to those facilities. This decrease was
offset by an increase in reimbursements from related party of $0.9 million due to amounts billed to G&L Senior Care Properties, LLC under the cost sharing agreement discussed above under Recent Developments. The cost sharing agreement called for
the Company to be reimbursed by G&L Senior Care Properties, LLC for approximately 65% of the Companys general and administrative expenses. During the first two quarters of 2005, the Company billed $0.9 million to G&L Senior Care
Properties, LLC pursuant to the cost sharing agreement. On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company, to its common stockholders. G&L Realty Corp.,
LLC provides management services to both the Company and G&L Senior Care Properties, LLC. As a result, the Company entered into a management agreement with G&L Realty Corp., LLC whereby G&L Realty Corp., LLC will continue to provide
management services to the Company in exchange for the reimbursement of the costs associated with such services through the end of 2005; and thereafter, upon mutually agreed upon terms. In addition, rental revenue increased an additional $0.7
million due to the non-fixed rent increases pursuant to the Companys MOB leases.



Interest and loan fee income increased by $0.6 million, or 120%, from $0.5 million in the first three quarters of 2004 to $1.1 million for the same period in 2005. The main reason for the increase was due to interest
earned on two promissory notes from G&L Senior Care Properties, LLC. After the spin-off of the Companys skilled nursing and assisted living facility assets on November 1, 2004, the Company held two promissory notes issued by G&L
Senior Care Properties, LLC, a $2 million short term, unsecured promissory note and a $4 million, long term, secured promissory note, both bearing interest at the rate of 10.75% per annum. The $2 million promissory note was repaid in full on
April 1, 2005. In addition, $0.2 million of the increase in interest income was due to interest earned on the Companys cash on hand which was higher than in the first three quarters of 2004.



Total expenses decreased by $6.0 million, or 21%, from $29.0 million for the
first three quarters of 2004, to $23.0 million for the same period in 2005. The decrease was due to a decrease in skilled nursing operation costs of $6.3 million, a decrease in depreciation and amortization expense of $1.3 million, a decrease in
interest expense of $0.7 million, a decrease in provisions for doubtful accounts, notes and bonds



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receivable of $1.2 million and a decrease in general and administrative costs of $0.4 million. These decreases were offset by an increase in the impairment
of assets of $4.1 million.



Skilled nursing operations
decreased by $6.3 million, or 100%, from $6.3 million in the first three quarters of 2004, to $0 for the same period in 2005. On April 1, 2004, the licenses to operate the three SNFs owned by the Company in Hampden, Massachusetts were
transferred to the manager of the facilities. Upon the transfer of these licenses, the Company no longer reflects the assets, liabilities, revenues and expenses related to the operations of these three SNFs in its consolidated financial statements.



Depreciation and amortization expense decreased $1.3 million,
or 36%, from $3.6 million in the first three quarters of 2004, to $2.3 million for the same period in 2005. This decrease was due to the spin-off of the Companys skilled nursing facility and assisted living facility assets on November 1,
2004. The Company recorded $1.2 million of depreciation and amortization expense related to its skilled nursing and assisted living facilities in the first three quarters of 2004. After the spin-off, the Company no longer has any ownership in those
assets, and thus does not record any depreciation or amortization expense related to those facilities.



Interest expense decreased $0.7 million, or 9%, from $8.2 million for the first three quarters of 2004, to $7.5 million for the same period in 2005. $1.7
million of the decrease in interest expense was due to the spin-off of the Companys skilled nursing facility and assisted living facility assets on November 1, 2004. This decrease was offset by the $0.8 million of pre-payment fees and the
write-off of deferred loan fees incurred in March 2005 relating to the early repayment of a mortgage loan secured by an MOB located in Mission Hills, California. On March 23, 2005, the Company refinanced the existing loan on this MOB, the Holy
Cross Medical Plaza, with a new $17.8 million loan from Countrywide Commercial Real Estate Finance, Inc. In connection with the early repayment of the existing loan, the Company paid a prepayment penalty and wrote off loan fees totaling $0.8
million.



Provisions for doubtful accounts, notes and bonds
receivable decreased $1.3 million, or 100%, from the first three quarters of 2004, compared to the same period in 2005. This decrease is mainly the result of a decrease in reserves associated with the Companys skilled nursing facility and
assisted living facility assets which were spun-off on November 1, 2004.



The Company recorded an impairment loss in the amount of $4.1 million during the first three quarters of 2005 associated with the distribution of the Companys management division to its common stockholders as of
June 30, 2005.



General and administrative costs decreased
by $0.4 million, or 11%, from $3.7 million in the first three quarters of 2004, to $3.3 million for the same period in 2005. This decrease was attributed to the June 30, 2005 distribution of the Companys interest in G&L Realty Corp.,
LLC. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care Properties, LLC. Prior to the distribution of G&L Realty Corp., LLC to the Companys stockholders, the Company recorded 100% of the
general and administrative costs incurred by G&L Realty Corp., LLC under general and administrative expenses in its financial statements and recognized the percentage of general and administrative expenses reimbursed by G&L Senior Care
Properties, LLC as reimbursement revenue. Subsequent to the distribution of G&L Realty Corp., LLC, the Company entered into a management agreement with G&L Realty Corp., LLC which calls for G&L Realty Corp., LLC to continue to provide
management services to the Company in exchange for the reimbursement of the costs associated with such services through the end of 2005; and thereafter, upon mutually agreed upon terms. These costs represent approximately 35% of the total overhead
costs of G&L Realty Corp., LLC. Subsequent to June 30, 2005, general and administrative expenses consist solely of the Companys 35% share of the total overhead costs of G&L Realty Corp., LLC along with certain expenses that are
specifically allocated to the Company such as public reporting costs.



Equity in earnings of unconsolidated affiliates increased $0.6 million from the first three quarters of 2004 compared to the same period in 2005. This increase was due to the spin-off of the Companys skilled nursing facility and
assisted living facility assets on November 1, 2004. During the first three quarters of 2004, the Company realized losses totaling $0.1 million related to its investments in unconsolidated entities which owned skilled nursing or assisting
living facilities. Subsequent to the spin-off, the Company no longer



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has any ownership interest in those entities and thus does not recognize any income or loss related to those facilities. In addition, in 2005, the Company
recognized $0.5 million of income related to its investment in G&L Grabel San Pedro, LLC, a joint venture in which the Company owns a 50% interest. On April 7, 2005, the joint venture refinanced the three MOBs that it owns and distributed
$2.4 million to the Company. The $2.4 million distribution was $0.5 million in excess of the Companys basis in the joint venture and was recorded as income.



Total income from discontinued operations increased $5.1 million from $2.7 million for the first three quarters of 2004 to
$7.8 million for the same period in 2005. The main reason for this increase was the sale of Coronado Plaza, an office and retail center located in Coronado, California for $18.2 million on March 24, 2005. The Company recognized a gain of $7.7
million in connection with the sale. In the first three quarters of 2004, income from discontinued operations consisted of a $0.3 million gain from the sale of the Companys membership interest in a joint venture that owned an ALF located in
Tarzana, California in January 2004, a $0.3 million gain from sale of a research and development building located in Irwindale, California in March 2004 as well as a $2.1 million gain from the sale of an MOB located in Tustin, California in August
2004 offset by a loss of $0.2 million associated with the June 2004 sale of a 59-bed SNF located in Chico, California.



Comparison of the Three Month Period Ended September 30, 2005 versus the Three Month Period Ended September 30, 2004.



Total revenues decreased by $2.2 million, or 23%, from $9.6 million in the
third quarter of 2004, to $7.4 million for the same period in 2005. The decrease was due to a $2.2 million decrease in rental revenue and a $0.3 million decrease in other income offset by a $0.2 million increase in interest income.



Rents, tenant reimbursements, reimbursements from related party and parking
revenues decreased by $2.1 million, or 23%, from $9.1 million in the third quarter of 2004, to $7.0 million for the same period in 2005. There was a $2.4 million decrease as a result of the spin-off of the Companys skilled nursing facility and
assisted living facility assets on November 1, 2004. After the spin-off, the Company no longer has any ownership in those assets, and thus does not recognize any rental revenue related to those facilities. This decrease was offset by an
increase in rental revenue of $0.2 million due to the scheduled rent increases pursuant to the Companys MOB leases.



Interest and loan fee income increased by $0.3 million, or 300%, from $0.1 million in the third quarter of 2004 to $0.4 million for the same period in
2005. The main reason for the increase was due to interest of $0.3 million earned on the Companys long term promissory note from G&L Senior Care Properties, LLC. After the spin-off of the Companys skilled nursing and assisted living
facility assets on November 1, 2004, the Company held two promissory notes issued by G&L Senior Care Properties, LLC, a $2 million short term, unsecured promissory note and a $4 million, long term, secured promissory note, both bearing
interest at the rate of 10.75% per annum. The $2 million promissory note was repaid in full on April 1, 2005. In addition, $0.1 million of the increase in interest income was due to interest earned on the Companys cash on hand which
was higher than in the third quarter of 2004.



Total expenses
decreased by $2.2 million, or 28%, from $7.9 million for the third quarter of 2004, to $5.7 million for the same period in 2005. The decrease was due to a decrease in depreciation and amortization expense of $0.4 million, a decrease in interest
expense of $0.6 million, a decrease in provisions for doubtful accounts, notes and bonds receivable of $0.3 million and a decrease in general and administrative costs of $0.8 million.



Depreciation and amortization expense decreased $0.4 million, or 33%, from $1.2 million in the third quarter of 2004, to
$0.8 million for the same period in 2005. This decrease was due to the spin-off of the Companys skilled nursing facility and assisted living facility assets on November 1, 2004. The Company recorded $0.4 million of depreciation and
amortization expense related to its skilled nursing and assisted living facilities in the third quarter of 2004. After the spin-off, the Company no longer has any ownership in those assets, and thus does not record any depreciation or amortization
expense related to those facilities.



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Interest expense decreased $0.6 million, or 21%, from $2.8 million for the third quarter of 2004, to $2.2
million for the same period in 2005. $0.6 million of the decrease in interest expense was due to the spin-off of the Companys skilled nursing facility and assisted living facility assets on November 1, 2004. This decrease was offset by a
$0.1 million increase in interest expense relating to the refinancing of a mortgage loan secured by an MOB located in Mission Hills, California. On March 23, 2005, the Company refinanced the existing loan on this MOB, the Holy Cross Medical
Plaza, with a new $17.8 million loan from Countrywide Commercial Real Estate Finance, Inc.



Provisions for doubtful accounts, notes and bonds receivable decreased $0.3 million in the third quarter of 2004 compared to the same period in 2005. This decrease is mainly the result of a decrease in reserves
associated with the Companys skilled nursing facility and assisted living facility assets which were spun-off on November 1, 2004.



General and administrative costs decreased by $0.8 million, or 57%, from $1.4 million in the third quarter of 2004, to $0.6 million for the same period in
2005. There was a $0.4 million decrease attributed to the June 30, 2005 distribution of the Companys interest in G&L Realty Corp., LLC. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care
Properties, LLC. Prior to the distribution of G&L Realty Corp., LLC to the Companys stockholders, the Company recorded 100% of the general and administrative costs incurred by G&L Realty Corp., LLC under general and administrative
expenses in its financial statements and recognized the percentage of general and administrative expenses reimbursed by G&L Senior Care Properties, LLC as reimbursement revenue. Subsequent to the distribution of G&L Realty Corp., LLC, the
Company entered into a management agreement with G&L Realty Corp., LLC which calls for G&L Realty Corp., LLC to continue to provide management services to the Company in exchange for the reimbursement of the costs associated with such
services through the end of 2005; and thereafter, upon mutually agreed upon terms. These costs represent approximately 35% of the total overhead costs of G&L Realty Corp., LLC. Therefore, subsequent to June 30, 2005, general and
administrative expenses consist solely of the Companys 35% share of the total overhead costs of G&L Realty Corp., LLC along with certain expenses that are specifically allocated to the Company such as public reporting costs. In addition,
legal and consulting costs decreased $0.5 million in the third quarter of 2005 compared to the third quarter of 2004. In the third quarter of 2004, the Company incurred significant legal and consulting costs as a result of the spin off of the
Companys senior care assets as well as a potential refinancing of the Companys preferred stock. The $0.9 million decrease was offset by a $0.1 million fee paid in the third quarter of 2005 as a result of a failed financing transaction.



Equity in earnings of unconsolidated affiliates decreased $0.2
million from the third quarter of 2004 compared to the same period in 2005. This decrease was mainly due to the sale, in September 2004, of a two-story, 80-unit, 92 bed ALF located in Yorba Linda, California in which the Company held a 50% interest.



Total income from discontinued operations decreased $2.2
million from the third quarter of 2004 compared to the same period in 2005. The sale, in August 2004, of the Companys 10,000 square foot MOB located in Tustin, California accounted for the decrease.



Liquidity and Capital Resources



As of September 30, 2005, the Company had approximately $9.8 million of
cash on hand. The Company obtains its liquidity from multiple internal and external sources. Internally, funds are derived from the operation of its MOB properties. The Companys MOB properties contain approximately 737,000 rentable square feet
and, as of September 30, 2005, were approximately 98.3% leased to over 400 tenants with lease terms typically ranging from three to ten years.



The Companys principal external sources of capital consist of various secured loans and selective asset sales. As of September 30, 2005, the
Company had secured loans outstanding of approximately $153.3 million. During 2004, the Company obtained a $3 million secured line of credit that is secured by a first deed of trust on land owned by the Company in Santa Clarita, California. In April
2005, the line of credit was increased to $4 million. As of September 30, 2005, the Company had no outstanding borrowings under the line of credit. The Company has also been selling some of its assets which has provided additional liquidity.
During the first three quarters of 2005, the Company received net proceeds of $4.4 million from the sale of an office and retail center located in Coronado, California. The Company has reserved these funds for new acquisitions, future stock
dividends and for general corporate purposes. No other property sales are currently in process. The Companys 2005 asset sales and refinancings are discussed below.



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On March 23, 2005, the Company refinanced the Holy Cross Medical Plaza, a 72,000 square foot MOB
located in Mission Hills, California with a new $17.8 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $9.7 million from the refinancing after repayment of the existing $7.1 million mortgage
loan, prepayment penalties and closing costs. The new loan is for ten years but is interest only for two years and bears interest at a fixed rate of 5.71% per annum.



On March 24, 2005, the Company sold Coronado Plaza, a 47,000 square foot office and retail center located in Coronado,
California for $18.2 million. The buyer assumed the existing mortgage loan of $13.6 million and the Company received net proceeds of $4.4 million after all closing costs. The Company recognized a gain of $7.7 million.



On April 7, 2005, San Pedro, a joint venture in which the Company owns a
50% interest, refinanced three MOBs owned by San Pedro with a new $7.7 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $2.4 million from San Pedro after San Pedro repaid the existing $4.6
million mortgage loan, prepayment penalties and closing costs. The new loan is for ten years but is interest only for two years and bears interest at a fixed rate of 5.64% per annum.



On October 14, 2005, the Company refinanced its two properties located in Tustin, California with a new $13.5 million
loan from Countrywide Commercial Real Estate Finance, Inc. The Company received proceeds of $5.3 million from the refinancing after repayment of the existing $6.9 million mortgage loan, prepayment penalties and closing costs. The new loan bears
interest at a fixed rate of 5.29% and is due on October 8, 2015.



The Company paid monthly dividends of $0.6 million to holders of the Companys Preferred Stock on the fifteenth day of each month during the first three quarters of 2005 to holders of record on the first day of each month. On
March 31, 2005, the Company distributed $10.0 million to holders of the Companys Common Stock.



On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company, to its
common stockholders. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care Properties, LLC. As part of the distribution of G&L Realty Corp., LLC to the Companys stockholders, the Company entered
into a management agreement with G&L Realty Corp., LLC. The management agreement calls for G&L Realty Corp., LLC to continue to provide management services to the Company in exchange for the reimbursement of the costs associated with such
services through the end of 2005; and thereafter, upon mutually agreed upon terms. These costs represent approximately 35% of the total overhead costs of G&L Realty Corp., LLC. Messrs. Gottlieb and Lebowitz, the Chief Executive Officer and
President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making of G&L Realty Corp., LLC. Thus, the Company, and especially its CEO and President, will continue to have
significant involvement in the management and operations of G&L Realty Corp., LLC.



Prior to the distribution, the Operating Partnership contributed the two notes receivable due from Messrs. Gottlieb and Lebowitz totaling $5.1 million to G&L Realty Corp., LLC, along with its $1 million investment
in Paradigm and its $2.7 million investment in a newly-formed joint venture that acquired a vacant parcel of land in Dublin, California to G&L Realty Corp., LLC. These assets were distributed to the Companys common stockholders as part of
the distribution of G&L Realty Corp., LLC on June 30. In connection with the distribution, the Company obtained an independent appraisal of the fair market value of G&L Realty Corp., LLC as an independent company. The appraisal valued
G&L Realty Corp., LCC at $4.3 million, as compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss on the
Companys financial statements.



In connection with the
Companys $2.7 million investment in the newly-formed joint venture discussed above, the Company made a $3 million first mortgage to the joint venture. The first mortgage calls for quarterly interest only payments at 9% per annum and is
due on May 30, 2008. In the third quarter of 2005, the Company loaned $0.4 million under a $2.2 million second mortgage to the joint venture. The second



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mortgage calls for quarterly interest only payments at 9% per annum and is due on March 31, 2006. The first and second mortgages were not
contributed to G&L Realty Corp., LLC or distributed to the Companys common stockholders and remain an asset of the Company. Both mortgages are included under notes receivable from related parties on the balance sheet as of
September 30, 2005.



While the Company is highly
leveraged, the Company expects to continue meeting its short-term liquidity requirements through its working capital and cash flow provided by operations and its line of credit. The Company also expects to maintain stockholder distributions in
accordance with REIT requirements, although no assurances can be given that the current level of distributions will be maintained. Long-term liquidity requirements such as refinancing mortgages, financing acquisitions and financing capital
improvements will be accomplished through long-term borrowings, the sale of assets and joint venture arrangements.



Sources and Uses of Funds



The Companys net cash provided by operating activities decreased $2.9 million from $9.3 million for the nine months ended September 30, 2004 to
$6.4 million for the same period in 2005. The decrease is due to a decrease in depreciation and amortization of $1.7 million, an increase in net gains from sale of discontinued operations of $5.2 million, a $1.9 million increase in the change in
tenant rent and reimbursements receivable and a $1.2 million decrease in provisions for doubtful accounts, notes and bonds receivable. These decreases were offset by a $2.2 million increase in net income, a $4.1 million increase in the impairment of
assets and a $0.9 million decrease in prepaid expenses and other assets.



Net cash from investing activities decreased $0.3 million from cash provided of $0.1 million for the nine months ended September 30, 2004 to a net cash use of $0.2 million for the same period in 2005. The
decrease was due to a $9.3 million decrease in sales of real estate assets, a $2.4 million increase in investments in notes and bonds receivable and a $2.5 million increase in pre-acquisition costs. These decreases were offset by a $2.3 million
increase in principal payments received from notes and bonds receivable, a $2.5 million increase in distributions from investments in unconsolidated affiliates, a $7.7 million decrease in purchases of real estate assets and a $0.5 million decrease
in construction in progress costs and a $0.5 million decrease in additions to rental properties.



Net cash flows used in financing activities decreased by approximately $3.5 million from $10.4 million for the nine months ended September 30, 2004,
to $6.9 million for the same period in 2005. The decrease was due to a $10.2 million increase in notes payable proceeds and a $0.5 million decrease in the repayment of notes payable. These were offset by a $6.5 million increase in distributions to
stockholders and a $0.6 million increase in distributions to minority interests.



Off- Balance Sheet Arrangements



The Company
was the guarantor on a $513,602 letter of credit issued by U.S. Bank National Association (U.S. Bank) in favor of Fannie Mae c/o Greystone Servicing Corporation under which the Companys maximum liability was approximately $410,000.
In December 1999, the Company purchased $1.3 million of subordinated bonds secured by an apartment complex located in Tulsa, Oklahoma. At the time, a letter of credit for $513,602 was issued by the Bank of Oklahoma in favor of the issuer of the
subordinated bonds in order to pay the interest payments on the secured debt of the property in the event the cash flow of the property was insufficient to meet such payments. The Company guaranteed $250,000 of this letter of credit. In December
2003, June 2004 and December 2004, the borrower defaulted on the semi-annual interest payment to the holders of the subordinated bonds, including those held by the Company. The subordinated bonds owned by the Company are fully-reserved for on
the Companys balance sheet. In July 2004, the letter of credit issued by the Bank of Oklahoma was called upon and the Company was required to fund the $250,000 that it had guaranteed. Subsequently, the current letter of credit was issued by
U.S. Bank. The Companys partners in this investment are in the process of restructuring the management and operation of the property in order to make it profitable once again. As part of the restructuring, the letter of credit was called upon
in March 2005 and the Company was required to make a payment of $410,000. The Company recorded a reserve of $410,000 on its balance sheet as of December 31, 2004 related to its maximum liability with respect to the letter of credit against
which the March 2005 payment was applied.



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As of September 30, 2005, the Company had investments in one unconsolidated joint venture, San
Pedro, which was formed for the purpose of acquiring and owning real estate assets. Per the terms of the joint venture agreement, the Company could be required to advance additional funds to this joint venture if the operating activities of the
joint venture are insufficient to satisfy the obligations of the joint venture. Any additional funds advanced to the joint venture are treated as additional equity contributions and are recorded as an investment in unconsolidated affiliates on the
Companys balance sheet.



Contractual
Obligations



On March 23, 2005, the Company
refinanced the Holy Cross Medical Plaza with a new $17.8 million loan from Countrywide Commercial Real Estate Finance, Inc. The new loan is for ten years but is interest only for two years and bears interest at a fixed rate of 5.71% per annum.
On March 24, 2005, the Company sold the Coronado Plaza for $18.2 million. The buyer assumed the existing mortgage loan of $13.6 million relieving the Company of any future obligations under this obligation. There were no other material changes
in the first three quarters of 2005 compared to the Companys contractual obligations as of December 31, 2004. As of September 30, 2005, the Company had the following contractual obligations outstanding:



|                          |  |      |       |                |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|------------------------- |  | ---- | ----- | -------------- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                          |  | 2005 |       | 2006           |   | 2007   |  | 2008 |        | 2009 |   | Thereafter |  | Total
|                          |  |      |       | (in thousands) |   |        |  |     
|Obligations:              |  |      |       |                |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Fixed rate mortgage debt: |  |      |       |                |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Interest                  |  | $    | 2,294 |                | $ | 8,746  |  | $    | 8,614  |      | $ | 8,482      |  | $     | 8,126  |  | $ | 19,277  |  | $ | 55,539 
|Principal                 |  |      | 526   |                |   | 2,162  |  |      | 2,449  |      |   | 2,637      |  |       | 9,980  |  |   | 135,566 |  |   | 153,320
|                          |  |      |       |                |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|                          |  | $    | 2,820 |                | $ | 10,908 |  | $    | 11,063 |      | $ | 11,119     |  | $     | 18,106 |  | $ | 154,843 |  | $ | 208,859
|                          |  |      |       |                |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



New Accounting Pronouncements



In
December 2004, the FASB issued SFAS No. 123(R), Share Based Payments (SFAS No. 123(R)) which replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. As such, pro forma disclosure in lieu of expensing is no longer an alternative. The Company does not grant any share-based payments to its employees and thus this Statement will not have
any impact on our financial statements.



Non-GAAP Supplemental Financial Measure



Industry analysts generally consider funds from operations (FFO) to be an appropriate measure of the performance of a REIT. The Company calculates FFO as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts (NAREIT). FFO is helpful in evaluating the performance of a real estate portfolio considering the fact that historical cost accounting assumes that the value of real estate diminishes predictably over time. FFO
is calculated to include the minority interests share of income from the Operating Partnership and Senior Care Partnership since the Operating Partnerships and Senior Care Partnerships net income is allocated proportionately among
all owners of Operating Partnership and Senior Care Partnership units. The combined number of Operating Partnership and Senior Care Partnership units held by the Company is identical to the number of outstanding shares of the Companys Common
Stock, and owners of Operating Partnership and Senior Care Partnership units may, at their discretion, redeem their units for shares of Common Stock on a one-for-one basis.



The Company believes that in order to facilitate a clear understanding of the operating results of the Company, FFO should
be examined in conjunction with the Companys net income as presented in this Form 10-Q, the Selected Financial Data and Consolidated Financial Statements and Notes thereto included in the



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##### Table of Contents

Companys 2004 Annual Report on Form 10-K and the additional data presented below. The table on the following page presents an analysis of FFO and
additional data for the three and nine month periods ended September 30, 2005 and 2004.



G&L REALTY CORP.

FUNDS FROM OPERATIONS AND ADDITIONAL DATA

(Unaudited)



|                                                            |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|----------------------------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                            |  | Three Month Period Ended September 30, |        |   | Nine Month Period Ended September 30, |  
|                                                            |  | 2005                                   |        |   | 2004                                  |   |        | 2005 |  |   | 2004   |  
|                                                            |  | (in thousands)                         |        |   | (in thousands)                        |  
|Funds from Operations(1)                                    |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Net income                                                  |  | $                                      | 1,574  |   |                                       | $ | 3,965  |      |  | $ | 7,755  |   |  | $ | 5,593   |  
|Depreciation of real estate assets                          |  |                                        | 726    |   |                                       |   | 1,068  |      |  |   | 2,185  |   |  |   | 3,387   |  
|Amortization of deferred lease costs                        |  |                                        | 36     |   |                                       |   | 37     |      |  |   | 103    |   |  |   | 121     |  
|Impairment of assets                                        |  |                                        |       |   |                                       |   |       |      |  |   | 4,094  |   |  |   |        |  
|Gain from sale of discontinued operations                   |  |                                        |       |   |                                       |   | (2,097 | )    |  |   | (7,712 | ) |  |   | (2,536  | )
|Depreciation from unconsolidated affiliates                 |  |                                        | 31     |   |                                       |   | 111    |      |  |   | 92     |   |  |   | 333     |  
|Adjustment for minority interest in consolidated affiliates |  |                                        | (22    | ) |                                       |   | (36    | )    |  |   | (68    | ) |  |   | (84     | )
|Dividends on preferred stock                                |  |                                        | (1,670 | ) |                                       |   | (1,790 | )    |  |   | (5,009 | ) |  |   | (5,371  | )
|                                                            |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Funds from Operations(1)                                    |  | $                                      | 675    |   |                                       | $ | 1,258  |      |  | $ | 1,440  |   |  | $ | 1,443   |  
|                                                            |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Additional Data                                             |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Cash flows:                                                 |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Operating activities                                        |  | $                                      | 1,285  |   |                                       | $ | 2,443  |      |  | $ | 6,358  |   |  | $ | 9,329   |  
|Investing activities                                        |  |                                        | (543   | ) |                                       |   | 320    |      |  |   | (224   | ) |  |   | 94      |  
|Financing activities                                        |  |                                        | (2,608 | ) |                                       |   | (6,151 | )    |  |   | (6,870 | ) |  |   | (10,412 | )
|Capital expenditures                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Building improvements                                       |  | $                                      | 260    |   |                                       | $ | 1,245  |      |  | $ | 638    |   |  | $ | 1,464   |  
|Tenant improvements                                         |  |                                        | 215    |   |                                       |   | 246    |      |  |   | 784    |   |  |   | 437     |  
|Furniture, fixtures and equipment                           |  |                                        | 45     |   |                                       |   | 19     |      |  |   | 62     |   |  |   | 116     |  
|Leasing commissions                                         |  |                                        | 13     |   |                                       |   | 28     |      |  |   | 42     |   |  |   | 69      |  
|Depreciation and amortization                               |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |         |  
|Depreciation of real estate assets                          |  | $                                      | 726    |   |                                       | $ | 1,068  |      |  | $ | 2,185  |   |  | $ | 3,387   |  
|Depreciation of non-real estate assets                      |  |                                        | 12     |   |                                       |   | 172    |      |  |   | 38     |   |  |   | 515     |  
|Amortization of deferred lease costs                        |  |                                        | 36     |   |                                       |   | 37     |      |  |   | 103    |   |  |   | 121     |  
|Amortization of deferred licensing costs                    |  |                                        |       |   |                                       |   |       |      |  |   |       |   |  |   | 36      |  
|Amortization of capitalized financing costs                 |  |                                        | 57     |   |                                       |   | 90     |      |  |   | 177    |   |  |   | 271     |  
|Accrued rent in excess of billed rent                       |  | $                                      | (92    | ) |                                       | $ | (16    | )    |  | $ | (146   | ) |  | $ | (114    | )



|1) | FFO represents net income (computed in accordance with GAAP, consistently applied), excluding extraordinary items and gains (or losses) from sales of property, plus depreciation
of real property, less preferred stock dividends paid to holders of preferred stock during the period and after adjustments for consolidated and unconsolidated entities in which the Company holds a partial interest. FFO is computed in accordance
with the definition adopted by NAREIT. FFO should not be considered as an alternative to net income or any other indicator developed in compliance with GAAP, including measures of liquidity such as cash flows from operations, investing and financing
activities. FFO is helpful in evaluating the performance of a real estate portfolio considering the fact that historical cost accounting assumes that the value of real estate diminishes predictably over time. FFO is only one of a range of indicators
which should be considered in determining a companys operating performance. The methods of calculating FFO among different companies are subject to variation, and FFO therefore may be an invalid measure for purposes of comparing companies.
Also, the elimination of depreciation and gains and losses on sales of property may not be a true indication of an entitys ability to recover its investment in properties. The Company implemented the new methods of calculating FFO effective as
of the NAREIT-suggested adoption dates of January 1, 1996 and January 1, 2000, respectively.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



The primary risk inherent in the Companys market sensitive instruments is the risk of loss resulting from interest rate fluctuations. As of
September 30, 2005 and December 31, 2004, the Company had no floating rate debt outstanding. The tables below provide information as of September 30, 2005 and December 31, 2004 about the Companys long-term debt obligations
that are sensitive to changes in interest rates, including principal cash flows by scheduled maturity, weighted average interest rate and estimated fair value. The weighted average interest rates presented are the actual rates as of
September 30, 2005 and December 31, 2004.



|                      |  |                                           |      |   |                |   |       |                                    |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|--------------------- |  | ----------------------------------------- | ---- | - | -------------- | - | ----- | ---------------------------------- |  | - | ----- | - |  | ---- | ----- | - | ---------- | - | ----- | - |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |  | SEPTEMBER 30, 2005 PRINCIPAL MATURING IN: |      |   | Total          |   |       | Fair MarketValue September 30,2005
|                      |  | 2005                                      |      |   | 2006           |   |       | 2007                               |  |   | 2008  |   |  | 2009 |       |   | Thereafter |   |       |  
|                      |  |                                           |      |   | (in thousands) |   |       |                                    |  |   |       |   |  |     
|Liabilities:          |  |                                           |      |   |                |   |       |                                    |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|Mortgage debt:        |  |                                           |      |   |                |   |       |                                    |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|Fixed rate            |  | $                                         | 526  |   |                | $ | 2,162 |                                    |  | $ | 2,449 |   |  | $    | 2,637 |   |            | $ | 9,980 |   |  | $ | 135,566 |   |  | $ | 153,320 |   |  | $ | 146,089
|Average interest rate |  |                                           | 5.69 | % |                |   | 5.69  | %                                  |  |   | 5.69  | % |  |      | 5.69  | % |            |   | 5.66  | % |  |   | 5.62    | % |  |   | 5.68    | % |  |   |        
|                      |  |                                           |      |   |                |   |       |                                    |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|                      |  | $                                         | 526  |   |                | $ | 2,162 |                                    |  | $ | 2,449 |   |  | $    | 2,637 |   |            | $ | 9,980 |   |  | $ | 135,566 |   |  | $ | 153,320 |   |  | $ | 146,089
|                      |  |                                           |      |   |                |   |       |                                    |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        



|                      |  |                                          |       |   |                |   |       |                                   |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|--------------------- |  | ---------------------------------------- | ----- | - | -------------- | - | ----- | --------------------------------- |  | - | ----- | - |  | ---- | ----- | - | ---------- | - | ----- | - |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |  | DECEMBER 31, 2004 PRINCIPAL MATURING IN: |       |   | Total          |   |       | Fair MarketValue December 31,2004
|                      |  | 2005                                     |       |   | 2006           |   |       | 2007                              |  |   | 2008  |   |  | 2009 |       |   | Thereafter |   |       |  
|                      |  |                                          |       |   | (in thousands) |   |       |                                   |  |   |       |   |  |     
|Liabilities:          |  |                                          |       |   |                |   |       |                                   |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|Mortgage debt:        |  |                                          |       |   |                |   |       |                                   |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|Fixed rate            |  | $                                        | 2,237 |   |                | $ | 2,373 |                                   |  | $ | 2,518 |   |  | $    | 8,889 |   |            | $ | 9,742 |   |  | $ | 131,931 |   |  | $ | 157,690 |   |  | $ | 162,755
|Average interest rate |  |                                          | 5.71  | % |                |   | 5.71  | %                                 |  |   | 5.71  | % |  |      | 5.63  | % |            |   | 5.63  | % |  |   | 5.57    | % |  |   | 5.67    | % |  |   |        
|                      |  |                                          |       |   |                |   |       |                                   |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        
|                      |  | $                                        | 2,237 |   |                | $ | 2,373 |                                   |  | $ | 2,518 |   |  | $    | 8,889 |   |            | $ | 9,742 |   |  | $ | 131,931 |   |  | $ | 157,690 |   |  | $ | 162,755
|                      |  |                                          |       |   |                |   |       |                                   |  |   |       |   |  |      |       |   |            |   |       |   |  |   |         |   |  |   |         |   |  |   |        



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



The Company evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) at the end of the quarterly period covered by this report. This evaluation was performed
by the Companys Chief Accounting Officer, its President and its Chief Executive Officer. Based on this evaluation, the certifying officers concluded that the Companys disclosure controls and procedures were effective as of the end of the
quarterly period covered by this report. There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------



Neither the Company or any of its consolidated or unconsolidated affiliates nor any of the assets within their portfolios of healthcare properties, parking facilities and retail space is currently a party to any material litigation.



|Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds.
|------ | ------------------------------------------------------------



None.



|Item 3 | Defaults Upon Senior Securities.
|------ | --------------------------------



None.



|Item 4 | Submission of Matters to a Vote of Security Holders.
|------ | ----------------------------------------------------



None.



|Item 5 | Other Information.
|------ | ------------------



None.



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##### Table of Contents

|Item 6 | Exhibits
|------ | --------



|(a) | Exhibits
|--- | --------



|            |  |      |  |                                                                                                                                                                                                                               
|----------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Note |  | Description                                                                                                                                                                                                                   
|            |  |     
|2.1         |  | (8)  |  | The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp.                                                                                                                                            
|            |  |     
|2.2         |  | (9)  |  | Amendment No. 1 to the Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp. dated September 28, 2001.                                                                                               
|            |  |     
|2.3         |  | (9)  |  | Amendment No. 2 to the Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp. dated October 26, 2001.                                                                                                 
|            |  |     
|2.4         |  | (12) |  | Partnership Merger Agreement dated as of May 10, 2001 by and among G&L Acquisition, LLC, G&L Partnership, LLC, G&L Realty Corp. and G&L Realty Partnership,
L.P.                                                              
|            |  |     
|3.1.1       |  | (1)  |  | Amended and Restated Articles of Incorporation of G&L Realty Corp.                                                                                                                                                            
|            |  |     
|3.1.2       |  | (4)  |  | Articles Supplementary of G&L Realty Corp. Series A Preferred Stock                                                                                                                                                           
|            |  |     
|3.1.3       |  | (5)  |  | Articles Supplementary of G&L Realty Corp. Series B Preferred Stock                                                                                                                                                           
|            |  |     
|3.1.4       |  | (14) |  | Articles Supplementary of G&L Realty Corp. Series C Preferred Stock                                                                                                                                                           
|            |  |     
|3.1.5       |  | (14) |  | Articles Supplementary of G&L Realty Corp. Series D Preferred Stock                                                                                                                                                           
|            |  |     
|3.2         |  | (3)  |  | Amended and Restated Bylaws of G&L Realty Corp.                                                                                                                                                                               
|            |  |     
|10.1        |  | (15) |  | Executive Employment Agreement between G&L Realty Corp., LLC and Daniel M. Gottlieb                                                                                                                                           
|            |  |     
|10.2        |  | (15) |  | Executive Employment Agreement between G&L Realty Corp., LLC and Steven D. Lebowitz                                                                                                                                           
|            |  |     
|10.3        |  | (2)  |  | Agreement of Limited Partnership of G&L Realty Partnership, L.P.                                                                                                                                                              
|            |  |     
|10.3.2      |  | (11) |  | Amendment to Agreement of Limited Partnership of G&L Realty Partnership, L.P. dated as of July 31, 2001.                                                                                                                      
|            |  |     
|10.5        |  | (1)  |  | Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.                                                                                                                                      
|            |  |     
|10.9.2      |  | (1)  |  | Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.) between the Selling Partner (as defined therein) and G&L Development, dated as of October
29, 1993.                          
|            |  |     
|10.11       |  | (1)  |  | Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29,
1993.                                   
|            |  |     
|10.77       |  | (6)  |  | Agreement for Transfer of Property by and among G&L Coronado, LLC as Transferor and G&L Realty Partnership, L.P. as Operating Partnership dated as of December 30,
1998.                                                      
|            |  |     
|10.78       |  | (6)  |  | Tenant Estoppel and Real Estate Lease between G&L Coronado, LLC as Landlord and Coronado Managers Corp. as Tenant dated December 1, 1998.                                                                                     
|            |  |     
|10.79       |  | (6)  |  | Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively Guarantor) in favor of G&L Coronado, LLC (Landlord).                                                                                    
|            |  |     
|10.81       |  | (7)  |  | Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and GMAC Commercial Mortgage Corporation, as Lender.                                                                                    
|            |  |     
|10.82       |  | (11) |  | Credit Agreement among G&L Realty Partnership, L.P., G&L Partnership, LLC, the Several Lenders from Time to Time Parties Hereto and GMAC Commercial Mortgage Corporation, as Agent,
dated as of October 29, 2001              
|            |  |     
|10.83       |  | (11) |  | Guarantee and Collateral Agreement made by Daniel M. Gottlieb, Steven D. Lebowitz, G&L Realty Corp. and G&L Realty Partnership, L.P. in favor of GMAC Commercial Mortgage Corporation,
as Agent, dated as of October 29, 2001.



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|      |  |      |  |                                                                                                                                                             
|----- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |     
|10.84 |  | (13) |  | Management and Cost Sharing Agreement, dated as of October 29, 2004 by and among G&L Realty Corp., G&L Senior Care Properties, LLC and G&L Realty Corp., LLC
|      |  |     
|10.85 |  | (13) |  | Pledge and Security Agreement, dated as of October 29, 2004 by and between G&L Realty Partnership, L.P. and G&L Senior Care Properties, LLC                 
|      |  |     
|10.86 |  | (13) |  | Secured Promissory Note, dated as of November 1, 2004, by G&L Senior Care Properties, LLC in favor of G&L Realty Partnership, L.P.                          
|      |  |     
|10.87 |  | (13) |  | Unsecured Promissory Note, dated as of November 1, 2004 by G&L Senior Care Properties, LLC in favor of G&L Realty Partnership, L.P.                         
|      |  |     
|21    |  |      |  | List of Subsidiaries                                                                                                                                        
|      |  |     
|31.1  |  |      |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                     
|      |  |     
|31.2  |  |      |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                     
|      |  |     
|32.1  |  |      |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                            
|      |  |     
|32.2  |  |      |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                            



|1) | Previously filed as an exhibit of like number to the Registrants Registration Statement on Form S-11 and amendments thereto (File No. 33-68984) and incorporated herein
by reference.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2) | Previously filed as an exhibit of like number to the Companys Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3) | Previously filed as an exhibit of like number to the Companys Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4) | Filed as an exhibit to the Companys Registration Statement on Form S-11 (filed as of April 10, 1997) and amendments thereto and incorporated herein by reference.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5) | Filed as an exhibit to the Companys Registration Statement on Form S-11 (filed as of October 27, 1997) and amendments thereto and incorporated herein by reference.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6) | Filed as an exhibit to the Companys Annual Report on Form 10-K (filed as of April 9, 1999) for the year ended December 31, 1998 and incorporated herein by
reference.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of November 12, 1999) for the quarter ended September 30, 1999 and incorporated herein
by reference
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of May 15, 2001) for the quarter ended March 31, 2001 and incorporated herein by
reference.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of October 4, 2001) and incorporated herein by reference.
|-- | -----------------------------------------------------------------------------------------------------------------------------------



|10) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of October 31, 2001) and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|11) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of November 13, 2001) and incorporated herein by reference.
|--- | -------------------------------------------------------------------------------------------------------------------------------------



|12) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of November 14, 2001) for the quarter ended September 30, 2001 and incorporated herein
by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|13) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of November 4, 2004) and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|14) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of November 15, 2004) for the quarter ended September 30, 2004 and incorporated herein
by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|15) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of May16, 2005) for the quarter ended March 31, 2005 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURE



Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |  |  |                  |  |                    |  |                         
|----------------------- |  |  |  | ---------------- |  | ------------------ |  | ------------------------
|                        |  |  |  | G&L REALTY CORP.
|                        |  |  | 
|Date: November 14, 2005 |  |  |  | By:              |  | /s/ David E. Hamer
|                        |  |  |  |                  |  |                    |  | David E. Hamer          
|                        |  |  |  |                  |  |                    |  | Chief Accounting Officer



Page 32