##### 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 June 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 of incorporation or organization) |  | (I.R.S. Employer Identification 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



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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



As of August 15, 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 June 30, 2005 (unaudited) and December 31, 2004                                  |  | 3          
|          |  | Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2005 and 2004 (unaudited) |  | 4          
|          |  | Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 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                                        |  | 17  26    
|Item 3    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                   |  | 27         
|Item 4    |  | Controls and Procedures                                                                                                      |  | 27         
|Part II   |  | Other Information                                                                                                            |  |            
|Item 1    |  | Legal Proceedings                                                                                                            |  | 28         
|Item 2    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                  |  | 28         
|Item 3    |  | Defaults Upon Senior Securities                                                                                              |  | 28         
|Item 4    |  | Submission of Matters to a Vote of Security Holders                                                                          |  | 28         
|Item 5    |  | Other Information                                                                                                            |  | 28         
|Item 6    |  | Exhibits                                                                                                                     |  | 29  30    
|          |  |                                                                                                                             
|Signature |  |                                                                                                                              |  | 31         



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##### Table of Contents

G&L REALTY CORP.



CONDENSED
CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                            |  | June 30, 2005 |         |   | December 31, 2004 |  
|                                                                                                                                                            |  | (Unaudited)   |         |   |                   |  
|ASSETS                                                                                                                                                      |  |               |         |   |                   |   |         |  
|Rental properties (Note 3):                                                                                                                                 |  |               |         |   |                   |   |         |  
|Land                                                                                                                                                        |  | $             | 18,012  |   |                   | $ | 18,012  |  
|Buildings and improvements, net (Note 3)                                                                                                                    |  |               | 67,286  |   |                   |   | 67,796  |  
|Projects under development                                                                                                                                  |  |               | 349     |   |                   |   | 288     |  
|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|Total rental properties                                                                                                                                     |  |               | 85,647  |   |                   |   | 86,096  |  
|Assets held for sale (Note 3)                                                                                                                               |  |               |        |   |                   |   | 10,410  |  
|Cash and cash equivalents                                                                                                                                   |  |               | 11,638  |   |                   |   | 10,508  |  
|Restricted cash                                                                                                                                             |  |               | 2,741   |   |                   |   | 2,177   |  
|Tenant rent, reimbursements and other receivables, net                                                                                                      |  |               | 496     |   |                   |   | 625     |  
|Unbilled rent receivable, net                                                                                                                               |  |               | 2,418   |   |                   |   | 2,472   |  
|Mortgage loans, bonds and notes receivable, net                                                                                                             |  |               | 1,609   |   |                   |   | 1,161   |  
|Notes receivable from related parties (Note 9)                                                                                                              |  |               | 7,482   |   |                   |   | 6,497   |  
|Investments in unconsolidated affiliates (Note 6)                                                                                                           |  |               |        |   |                   |   | 2,461   |  
|Deferred charges and other assets, net (Note 4)                                                                                                             |  |               | 2,263   |   |                   |   | 3,315   |  
|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                |  | $             | 114,294 |   |                   | $ | 125,722 |  
|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                       |  |               |         |   |                   |   |         |  
|LIABILITIES:                                                                                                                                                |  |               |         |   |                   |   |         |  
|Notes payable                                                                                                                                               |  | $             | 153,819 |   |                   | $ | 144,140 |  
|Liabilities of assets held for sale (Note 3)                                                                                                                |  |               |        |   |                   |   | 13,629  |  
|Accounts payable and other liabilities                                                                                                                      |  |               | 1,837   |   |                   |   | 3,018   |  
|Tenant security deposits                                                                                                                                    |  |               | 1,481   |   |                   |   | 1,460   |  
|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                                                           |  |               | 157,137 |   |                   |   | 162,247 |  
|Minority interest in consolidated affiliates                                                                                                                |  |               | (1,316  | ) |                   |   | (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                                                 |  |               |         |   |                   |   |         |  
|   Series A Preferred - 1,404,203 shares issued and outstanding as of June 30, 2005 and December 31, 2004,
respectively                                    |  |               | 14      |   |                   |   | 14      |  
|   Series B Preferred - 1,277,710 shares issued and outstanding as of June 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 June 30, 2005 and December 31, 2004,
respectively |  |               | 7       |   |                   |   | 7       |  
|Additional paid-in capital                                                                                                                                  |  |               | 36,388  |   |                   |   | 36,388  |  
|Distributions in excess of net income                                                                                                                       |  |               | (77,949 | ) |                   |   | (66,452 | )
|Notes receivable from stockholders                                                                                                                          |  |               |        |   |                   |   | (5,114  | )
|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|Total stockholders deficit                                                                                                                                 |  |               | (41,527 | ) |                   |   | (35,144 | )
|                                                                                                                                                            |  |               |         |   |                   |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                 |  | $             | 114,294 |   |                   | $ | 125,722 |  
|                                                                                                                                                            |  |               |         |   |                   |   |         |  



See accompanying notes
to Condensed Consolidated Financial Statements



Page 3



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G&L REALTY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)



|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                               |  | Three Month Period Ended June 30, |        |   | Six Month Period Ended June 30, |  
|                                                                                                                                               |  | 2005                              |        |   | 2004                            |   |        | 2005 |  |   | 2004   |  
|                                                                                                                                               |  | (Unaudited)                       |       
|REVENUES:                                                                                                                                      |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Rent                                                                                                                                           |  | $                                 | 5,458  |   |                                 | $ | 6,762  |      |  | $ | 10,919 |   |  | $ | 12,477 |  
|Patient revenues (Note 7)                                                                                                                      |  |                                   |       |   |                                 |   |       |      |  |   |       |   |  |   | 6,736  |  
|Tenant reimbursements                                                                                                                          |  |                                   | 863    |   |                                 |   | 862    |      |  |   | 1,660  |   |  |   | 1,692  |  
|Reimbursements from related party (Note 9)                                                                                                     |  |                                   | 580    |   |                                 |   |       |      |  |   | 949    |   |  |   |       |  
|Parking                                                                                                                                        |  |                                   | 457    |   |                                 |   | 432    |      |  |   | 929    |   |  |   | 850    |  
|Interest and loan fees                                                                                                                         |  |                                   | 389    |   |                                 |   | 211    |      |  |   | 777    |   |  |   | 405    |  
|Other income                                                                                                                                   |  |                                   |       |   |                                 |   | 301    |      |  |   | 70     |   |  |   | 455    |  
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                                                                                 |  |                                   | 7,747  |   |                                 |   | 8,568  |      |  |   | 15,304 |   |  |   | 22,615 |  
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|EXPENSES:                                                                                                                                      |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Property operations                                                                                                                            |  |                                   | 1,892  |   |                                 |   | 1,987  |      |  |   | 3,701  |   |  |   | 3,783  |  
|Skilled nursing operations                                                                                                                     |  |                                   |       |   |                                 |   |       |      |  |   |       |   |  |   | 6,287  |  
|Depreciation and amortization                                                                                                                  |  |                                   | 774    |   |                                 |   | 1,210  |      |  |   | 1,550  |   |  |   | 2,424  |  
|Provision for doubtful accounts, notes and bonds receivable                                                                                    |  |                                   | 1      |   |                                 |   | 852    |      |  |   | 3      |   |  |   | 911    |  
|Interest                                                                                                                                       |  |                                   | 2,269  |   |                                 |   | 2,706  |      |  |   | 5,249  |   |  |   | 5,410  |  
|General and administrative                                                                                                                     |  |                                   | 1,599  |   |                                 |   | 1,218  |      |  |   | 2,668  |   |  |   | 2,256  |  
|Impairment of assets (Note 9)                                                                                                                  |  |                                   | 4,094  |   |                                 |   |       |      |  |   | 4,094  |   |  |   |       |  
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Total expenses                                                                                                                                 |  |                                   | 10,629 |   |                                 |   | 7,973  |      |  |   | 17,265 |   |  |   | 21,071 |  
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|(Loss) income from operations before minority interests and equity in earnings (loss) of unconsolidated affiliates and discontinued
operations |  |                                   | (2,882 | ) |                                 |   | 595    |      |  |   | (1,961 | ) |  |   | 1,544  |  
|Equity in earnings (loss) of unconsolidated affiliates (Note 6)                                                                                |  |                                   | 551    |   |                                 |   | (64    | )    |  |   | 591    |   |  |   | (163   | )
|Minority interest in consolidated affiliates                                                                                                   |  |                                   | (141   | ) |                                 |   | (136   | )    |  |   | (266   | ) |  |   | (261   | )
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|(Loss) income from operations before discontinued operations                                                                                   |  |                                   | (2,472 | ) |                                 |   | 395    |      |  |   | (1,636 | ) |  |   | 1,120  |  
|Discontinued operations:                                                                                                                       |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Net (loss) income from operations of discontinued operations                                                                                   |  |                                   | (26    | ) |                                 |   | (187   | )    |  |   | 105    |   |  |   | 69     |  
|(Loss) gain from sale of discontinued operations                                                                                               |  |                                   |       |   |                                 |   | (147   | )    |  |   | 7,712  |   |  |   | 439    |  
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Total (loss) income from discontinued operations                                                                                               |  |                                   | (26    | ) |                                 |   | (334   | )    |  |   | 7,817  |   |  |   | 508    |  
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Net (loss) income                                                                                                                              |  |                                   | (2,498 | ) |                                 |   | 61     |      |  |   | 6,181  |   |  |   | 1,628  |  
|Dividends on preferred stock                                                                                                                   |  |                                   | (1,669 | ) |                                 |   | (1,790 | )    |  |   | (3,339 | ) |  |   | (3,581 | )
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Net (loss) income available to common stockholders                                                                                             |  | $                                 | (4,167 | ) |                                 | $ | (1,729 | )    |  | $ | 2,842  |   |  | $ | (1,953 | )
|                                                                                                                                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  



See accompanying notes
to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                  |  |                                |         |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------ | -
|                                                                                  |  | Six Month PeriodEnded June 30, |        
|                                                                                  |  | 2005                           |         |   | 2004 |  
|                                                                                  |  | (Unaudited)                    |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                |         |   |      |   |        |  
|Net income                                                                        |  | $                              | 6,181   |   |      | $ | 1,628  |  
|Adjustments to reconcile net income to net cash provided by Operating activities: |  |                                |         |   |      |   |        |  
|Depreciation and amortization                                                     |  |                                | 1,550   |   |      |   | 2,791  |  
|Amortization of deferred loan costs                                               |  |                                | 120     |   |      |   | 181    |  
|Net gain from sale of discontinued operations                                     |  |                                | (7,712  | ) |      |   | (439   | )
|Impairment of assets                                                              |  |                                | 4,094   |   |      |   |       |  
|Write-off of deferred loan costs                                                  |  |                                | 39      |   |      |   |       |  
|Minority interests                                                                |  |                                | 266     |   |      |   | 261    |  
|Equity in (earnings) loss of unconsolidated affiliates                            |  |                                | (90     | ) |      |   | 163    |  
|Provision for doubtful accounts, notes and bonds receivable                       |  |                                | 3       |   |      |   | 911    |  
|Unbilled rent receivable, net                                                     |  |                                | 54      |   |      |   | 98     |  
|(Increase) decrease in:                                                           |  |                                |         |   |      |   |        |  
|Tenant rent and reimbursements receivable                                         |  |                                | (28     | ) |      |   | 1,712  |  
|Prepaid expense and other assets                                                  |  |                                | 1,037   |   |      |   | 330    |  
|Accrued interest and loan fees receivable                                         |  |                                | (53     | ) |      |   | (255   | )
|Increase (decrease) in:                                                           |  |                                |         |   |      |   |        |  
|Accounts payable and other liabilities                                            |  |                                | (411    | ) |      |   | (529   | )
|Tenant security deposits                                                          |  |                                | 23      |   |      |   | 34     |  
|                                                                                  |  |                                |         |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                                | 5,073   |   |      |   | 6,886  |  
|                                                                                  |  |                                |         |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                |         |   |      |   |        |  
|Sale of real estate assets                                                        |  |                                | 4,535   |   |      |   | 10,469 |  
|Purchase of real estate assets                                                    |  |                                |        |   |      |   | (7,661 | )
|Additions to rental properties                                                    |  |                                | (964    | ) |      |   | (507   | )
|Pre-acquisition costs, net                                                        |  |                                | (2,729  | ) |      |   | (227   | )
|Construction in progress                                                          |  |                                | (103    | ) |      |   | (1,039 | )
|Increase in restricted cash                                                       |  |                                | (608    | ) |      |   | (690   | )
|Leasing commissions                                                               |  |                                | (29     | ) |      |   | (41    | )
|Investments in notes and bonds receivable                                         |  |                                | (3,381  | ) |      |   | (1,140 | )
|Contributions to unconsolidated affiliates                                        |  |                                | (431    | ) |      |   | (80    | )
|Distributions from investments in unconsolidated affiliates                       |  |                                | 1,974   |   |      |   |       |  
|Principal payments received from notes and bonds receivable                       |  |                                | 2,055   |   |      |   |       |  
|                                                                                  |  |                                |         |   |      |   |        |  
|Net cash provided by (used in) investing activities                               |  |                                | 319     |   |      |   | (916   | )
|                                                                                  |  |                                |         |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                |         |   |      |   |        |  
|Notes payable proceeds                                                            |  |                                | 17,800  |   |      |   | 7,600  |  
|Repayment of notes payable                                                        |  |                                | (8,121  | ) |      |   | (7,187 | )
|Payment of deferred loan costs                                                    |  |                                | (198    | ) |      |   | (332   | )
|(Distributions to) contributions from minority interests                          |  |                                | (201    | ) |      |   | 130    |  
|Distributions to stockholders                                                     |  |                                | (13,542 | ) |      |   | (3,782 | )
|                                                                                  |  |                                |         |   |      |   |        |  
|Net cash used in financing activities                                             |  |                                | (4,262  | ) |      |   | (3,571 | )
|                                                                                  |  |                                |         |   |      |   |        |  



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)



|                                                                       |  |                                |        |   |      |   |       
|---------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------
|                                                                       |  | Six Month PeriodEnded June 30,
|                                                                       |  | 2005                           |        |   | 2004
|                                                                       |  | (Unaudited)                   
|NET INCREASE IN CASH AND CASH EQUIVALENTS                              |  |                                | 1,130  |   |      |   | 2,399 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                         |  |                                | 10,508 |   |      |   | 11,950
|                                                                       |  |                                |        |   |      |   |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                               |  | $                              | 11,638 |   |      | $ | 14,349
|                                                                       |  |                                |        |   |      |   |       
|SUPPLEMENTAL CASH FLOW INFORMATION                                     |  |                                |        |   |      |   |       
|Cash paid during the period for interest                               |  | $                              | 4,413  |   |      | $ | 5,649 
|                                                                       |  |                                |        |   |      |   |       
|Cash paid during the period for mortgage loan prepayment penalties     |  | $                              | 766    |   |      | $ |      
|                                                                       |  |                                |        |   |      |   |       
|NONCASH INVESTING AND FINANCING ACTIVITIES                             |  |                                |        |   |      |   |       
|Transfer from projects under development to buildings and improvements |  | $                              |       |   |      | $ | 309   
|                                                                       |  |                                |        |   |      |   |       
|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)

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, 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).



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



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)

Tustin Heritage Place, LLC (Heritage Place)

Paradigm Housing, LLC (Paradigm)



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 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



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



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 June 30, 2005, the unpaid balance on this note was $3.98 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 six-month periods ended June 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 six months ended June 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 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 new standard is
effective in the first interim or annual



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



reporting period beginning after June 15, 2005. The Company does not believe the adoption of this Statement will have a material impact on our financial
statements.



3. BUILDINGS AND IMPROVEMENTS



Buildings and improvements consist of the following:



|                                               |  |                |         |   |                   |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                               |  | June 30, 2005  |         |   | December 31, 2004 |  
|                                               |  | (in thousands) |        
|Buildings and improvements                     |  | $              | 90,176  |   |                   | $ | 89,790  |  
|Tenant improvements                            |  |                | 12,208  |   |                   |   | 11,639  |  
|Furniture, fixtures and equipment              |  |                | 1,039   |   |                   |   | 1,022   |  
|                                               |  |                |         |   |                   |   |         |  
|                                               |  |                | 103,423 |   |                   |   | 102,451 |  
|Less accumulated depreciation and amortization |  |                | (36,137 | ) |                   |   | (34,655 | )
|                                               |  |                |         |   |                   |   |         |  
|Total                                          |  | $              | 67,286  |   |                   | $ | 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 Liabilitiesof Assets Heldfor SaleDecember 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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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



4. DEFERRED CHARGES AND OTHER ASSETS



Deferred charges and other assets consist of the following:



|                                 |  |                |        |   |                   |   |        |  
|-------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                 |  | June 30, 2005  |        |   | December 31, 2004 |  
|                                 |  | (in thousands) |       
|Deferred loan costs              |  | $              | 2,090  |   |                   | $ | 2,024  |  
|Leasing commissions              |  |                | 1,575  |   |                   |   | 1,552  |  
|Prepaid expense and other assets |  |                | 354    |   |                   |   | 1,401  |  
|                                 |  |                |        |   |                   |   |        |  
|                                 |  |                | 4,019  |   |                   |   | 4,977  |  
|Less accumulated amortization    |  |                | (1,756 | ) |                   |   | (1,662 | )
|                                 |  |                |        |   |                   |   |        |  
|Total                            |  | $              | 2,263  |   |                   | $ | 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 six months ended June 30, 2005
and for the year ended December 31, 2004:



|                                                             |  |                |         |   |                  |   |         |  
|------------------------------------------------------------ |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                                                             |  | June 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                              |  |                | 6,181   |   |                  |   | (1,217  | )
|Less: Distributions declared                                 |  |                | (17,678 | ) |                  |   | (15,193 | )
|                                                             |  |                |         |   |                  |   |         |  
|Distributions in excess of net income (loss)                 |  | $              | (77,949 | ) |                  | $ | (66,452 | )
|                                                             |  |                |         |   |                  |   |         |  



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G&L REALTY CORP.



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 six months ended June 30, 2005. (In thousands).



|                                                          |  |          |        |   |          |   |      |               |  |       |   |  |   |        |  
|--------------------------------------------------------- |  | -------- | ------ | - | -------- | - | ---- | ------------- |  | ----- | - |  | - | ------ | -
|                                                          |  | SanPedro |        |   | Paradigm |   |      | HeritagePlace |  | Total |  
|Balance at beginning of period                            |  | $        | 783    |   |          | $ | 550  |               |  | $     |  |  | $ | 1,333  |  
|Equity in earnings of affiliates                          |  |          | 40     |   |          |   | 50   |               |  |       |  |  |   | 90     |  
|Non-cash distributions                                    |  |          |       |   |          |   | (994 | )             |  |       |  |  |   | (994   | )
|Cash contributions                                        |  |          |       |   |          |   | 431  |               |  |       |  |  |   | 431    |  
|Cash distributions                                        |  |          | (1,937 | ) |          |   | (37  | )             |  |       |  |  |   | (1,974 | )
|                                                          |  |          |        |   |          |   |      |               |  |       |   |  |   |        |  
|Balance at end of period, before intercompany adjustments |  |          | (1,114 | ) |          |   |     |               |  |       |  |  |   | (1,114 | )
|                                                          |  |          |        |   |          |   |      |               |  |       |   |  |   |        |  
|Intercompany adjustments:                                 |  |          |        |   |          |   |      |               |  |       |   |  |   |        |  
|Receivable, net                                           |  |          | 1,114  |   |          |   |     |               |  |       |  |  |   | 1,114  |  
|                                                          |  |          |        |   |          |   |      |               |  |       |   |  |   |        |  
|Investment in unconsolidated affiliates                   |  | $        |       |   |          | $ |     |               |  | $     |  |  | $ |       |  
|                                                          |  |          |        |   |          |   |      |               |  |       |   |  |   |        |  



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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 six months ended June 30, 2005. (In thousands).



|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|-------------------------------- |  | -------- | ------ | - | -------- | - | ---- | ------------- |  | - | ----- | - |  | - | ------ | -
|                                 |  | SanPedro |        |   | Paradigm |   |      | HeritagePlace |  |   | Total |  
|Financial Position:              |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Land                             |  | $        | 2,017  |   |          | $ |     |               |  | $ | 750   |   |  | $ | 2,767  |  
|Buildings                        |  |          | 4,565  |   |          |   |     |               |  |   |      |   |  |   | 4,565  |  
|Other assets                     |  |          | 475    |   |          |   |     |               |  |   | 238   |   |  |   | 713    |  
|Notes payable                    |  |          | (7,700 | ) |          |   |     |               |  |   | (940  | ) |  |   | (8,640 | )
|Other liabilities                |  |          | (196   | ) |          |   |     |               |  |   | (48   | ) |  |   | (244   | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Net assets                       |  | $        | (839   | ) |          | $ |     |               |  | $ |      |   |  | $ | (839   | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Partners equity:                |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Company                          |  | $        | (1,114 | ) |          | $ |     |               |  | $ |      |   |  | $ | (1,114 | )
|Others                           |  |          | 275    |   |          |   |     |               |  |   |      |   |  |   | 275    |  
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Total equity                     |  | $        | (839   | ) |          | $ |     |               |  | $ |      |   |  | $ | (839   | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Operations:                      |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Revenues                         |  | $        | 618    |   |          | $ | 843  |               |  | $ |      |   |  | $ | 1,461  |  
|Expenses                         |  |          | (1,006 | ) |          |   | (543 | )             |  |   |      |   |  |   | (1,549 | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Net (loss) income                |  | $        | (388   | ) |          | $ | 300  |               |  | $ |      |   |  | $ | (88    | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Allocation of net (loss) income: |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Company                          |  | $        | 40     |   |          | $ | 50   |               |  | $ |      |   |  | $ | 90     |  
|Others                           |  |          | (428   | ) |          |   | 250  |               |  |   |      |   |  |   | (178   | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  
|Net (loss) income                |  | $        | (388   | ) |          | $ | 300  |               |  | $ |      |   |  | $ | (88    | )
|                                 |  |          |        |   |          |   |      |               |  |   |       |   |  |   |        |  



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G&L REALTY CORP.



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. The Company was required to pay the applicable corporate income tax on any net income produced by the SNFs located in Hampden, Massachusetts, although the Companys REIT status was not affected. 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.
The Company is no longer in the business of lending money and has not originated any new loans since 2001. The Company is working to collect the balance of its loans that are currently outstanding, most of which have been partially or fully
reserved. As of June 30, 2005, the Company had six loans outstanding with a net book value of $6.1 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 six months ended June 30, 2004.



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2004 Reconciliation of Reportable Segment Information

For the six months ended June 30, 2004



|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | - | -------------- | - | ----- | -------------- |  | - | --------------- | - |  | ----- | --- | - | ----- | - | ------ | - |  | - | ------ | -
|                                                             |  | MedicalOffice  |        |   | SkilledNursing |   |       | AssistedLiving |  |   | DebtObligations |   |  | Other |     |   | Total |  
|                                                             |  | (In thousands) |       
|Revenue:                                                     |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Rents, tenant reimb. and parking                             |  | $              | 13,153 |   |                | $ | 1,866 |                |  | $ |                |   |  | $     |    |   |       | $ |       |   |  | $ | 15,019 |  
|Patient revenues                                             |  |                |       |   |                |   | 6,736 |                |  |   |                |   |  |       |    |   |       |   |       |   |  |   | 6,736  |  
|Interest and loan fees                                       |  |                | 15     |   |                |   | 80    |                |  |   |                |   |  |       | 263 |   |       |   | 47     |   |  |   | 405    |  
|Other income                                                 |  |                | 124    |   |                |   | 9     |                |  |   |                |   |  |       |    |   |       |   | 322    |   |  |   | 455    |  
|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Total revenues                                               |  |                | 13,292 |   |                |   | 8,691 |                |  |   |                |   |  |       | 263 |   |       |   | 369    |   |  |   | 22,615 |  
|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Expenses:                                                    |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Property operations                                          |  |                | 3,526  |   |                |   | 248   |                |  |   |                |   |  |       | 9   |   |       |   |       |   |  |   | 3,783  |  
|Skilled nursing operations                                   |  |                |       |   |                |   | 6,287 |                |  |   |                |   |  |       |    |   |       |   |       |   |  |   | 6,287  |  
|Depreciation and amortization                                |  |                | 1,632  |   |                |   | 784   |                |  |   |                |   |  |       |    |   |       |   | 8      |   |  |   | 2,424  |  
|Provision for doubtful accounts and notes receivable         |  |                | 110    |   |                |   | 531   |                |  |   |                |   |  |       | 270 |   |       |   |       |   |  |   | 911    |  
|Interest                                                     |  |                | 4,348  |   |                |   | 1,062 |                |  |   |                |   |  |       |    |   |       |   |       |   |  |   | 5,410  |  
|General and administrative                                   |  |                |       |   |                |   |      |                |  |   |                |   |  |       |    |   |       |   | 2,256  |   |  |   | 2,256  |  
|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Total expenses                                               |  |                | 9,616  |   |                |   | 8,912 |                |  |   |                |   |  |       | 279 |   |       |   | 2,264  |   |  |   | 21,071 |  
|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Income (loss) from operations                                |  |                | 3,676  |   |                |   | (221  | )              |  |   |                |   |  |       | (16 | ) |       |   | (1,895 | ) |  |   | 1,544  |  
|Equity in (loss) earnings of unconsolidated affiliates       |  |                | (2     | ) |                |   | 54    |                |  |   | (215            | ) |  |       |    |   |       |   |       |   |  |   | (163   | )
|Net income (loss) from operations of discontinued operations |  |                | 111    |   |                |   | (12   | )              |  |   | (30             | ) |  |       |    |   |       |   |       |   |  |   | 69     |  
|Gain (loss) from sale of discontinued operations             |  |                | 333    |   |                |   | (147  | )              |  |   | 253             |   |  |       |    |   |       |   |       |   |  |   | 439    |  
|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests      |  | $              | 4,118  |   |                | $ | (326  | )              |  | $ | 8               |   |  | $     | (16 | ) |       | $ | (1,895 | ) |  | $ | 1,889  |  
|                                                             |  |                |        |   |                |   |       |                |  |   |                 |   |  |       |     |   |       |   |        |   |  |   |        |  



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 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. 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 the newly-formed joint venture 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. The first mortgage
was not contributed to G&L Realty Corp., LLC or distributed to the Companys common stockholders and remains an asset of the Company.

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During the first half 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. As of June 30, 2005, G&L Senior Care Properties, LLC owed the
Company $147,024 related to these allocated general and administrative costs. This amount is recorded under tenant rent, reimbursements and other receivables on the balance sheet as of June 30, 2005 and was paid by G&L Senior Care Properties,
LLC to the Company in July 2005. Subsequent to the distribution, G&L Realty Corp., LLC will bill the Company and G&L Senior Care Properties, LLC in the same ratio as was previously allocated between the two companies.



During the first half 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, the Company refinanced three MOBs owned by San Pedro, a
joint venture in which the Company owns a 50% interest, with a new $7.7 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $2.4 million from the refinancing after repayment of 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.



|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



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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 June 30, 2005, the unpaid
balance on this note was $3.98 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 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



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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.



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



Results of Operations



Comparison of the Six Month Period Ended June 30, 2005 versus the Six Month Period Ended June 30, 2004.



Total revenues decreased by $7.3 million, or 32%, from $22.6 million in the
first half of 2004, to $15.3 million for the same period in 2005. The decrease was due to a $6.7 million decrease in patient revenues along with a $1.6 million decrease in rental revenue offset by a $0.9 million increase in other reimbursements and
a $0.4 million increase in interest income.



Patient revenues
decreased by $6.7 million, or 100%, from $6.7 million in the first half 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



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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 $0.5 million, or 3%, from $15.0 million in the first
half of 2004, to $14.5 million for the same period in 2005. $1.9 million of this decrease in rental revenue was the 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 calls 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 half of 2005, the Company billed $0.9 million to G&L Senior Care Properties, LLC pursuant to the cost sharing agreement. In addition, rental revenue
increased an additional $0.5 million due to the scheduled rent increases pursuant to the Companys MOB leases.



Interest and loan fee income increased by $0.4 million, or 100%, from $0.4 million in the first half of 2004 to $0.8 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. A portion of the increase in interest income was also due to interest earned on the Companys cash on hand which was higher than in the first half of 2004.



Total expenses decreased by $3.8 million, or 18%, from $21.1 million for the
first half of 2004, to $17.3 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 $0.8 million, a decrease in interest
expense of $0.2 million and a decrease in provisions for doubtful accounts, notes and bonds receivable of $0.9 million. These decreases were offset by an increase in the impairment of assets of $4.1 million and an increase in general and
administrative costs of $0.4 million.



Skilled nursing
operations decreased by $6.3 million, or 100%, from $6.3 million in the first half 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 $0.8 million, or 33%, from
$2.4 million in the first half of 2004, to $1.6 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
$0.8 million of depreciation and amortization expense related to its skilled nursing and assisted living facilities in the first half 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 $0.2 million, or 4%, from $5.4 million for the first half of 2004, to $5.2 million for the same period in 2005. $1.1 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 the first half of 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.



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Provisions for doubtful accounts, notes and bonds receivable decreased $0.9 million, or 100%, from $0.9
million in the first half of 2004, to $3,000 for 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 half of 2005 associated with the spin-off of the Companys management division as of June 30, 2005.



General and administrative costs increased by $0.4 million, or 17%, from $2.3 million in the first half of 2004, to $2.7
million for the same period in 2005. This increase was attributed to an increase in corporate staffing costs as well as additional legal and consulting costs.



Equity in earnings of unconsolidated affiliates increased $0.8 million from the first half of 2004 compared to the same period in 2005. This increase
was mainly due to the spin-off of the Companys skilled nursing facility and assisted living facility assets on November 1, 2004. During the first half of 2004, the Company realized losses totaling $0.2 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 has any ownership interest in those entities and thus does not recognize and income or loss related to those
facilities. In addition, 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 $7.3 million from $0.5
million for the first half 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. This gain was offset by 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 as well as a $0.3 million gain from sale of a research and development building located in Irwindale, California in March 2004. In addition, the Company recorded a loss of $0.2 million, in 2004, associated with the June 2004 sale of a 59-bed
SNF located in Chico, California.



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



Total revenues decreased by $0.9 million, or 10%, from $8.6 million in the second quarter of 2004, to $7.7 million for the same period in 2005. The decrease was due to a $1.3 million decrease in rental revenue and a
$0.3 million decrease in other income offset by a $0.6 million increase in other reimbursements and a $0.2 million increase in interest income.



Rents, tenant reimbursements, reimbursements from related party and parking revenues decreased by $0.7 million, or 9%, from $8.1 million in the second
quarter of 2004, to $7.4 million for the same period in 2005. $1.4 million of this decrease in rental revenue was the 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 $0.6 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 calls 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 second quarter of 2005, the Company billed $0.6 million to G&L Senior Care Properties, LLC pursuant to the cost sharing agreement. In addition, rental
revenue increased an additional $0.1 million due to the scheduled rent increases pursuant to the Companys MOB leases.



Interest and loan fee income increased by $0.2 million, or 100%, from $0.2 million in the second quarter of 2004 to $0.4 million for the same period in
2005. The main reason for the increase was due to interest 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



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10.75% per annum. The $2 million promissory note was repaid in full on April 1, 2005. A portion of the increase in interest income was also due to interest
earned on the Companys cash on hand which was higher than in the second quarter of 2004.



Total expenses increased by $2.6 million, or 33%, from $8.0 million for the second quarter of 2004, to $10.6 million for the same period in 2005. The increase was due to an increase in the impairment of assets of $4.1
million and an increase in general and administrative costs of $0.4 million. These increases were offset by a decrease in depreciation and amortization expense of $0.4 million, a decrease in interest expense of $0.4 million and a decrease in
provisions for doubtful accounts, notes and bonds receivable of $0.9 million.



The Company recorded an impairment loss in the amount of $4.1 million during the second quarter of 2005 associated with the spin-off of the Companys management division as of June 30, 2005.



Depreciation and amortization expense decreased $0.4 million, or 33%, from
$1.2 million in the second 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 second 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.



Interest expense decreased $0.4 million, or 15%, from $2.7 million for the second quarter of 2004, to $2.3 million for the same period in 2005. $0.5 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 $0.9
million, or 100%, from $0.9 million in the second quarter of 2004, to $1,000 for 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 increased by $0.4 million, or 33%, from $1.2 million in the second quarter of 2004, to $1.6 million for the same period in 2005. This increase was attributed to an increase in corporate staffing costs as
well as additional legal and consulting costs.



Equity in
earnings of unconsolidated affiliates increased $0.6 million from the second quarter of 2004 compared to the same period in 2005. This increase was mainly due to the spin-off of the Companys skilled nursing facility and assisted living
facility assets on November 1, 2004. During the second quarter 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 has any ownership interest in those entities and thus does not recognize and income or loss related to those facilities. In addition, 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 $0.3 million from a loss of $0.3 million for the second quarter of 2004 to a loss of $26,000 for the same period in 2005. The main reason for this increase was the
$0.1 million loss on the sale of a 59-bed SNF located in Chico, California in June 2004.



Liquidity and Capital Resources



As of June 30, 2005, the Company had approximately $11.6 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 June 30, 2005, were approximately 98.4% leased to over 400 tenants with
lease terms typically ranging from three to ten years.



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The Companys principal external sources of capital consist of various secured loans and selective
asset sales. As of June 30, 2005, the Company had secured loans outstanding of approximately $153.8 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 June 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 half 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.



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, the Company refinanced three MOBs owned by San Pedro, a joint venture in which the Company owns a 50%
interest, with a new $7.7 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $2.4 million from the refinancing after repayment of 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 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
half 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; 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.



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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. The first mortgage was not contributed to G&L Realty Corp., LLC
or distributed to the Companys common stockholders and remains an asset of the Company.



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 $1.8 million from $6.9 million for the six months ended June 30, 2004 to $5.1
million for the same period in 2005. The decrease is due to a decrease in depreciation and amortization of $1.2 million, an increase in net gains from sale of discontinued operations of $7.3 million, a $1.7 million increase in the change in tenant
rent and reimbursements receivable and a $0.9 million decrease in provisions for doubtful accounts, notes and bonds receivable. These decreases were offset by a $4.1 million increase in net income, a $4.1 million increase in the impairment of assets
and a $0.7 million decrease in prepaid expenses and other assets.



Net cash from investing activities increased $1.2 million from a cash use of $0.9 million for the six months ended June 30, 2004 to cash provided of $0.3 million for the same period in 2005. The increase was due to a $2.1 million increase
in principal payments received from notes and bonds receivable, a $2 million increase in distributions from investments in unconsolidated affiliates, a $7.7 million decrease in purchases of real estate assets and a $0.9 million decrease in
construction in progress costs. These increases were offset by a $6 million decrease in sales of real estate assets, a $2.2 million increase in investments in notes and bonds receivable, a $0.5 million increase in additions to rental properties and
a $2.5 million increase in pre-acquisition costs.



Net cash
flows used in financing activities increased by approximately $0.7 million from $3.6 million for the six months ended June 30, 2004, to $4.3 million for the same period in 2005. The increase was due to a $9.7 million increase in distributions to
stockholders and a $0.9 million increase in the repayment of notes payable offset by a $10.2 million increase in notes payable proceeds.



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 June 30, 2005, the Company had investments in two unconsolidated joint ventures. All of the
unconsolidated joint ventures were formed for the purpose of acquiring and owning real estate assets. Per the terms of the joint venture agreements, the Company could be required to advance additional funds to these joint ventures if the operating
activities of the joint ventures are insufficient to satisfy the obligations of the joint ventures. Any additional funds advanced to the joint ventures 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 half of 2005 compared to the Companys contractual obligations as of December 31, 2004. As of June 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                  |  | $              | 4,525 |      | $ | 8,746  |  | $    | 8,614  |      | $ | 8,482      |  | $     | 8,126  |  | $ | 19,277  |  | $ | 57,770 
|Principal                 |  |                | 1,025 |      |   | 2,162  |  |      | 2,449  |      |   | 2,637      |  |       | 9,980  |  |   | 135,566 |  |   | 153,819
|                          |  |                |       |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|                          |  | $              | 5,550 |      | $ | 10,908 |  | $    | 11,063 |      | $ | 11,119     |  | $     | 18,106 |  | $ | 154,843 |  | $ | 211,589
|                          |  |                |       |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



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 new standard is effective in the first interim or annual reporting period beginning after June 15, 2005. The Company does not believe the adoption of this
Statement will have a material 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
Companys 2004 Annual Report on Form 10-K and the additional data presented below. The table on the



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following page presents an analysis of FFO and additional data for the three and six month periods ended June 30, 2005 and 2004.



G&L REALTY CORP.

FUNDS FROM OPERATIONS AND ADDITIONAL DATA

(Unaudited)



|                                                            |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------- |  | --------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                            |  | Three Month Period Ended June 30, |        |   | Six Month Period Ended June 30, |  
|                                                            |  | 2005                              |        |   | 2004                            |   |        | 2005 |  |   | 2004   |  
|                                                            |  | (in thousands)                    |        |   | (in thousands)                  |  
|Funds from Operations(1)                                    |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Net (loss) income                                           |  | $                                 | (2,498 | ) |                                 | $ | 61     |      |  | $ | 6,181  |   |  | $ | 1,628  |  
|Depreciation of real estate assets                          |  |                                   | 727    |   |                                 |   | 1,338  |      |  |   | 1,457  |   |  |   | 2,328  |  
|Amortization of deferred lease costs                        |  |                                   | 33     |   |                                 |   | 36     |      |  |   | 67     |   |  |   | 84     |  
|Impairment of assets                                        |  |                                   | 4,094  |   |                                 |   |       |      |  |   | 4,094  |   |  |   |       |  
|Loss (gain) from sale of discontinued operations            |  |                                   |       |   |                                 |   | 147    |      |  |   | (7,712 | ) |  |   | (439   | )
|Depreciation from unconsolidated affiliates                 |  |                                   | 20     |   |                                 |   | 111    |      |  |   | 61     |   |  |   | 222    |  
|Adjustment for minority interest in consolidated affiliates |  |                                   | (23    | ) |                                 |   | (23    | )    |  |   | (46    | ) |  |   | (48    | )
|Dividends on preferred stock                                |  |                                   | (1,669 | ) |                                 |   | (1,790 | )    |  |   | (3,339 | ) |  |   | (3,581 | )
|                                                            |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Funds from (used in) Operations(1)                          |  | $                                 | 684    |   |                                 | $ | (120   | )    |  | $ | 763    |   |  | $ | 194    |  
|                                                            |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Additional Data                                             |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Cash flows:                                                 |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Operating activities                                        |  | $                                 | 3,909  |   |                                 | $ | 4,781  |      |  | $ | 5,073  |   |  | $ | 6,886  |  
|Investing activities                                        |  |                                   | (2,811 | ) |                                 |   | (8,505 | )    |  |   | 319    |   |  |   | (916   | )
|Financing activities                                        |  |                                   | (2,475 | ) |                                 |   | 2,124  |      |  |   | (4,262 | ) |  |   | (3,571 | )
|Capital expenditures                                        |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Building improvements                                       |  | $                                 | 283    |   |                                 | $ | 21     |      |  | $ | 378    |   |  | $ | 219    |  
|Tenant improvements                                         |  |                                   | 362    |   |                                 |   | 115    |      |  |   | 569    |   |  |   | 191    |  
|Furniture, fixtures & equipment                             |  |                                   | 12     |   |                                 |   | 15     |      |  |   | 17     |   |  |   | 97     |  
|Leasing commissions                                         |  |                                   | 11     |   |                                 |   | 18     |      |  |   | 29     |   |  |   | 41     |  
|Depreciation and amortization                               |  |                                   |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Depreciation of real estate assets                          |  | $                                 | 727    |   |                                 | $ | 1,338  |      |  | $ | 1,457  |   |  | $ | 2,328  |  
|Depreciation of non-real estate assets                      |  |                                   | 14     |   |                                 |   | 177    |      |  |   | 26     |   |  |   | 343    |  
|Amortization of deferred lease costs                        |  |                                   | 33     |   |                                 |   | 36     |      |  |   | 67     |   |  |   | 84     |  
|Amortization of deferred licensing costs                    |  |                                   |       |   |                                 |   | 23     |      |  |   |       |   |  |   | 36     |  
|Amortization of capitalized financing costs                 |  |                                   | 57     |   |                                 |   | 93     |      |  |   | 120    |   |  |   | 181    |  
|                                                            |  |                                   |        |  
|Accrued rent in excess of billed rent                       |  | $                                 | (47    | ) |                                 | $ | (40    | )    |  | $ | (54    | ) |  | $ | (98    | )



|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 June 30,
2005 and December 31, 2004, the Company had no floating rate debt outstanding. The tables below provide information as of June 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 June 30, 2005 and December 31, 2004.



|                      |  |                                      |       |   |                |   |       |                              |  |   |       |   |  |      |       |   |            |   |       |       |  |   |         |   |  |   |         |   |  |   |        
|--------------------- |  | ------------------------------------ | ----- | - | -------------- | - | ----- | ---------------------------- |  | - | ----- | - |  | ---- | ----- | - | ---------- | - | ----- | ----- |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |  | JUNE 30, 2005 PRINCIPAL MATURING IN: |       |   |                |   |       | FairMarketValue June 30,2005
|                      |  | 2005                                 |       |   | 2006           |   |       | 2007                         |  |   | 2008  |   |  | 2009 |       |   | Thereafter |   |       | Total |  |  
|                      |  |                                      |       |   | (in thousands) |   |       |                              |  |   |       |   |  |     
|Liabilities:          |  |                                      |       |   |                |   |       |                              |  |   |       |   |  |      |       |   |            |   |       |       |  |   |         |   |  |   |         |   |  |   |        
|Mortgage debt:        |  |                                      |       |   |                |   |       |                              |  |   |       |   |  |      |       |   |            |   |       |       |  |   |         |   |  |   |         |   |  |   |        
|Fixed rate            |  | $                                    | 1,025 |   |                | $ | 2,162 |                              |  | $ | 2,449 |   |  | $    | 2,637 |   |            | $ | 9,980 |       |  | $ | 135,566 |   |  | $ | 153,819 |   |  | $ | 150,273
|Average interest rate |  |                                      | 5.69  | % |                |   | 5.69  | %                            |  |   | 5.69  | % |  |      | 5.69  | % |            |   | 5.66  | %     |  |   | 5.62    | % |  |   | 5.68    | % |  |   |        
|                      |  |                                      |       |   |                |   |       |                              |  |   |       |   |  |      |       |   |            |   |       |       |  |   |         |   |  |   |         |   |  |   |        
|                      |  | $                                    | 1,025 |   |                | $ | 2,162 |                              |  | $ | 2,449 |   |  | $    | 2,637 |   |            | $ | 9,980 |       |  | $ | 135,566 |   |  | $ | 153,819 |   |  | $ | 150,273
|                      |  |                                      |       |   |                |   |       |                              |  |   |       |   |  |      |       |   |            |   |       |       |  |   |         |   |  |   |         |   |  |   |        



|                      |  |                                          |       |   |                |   |       |                                   |  |   |       |   |  |      |       |   |            |   |       |       |  |   |         |   |  |   |         |   |  |   |        
|--------------------- |  | ---------------------------------------- | ----- | - | -------------- | - | ----- | --------------------------------- |  | - | ----- | - |  | ---- | ----- | - | ---------- | - | ----- | ----- |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |  | DECEMBER 31, 2004 PRINCIPAL MATURING IN: |       |   |                |   |       | Fair MarketValue December 31,2004
|                      |  | 2005                                     |       |   | 2006           |   |       | 2007                              |  |   | 2008  |   |  | 2009 |       |   | Thereafter |   |       | Total |  |  
|                      |  |                                          |       |   | (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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##### Table of Contents

|      |  |      |  |                                                                                                                                                             
|----- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 May 16, 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: August 15, 2005 |  |  |  | By:              |  | /s/ David E. Hamer
|                      |  |  |  |                  |  |                    |  | David E. Hamer Chief Accounting Officer



Page 31