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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)



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



For the quarterly period ended September 30, 2003



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 November 14, 2003, 710,199 shares of common stock of G&L Realty Corp. were outstanding.



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G&L REALTY CORP.



INDEX



|          |  |                                                                                                                                    |  | Page Number
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|Part I    |  | Financial Information                                                                                                              |  |            
|          |  |                                                                                                                                   
|Item 1    |  | Financial Statements                                                                                                               |  |            
|          |  | Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                                   |  | 3          
|          |  | Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2003 and 2002 (unaudited) |  | 4          
|          |  | Condensed Consolidated Statements of Cash Flows for the Three and Nine Month Periods Ended September 30, 2003 and 2002 (unaudited) |  | 5          
|          |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 7          
|Item 2    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                              |  | 23         
|Item 3    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                         |  | 32         
|Item 4    |  | Controls and Procedures                                                                                                            |  | 33         
|          |  |                                                                                                                                   
|Part II   |  | Other Information                                                                                                                  |  |            
|          |  |                                                                                                                                   
|Item 1    |  | Legal Proceedings                                                                                                                  |  | 34         
|Item 2    |  | Changes in Securities                                                                                                              |  | 34         
|Item 3    |  | Defaults Upon Senior Securities                                                                                                    |  | 34         
|Item 4    |  | Submission of Matters to a Vote of Security Holders                                                                                |  | 34         
|Item 5    |  | Other Information                                                                                                                  |  | 34         
|Item 6    |  | Exhibits and Reports on Form 8-K                                                                                                   |  | 34         
|          |  |                                                                                                                                   
|Signature |  |                                                                                                                                    |  | 35         



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G&L REALTY CORP.



CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                                 |  | September 30,2003 |         |   | December 31,2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | -
|                                                                                                                                                 |  | (Unaudited)       |         |   |                  |  
|ASSETS                                                                                                                                           |  |                   |         |   |                  |  
|                                                                                                                                                 |  |                  
|Rental properties (Note 3):                                                                                                                      |  |                   |         |   |                  |  
|Land                                                                                                                                             |  | $                 | 28,708  |   |                  | $
|Buildings and improvements, net                                                                                                                  |  |                   | 118,214 |   |                  |  
|Projects under development                                                                                                                       |  |                   | 953     |   |                  |  
|                                                                                                                                                 |  |                   |         |   |                  |  
|Total rental properties                                                                                                                          |  |                   | 147,875 |   |                  |  
|Assets held for sale (Note 3)                                                                                                                    |  |                   | 25,169  |   |                  |  
|Cash and cash equivalents                                                                                                                        |  |                   | 4,509   |   |                  |  
|Restricted cash                                                                                                                                  |  |                   | 5,202   |   |                  |  
|Tenant rent, reimbursements and other receivables, net                                                                                           |  |                   | 6,978   |   |                  |  
|Unbilled rent receivable, net                                                                                                                    |  |                   | 2,704   |   |                  |  
|Mortgage loans and notes receivable, net (Note 9)                                                                                                |  |                   | 1,506   |   |                  |  
|Investments in unconsolidated affiliates (Note 6)                                                                                                |  |                   | 4,629   |   |                  |  
|Deferred charges and other assets, net (Note 4)                                                                                                  |  |                   | 4,685   |   |                  |  
|                                                                                                                                                 |  |                   |         |   |                  |  
|TOTAL ASSETS                                                                                                                                     |  | $                 | 203,257 |   |                  | $
|                                                                                                                                                 |  |                   |         |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                             |  |                   |         |   |                  |  
|                                                                                                                                                 |  |                  
|LIABILITIES:                                                                                                                                     |  |                   |         |   |                  |  
|Notes payable                                                                                                                                    |  | $                 | 201,846 |   |                  | $
|Liabilities of assets held for sale (Note 3)                                                                                                     |  |                   | 11,568  |   |                  |  
|Accounts payable and other liabilities                                                                                                           |  |                   | 6,269   |   |                  |  
|Tenant security deposits                                                                                                                         |  |                   | 1,379   |   |                  |  
|                                                                                                                                                 |  |                   |         |   |                  |  
|Total liabilities                                                                                                                                |  |                   | 221,062 |   |                  |  
|Minority interest in consolidated affiliates                                                                                                     |  |                   | (1,382  | ) |                  |  
|                                                                                                                                                 |  |                  
|STOCKHOLDERS EQUITY (Note 5):                                                                                                                   |  |                   |         |   |                  |  
|Preferred shares$.01 par value, 10,000,000 shares authorized, liquidation preference of $25.00 per share                                        |  |                   |         |   |                  |  
|      Series A Preferred1,495,000 shares issued and outstanding as of September 30, 2003
and December 31, 2002                                 |  |                   | 15      |   |                  |  
|      Series B Preferred1,380,000 shares issued and outstanding as of September 30, 2003
and December 31, 2002                                 |  |                   | 14      |   |                  |  
|Common shares$.01 par value, 50,000,000 shares authorized, 710,199 shares issued and outstanding as of September 30, 2003
and December 31, 2002 |  |                   | 7       |   |                  |  
|Additional paid-in capital                                                                                                                       |  |                   | 40,827  |   |                  |  
|Distributions in excess of net income                                                                                                            |  |                   | (52,046 | ) |                  |  
|Notes receivable from stockholders                                                                                                               |  |                   | (5,240  | ) |                  |  
|                                                                                                                                                 |  |                   |         |   |                  |  
|Total stockholders equity                                                                                                                       |  |                   | (16,423 | ) |                  |  
|                                                                                                                                                 |  |                   |         |   |                  |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       |  | $                 | 203,257 |   |                  | $
|                                                                                                                                                 |  |                   |         |   |                  |  



See accompanying notes
to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                                                                                                            |  | For the Three MonthPeriods EndedSeptember 30, |        |   | For the Nine MonthPeriods EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------ | - | -------------------------------------------- | -
|                                                                                                                                            |  | 2003                                          |        |   | 2002                                         |  
|REVENUES:                                                                                                                                   |  |                                               |        |   |                                              |  
|Rent                                                                                                                                        |  | $                                             | 6,129  |   |                                              | $
|Patient revenues                                                                                                                            |  |                                               | 6,882  |   |                                              |  
|Tenant reimbursements                                                                                                                       |  |                                               | 939    |   |                                              |  
|Parking                                                                                                                                     |  |                                               | 454    |   |                                              |  
|Interest and loan fees                                                                                                                      |  |                                               | 196    |   |                                              |  
|Other income                                                                                                                                |  |                                               | 1,217  |   |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|Total revenues                                                                                                                              |  |                                               | 15,817 |   |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|EXPENSES:                                                                                                                                   |  |                                               |        |   |                                              |  
|Property operations                                                                                                                         |  |                                               | 2,125  |   |                                              |  
|Skilled nursing operations                                                                                                                  |  |                                               | 6,281  |   |                                              |  
|Depreciation and amortization                                                                                                               |  |                                               | 1,361  |   |                                              |  
|Provision for doubtful accounts, notes and bonds receivable                                                                                 |  |                                               | 269    |   |                                              |  
|Loss on sale of bonds receivable (Note 9)                                                                                                   |  |                                               |       |   |                                              |  
|Interest (Note 10)                                                                                                                          |  |                                               | 11,372 |   |                                              |  
|General and administrative                                                                                                                  |  |                                               | 1,376  |   |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|Total expenses                                                                                                                              |  |                                               | 22,784 |   |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|(Loss) income from operations before minority interests, equity in (loss) earnings of unconsolidated affiliates and discontinued
operations |  |                                               | (6,967 | ) |                                              |  
|Equity in (loss) earnings of unconsolidated affiliates (Notes 6 and 10)                                                                     |  |                                               | (41    | ) |                                              |  
|Minority interest in consolidated affiliates                                                                                                |  |                                               | (66    | ) |                                              |  
|Corporate income tax expense                                                                                                                |  |                                               | (73    | ) |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|(Loss) income from operations before discontinued operations                                                                                |  |                                               | (7,147 | ) |                                              |  
|Discontinued operations                                                                                                                     |  |                                               |        |   |                                              |  
|Net income from operations of discontinued operations (Note 3)                                                                              |  |                                               | 223    |   |                                              |  
|Net gain from discontinued operations                                                                                                       |  |                                               |       |   |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|Net (loss) income                                                                                                                           |  |                                               | (6,924 | ) |                                              |  
|Dividends on preferred stock                                                                                                                |  |                                               | (1,790 | ) |                                              |  
|                                                                                                                                            |  |                                               |        |   |                                              |  
|Net (loss) income available to common stockholders                                                                                          |  | $                                             | (8,714 | ) |                                              | $
|                                                                                                                                            |  |                                               |        |   |                                              |  



See accompanying notes
to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                  |  | Nine Months EndedSeptember 30, |         
|--------------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                                  |  | 2003                           |         
|                                                                                  |  | (Unaudited)                    |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                |         
|Net (loss) income                                                                 |  | $                              | (7,980  
|Adjustments to reconcile net income to net cash provided by Operating activities: |  |                                |         
|Depreciation and amortization                                                     |  |                                | 4,365   
|Amortization of deferred loan costs                                               |  |                                | 554     
|Write-off of deferred loan costs                                                  |  |                                | 1,984   
|Loss on sale of bonds receivable                                                  |  |                                | 120     
|Net gain on sale of assets                                                        |  |                                |        
|Loss on change in value of interest rate hedge                                    |  |                                | 333     
|Minority interests                                                                |  |                                | 76      
|Equity in income of unconsolidated affiliates                                     |  |                                | (3,759  
|Provision for doubtful accounts, notes and bonds receivable                       |  |                                | 662     
|Unbilled rent receivable, net                                                     |  |                                | (42     
|(Increase) decrease in:                                                           |  |                                |         
|Tenant rent, reimbursements and other receivables                                 |  |                                | (391    
|Prepaid expense and other assets                                                  |  |                                | (574    
|Accrued interest and loan fees receivable                                         |  |                                | (453    
|Increase (decrease) in:                                                           |  |                                |         
|Accounts payable and other liabilities                                            |  |                                | 357     
|Tenant security deposits                                                          |  |                                | 67      
|                                                                                  |  |                                |         
|Net cash (used in) provided by operating activities                               |  |                                | (4,681  
|                                                                                  |  |                                |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                |         
|Sale of real estate assets                                                        |  |                                |        
|Sale of bonds receivable                                                          |  |                                | 600     
|Purchase of real estate assets                                                    |  |                                | (3,956  
|Additions to rental properties                                                    |  |                                | (1,438  
|Pre-acquisition costs, net                                                        |  |                                | 6       
|Construction in progress                                                          |  |                                | (762    
|Leasing commissions                                                               |  |                                | (93     
|Investment in mortgage loans and notes receivable                                 |  |                                |        
|Contributions to unconsolidated affiliates                                        |  |                                | (171    
|Distributions from unconsolidated affiliates                                      |  |                                | 3,440   
|Principal payments received from mortgage loans and notes receivable              |  |                                |        
|                                                                                  |  |                                |         
|Net cash (used in) provided by investing activities                               |  |                                | (2,374  
|                                                                                  |  |                                |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                |         
|Notes payable proceeds                                                            |  |                                | 124,146 
|Repayment of notes payable                                                        |  |                                | (105,012
|Payment of deferred loan costs                                                    |  |                                | (1,440  
|(Increase) decrease in restricted cash                                            |  |                                | (2,091  
|Minority interest equity contribution                                             |  |                                |        
|Distributions                                                                     |  |                                | (6,405  
|                                                                                  |  |                                |         
|Net cash provided by (used in) financing activities                               |  |                                | 9,198   
|                                                                                  |  |                                |         



Continued



See accompanying notes to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                         |  | Nine Months EndedSeptember 30, |       
|------------------------------------------------------------------------ |  | ------------------------------ | ------
|                                                                         |  | 2003                           |       
|                                                                         |  | (Unaudited)                    |       
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     |  |                                | 2,143 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                           |  |                                | 2,366 
|                                                                         |  |                                |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                 |  | $                              | 4,509 
|                                                                         |  |                                |       
|SUPPLEMENTAL CASH FLOW INFORMATION                                       |  |                                |       
|Cash paid during the period for interest                                 |  | $                              | 11,348
|                                                                         |  |                                |       
|Cash paid during the period for mortgage loan prepayment penalties       |  | $                              | 13,179
|                                                                         |  |                                |       
|NONCASH INVESTING AND FINANCING ACTIVITIES                               |  |                                |       
|Preferred distributions due to minority partner                          |  | $                              | 73    
|                                                                         |  |                                |       
|Acquisition of property and other assets for assumption of note payable: |  |                                |       
|Restricted cash                                                          |  |                                |       
|Land                                                                     |  |                                |       
|Buildings and improvements                                               |  |                                |       
|Deferred charges and other assets                                        |  |                                |       
|Note receivable                                                          |  |                                |       
|                                                                         |  |                                |       
|Total                                                                    |  |                                |       
|                                                                         |  |                                |       
|Assumption of note payable for property and other assets:                |  |                                |       
|Note payable                                                             |  |                                |       
|                                                                         |  |                                |       



Concluded.

See accompanying notes to Condensed Consolidated Financial Statements



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1.    GENERAL



All of G&L Realty Corp.s (the Company) 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 Gardens, LLC, an Arizona limited liability company (Maryland Gardens)*

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

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

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 Burbank, LLC, a California limited liability company (Burbank)*

GLH Pacific Gardens, LLC, a California limited liability company (Pacific Gardens)

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

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

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

GLH Tarzana, LLC, a California limited liability company (Tarzana)

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

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

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

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

G&L St. Thomas More, Inc., a Maryland corporation (St. Thomas More)

St. Thomas More, Inc., a Maryland Corporation (St. Thomas More, Inc.)

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)



|* |  | Maryland Gardens, Hampden, Tustin, Holy Cross, and Burbank are herein collectively referred to as the Financing Entities and individually as the Financing
Entity.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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. The Company controls the Financing Entities through wholly owned subsidiaries incorporated either in the State of
Delaware or the State of California (collectively, the Subsidiaries and individually, a Subsidiary). Each Subsidiary either (i) owns, as sole general partner or sole managing member, a 1% ownership interest in its related
Financing Entity or (ii) owns no interest and acts as the manager of the Financing Entity. The remaining 99% ownership interest in each Financing Entity, which is owned 1% by a Subsidiary, is owned by the Operating Partnership or the Senior Care
Partnership, acting as sole limited partner or member. Financing Entities in which a Subsidiary owns no interest are 100% owned by the Operating Partnership or 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 Subsidiaries, the Financing Entities, the Roxbury Partnership (in which the Operating Partnership
owns a 32.81% partnership interest and is the sole general partner), Pacific Gardens (in which the Operating Partnership owns a 93% membership interest and



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



is a co-managing member), Tarzana (in which the Operating Partnership owns an 85% membership interest and is a
co-managing member) and Hoquiam, Lyons, Coronado, Massachusetts, Aspen, Tustin II, Tustin III, St. Thomas More, St. Thomas More, Inc., 405 Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436 Bedford, Sherman Oaks and Regents (in which the
Operating Partnership or the Senior Care Partnership own a 100% interest).



In addition to the Subsidiaries, the Company also owns interests in various unconsolidated affiliates. Although the Companys investment represents a significant portion of the capital of such unconsolidated
affiliates and the Company exercises influence over the activities of these entities, 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)

G&L Penasquitos, LLC (Penasquitos LLC)

G&L Parsons on Eagle Run, LLC (Eagle Run) (See Note 10)

G&L Parsons on Eagle Run, Inc. (Eagle Run Inc.) (See Note 10)

Lakeview Associates, LLC (Lakeview)

Tustin Heritage Place, LLC (Heritage Place)

Pac Par MOB, LLC (Pacific Park) (See Note 10)

G&L Radius Realty, LLC (Radius)



San Pedro, Penasquitos LLC, Eagle Run, Eagle Run, Inc., Lakeview, Heritage Place, Pacific Park and Radius are herein collectively referred to as the
Unconsolidated Affiliates and individually as Unconsolidated Affiliate.



2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Business  The Company is a self-managed Real Estate Investment Trust (REIT) that acquires, develops, manages and leases
healthcare properties. The Companys business currently consists of investments in healthcare properties. Investments in healthcare properties consist of acquisitions, made either directly or through joint ventures, in medical office buildings
(MOBs), skilled nursing facilities (SNFs) and assisted living facilities (ALFs).



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



The information presented as of and for the nine-month period ended September 30, 2003 and 2002 has not been audited by
independent accountants, but includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for such periods. The results of operations for the nine
months ended September 30, 2003 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On January 1, 2003, the Company adopted the provisions of
SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). The most significant provisions of this statement relate to the rescission of Statement No. 4
Reporting Gains and Losses from Extinguishment of Debt. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions.
Under SFAS 145, any gain or loss on extinguishment of debt that was classified as an



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



extraordinary item in prior periods presented that does not meet certain defined criteria must be reclassified. The
adoption of this statement did not have a material effect on the Companys results of operations or financial condition.



On January 1, 2003, the Company adopted the provisions of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The adoption of this statement did not have a material
effect on the Companys results of operations or financial condition.



On January 1, 2003, the Company adopted the initial recognition and measurement provisions of Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 significantly changes the current practice in the accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a liability at fair value. FIN 45 also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor having to make payment under the
guarantee is remote. The Company adopted the disclosure provisions of FIN 45 as of December 31, 2002. The adoption of the provisions of this interpretation did not have a material effect on the Companys results of operations or financial
condition.



In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and provides guidance on the
identification of entities for which control is achieved through means other than voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE. This new
model for consolidation applies to an entity in which either: (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without
receiving additional subordinated financial support from other parties. The provisions of this interpretation are immediately effective for VIEs formed after January 31, 2003. For VIEs formed prior to January 31, 2003, the provisions of this
interpretation apply to the first fiscal year or interim period beginning after June 15, 2003. The Company is in the process of evaluating all of its investments and other interests in entities that may be deemed VIEs under the provisions of FIN 46.
These investments include real estate joint ventures with assets totaling $32 million as of September 30, 2003. The Companys maximum exposure to loss represents its recorded investment in these real estate joint ventures totaling $4.6 million
as of September 30, 2003 and $4.1 million as of December 31, 2002. The Company believes that all of its real estate joint ventures do not fall under the provisions of FIN 46 and will not be consolidated. However, the Company cannot make any
definitive conclusions until it completes its evaluation.



In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instrumnets ans Hedging Activities(SFAS 149). SFAS 149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments imbedded in other contracts and for hedging activites under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. The provisions of SFAS 149 are generally
effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. Management does not expect that the adoption of this statement will have a material effect on the Companys
results of operations or financial condition.



In May 2003, the
FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Management does not expect that the adoption of this statement will have a material effect on the Companys results of operations or financial condition.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



3.    BUILDINGS AND IMPROVEMENTS



Buildings and improvements consist of the following:



|                                               |  | September 30, 2003 |         |   | December 31, 2002 |  
|---------------------------------------------- |  | ------------------ | ------- | - | ----------------- | -
|                                               |  | (in thousands)     |        
|Buildings and improvements                     |  | $                  | 140,743 |   |                   | $
|Tenant improvements                            |  |                    | 11,751  |   |                   |  
|Furniture, fixtures and equipment              |  |                    | 5,207   |   |                   |  
|                                               |  |                    |         |   |                   |  
|                                               |  |                    | 157,701 |   |                   |  
|Less accumulated depreciation and amortization |  |                    | (39,487 | ) |                   |  
|                                               |  |                    |         |   |                   |  
|Total                                          |  | $                  | 118,214 |   |                   | $
|                                               |  |                    |         |   |                   |  



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 September 30, 2003, the Company had listed for sale or was under contract to sell a total of five properties. The properties include a two-story,
26,000 square foot MOB located in Burbank, California (Burbank), a three-story, 40,000 square foot office and retail complex located in Coronado, California (Coronado), a one-story, 9,100 square foot retail facility located
in Aliso Viejo, California (Aliso Viejo), a two-story, 48,000 square foot research and development building located in Irwindale, California (Irwindale) and a 59-bed nursing and rehabilitation center in Chico, California
(Chico). On October 15, 2003, the Company completed the sale of Aliso Viejo for $2.86 million for which the Company received net proceeds of $0.9 million and recognized a net gain on sale of $0.9 million. For presentation
purposes, the assets and liabilities relating to these properties have been included in assets held for sale and liabilities of assets held for sale, respectively, on the balance sheet. The following tables summarize assets held for sale and
liabilities of assets held for sale as of September 30, 2003 and December 31, 2002:



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



Assets & Liabilities of Assets Held for Sale

As of September 30, 2003



|                                               |  | Chico |     | Irwindale |   | Burbank |  | Coronado |       | AlisoViejo |   | Total
|---------------------------------------------- |  | ----- | --- | --------- | - | ------- |  | -------- | ----- | ---------- | - | -----
|Rental properties:                             |  |       |     |           |   |         |  |          |       |            |   |      
|Land                                           |  | $     | 159 |           | $ | 1,260   |  | $        | 1,300 |            | $ | 809  
|Buildings and improvements, net                |  |       | 582 |           |   | 6,355   |  |          | 3,326 |            |   | 8,292
|Projects under development                     |  |       |    |           |   |        |  |          |      |            |   | 55   
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|Total rental properties                        |  |       | 741 |           |   | 7,615   |  |          | 4,626 |            |   | 9,156
|Restricted cash                                |  |       |    |           |   |        |  |          | 23    |            |   | 133  
|Tenant rent and reimbursements receivable, net |  |       |    |           |   | 15      |  |          | 15    |            |   | 69   
|Unbilled rent receivable, net                  |  |       |    |           |   | 365     |  |          | 81    |            |   | 30   
|Deferred charges and other assets, net         |  |       | 4   |           |   | 210     |  |          | 90    |            |   | 146  
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|Total assets held for sale                     |  | $     | 745 |           | $ | 8,205   |  | $        | 4,835 |            | $ | 9,535
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|LIABILITIES:                                   |  |       |     |           |   |         |  |          |       |            |   |      
|Notes payable                                  |  | $     |    |           | $ |        |  | $        | 2,956 |            | $ | 7,083
|Accounts payable and other liabilities         |  |       | 5   |           |   |        |  |          | 36    |            |   | 29   
|Tenant security deposits                       |  |       |    |           |   | 58      |  |          | 27    |            |   | 34   
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|Total liabilities of assets held for sale      |  | $     | 5   |           | $ | 58      |  | $        | 3,019 |            | $ | 7,146
|                                               |  |       |     |           |   |         |  |          |       |            |   |      



Assets &
Liabilities of Assets Held for Sale

As of December 31, 2002



|                                               |  | Chico |     | Irwindale |   | Burbank |  | Coronado |       | AlisoViejo |   | Total
|---------------------------------------------- |  | ----- | --- | --------- | - | ------- |  | -------- | ----- | ---------- | - | -----
|Rental properties:                             |  |       |     |           |   |         |  |          |       |            |   |      
|Land                                           |  | $     | 159 |           | $ | 1,260   |  | $        | 1,300 |            | $ | 809  
|Buildings and improvements, net                |  |       | 593 |           |   | 6,569   |  |          | 3,296 |            |   | 8,258
|Projects under development                     |  |       |    |           |   |        |  |          |      |            |   | 6    
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|Total rental properties                        |  |       | 752 |           |   | 7,829   |  |          | 4,596 |            |   | 9,073
|Restricted cash                                |  |       |    |           |   |        |  |          | 18    |            |   | 92   
|Tenant rent and reimbursements receivable, net |  |       |    |           |   |        |  |          | 65    |            |   | 1    
|Unbilled rent receivable, net                  |  |       |    |           |   | 335     |  |          | 65    |            |   | 14   
|Deferred charges and other assets, net         |  |       | 2   |           |   | 298     |  |          | 90    |            |   | 141  
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|Total assets held for sale                     |  | $     | 754 |           | $ | 8,462   |  | $        | 4,834 |            | $ | 9,320
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|LIABILITIES:                                   |  |       |     |           |   |         |  |          |       |            |   |      
|Notes payable                                  |  | $     |    |           | $ | 6,215   |  | $        | 3,007 |            | $ | 7,161
|Accounts payable and other liabilities         |  |       | 4   |           |   | 31      |  |          | 41    |            |   |     
|Tenant security deposits                       |  |       |    |           |   | 48      |  |          | 27    |            |   | 33   
|                                               |  |       |     |           |   |         |  |          |       |            |   |      
|Total liabilities of assets held for sale      |  | $     | 4   |           | $ | 6,294   |  | $        | 3,075 |            | $ | 7,194
|                                               |  |       |     |           |   |         |  |          |       |            |   |      



The revenues and
expenses relating to the assets held for sale are included in net income from operations of discontinued operations on the income statement. In addition, during 2002, the Company sold a 183-bed hospital located in Tustin, California
(Tustin) and a SNF located in Paso Robles, California (Paso Robles). The following tables summarize net income from operations of discontinued operations for the three and nine month periods ended September 30, 2003 and
September 30, 2002:



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



Net income from operations of discontinued operations

For the nine month period ended September 30, 2003



|                                                             |  | Chico |     |   | Irwindale |   |      | Burbank |  | Coronado |     | AlisoViejo |   | Total
|------------------------------------------------------------ |  | ----- | --- | - | --------- | - | ---- | ------- |  | -------- | --- | ---------- | - | -----
|Revenues:                                                    |  |       |     |   |           |   |      |         |  |          |     |            |   |      
|Rent                                                         |  | $     |    |   |           | $ | 530  |         |  | $        | 558 |            | $ | 915  
|Tenant reimbursements                                        |  |       |    |   |           |   |     |         |  |          | 46  |            |   | 259  
|Parking                                                      |  |       |    |   |           |   |     |         |  |          | 26  |            |   | 40   
|Other income                                                 |  |       |    |   |           |   |     |         |  |          | 23  |            |   | 1    
|                                                             |  |       |     |   |           |   |      |         |  |          |     |            |   |      
|Total revenues                                               |  |       |    |   |           |   | 530  |         |  |          | 653 |            |   | 1,215
|                                                             |  |       |     |   |           |   |      |         |  |          |     |            |   |      
|Expenses:                                                    |  |       |     |   |           |   |      |         |  |          |     |            |   |      
|Property operations                                          |  |       | 25  |   |           |   | 9    |         |  |          | 223 |            |   | 293  
|Depreciation and amortization                                |  |       | 11  |   |           |   | 244  |         |  |          | 5   |            |   | 7    
|Interest                                                     |  |       |    |   |           |   | 435  |         |  |          | 163 |            |   | 382  
|                                                             |  |       |     |   |           |   |      |         |  |          |     |            |   |      
|Total expenses                                               |  |       | 36  |   |           |   | 688  |         |  |          | 391 |            |   | 682  
|                                                             |  |       |     |   |           |   |      |         |  |          |     |            |   |      
|Net (loss) income from operations of discontinued operations |  | $     | (36 | ) |           | $ | (158 | )       |  | $        | 262 |            | $ | 533  
|                                                             |  |       |     |   |           |   |      |         |  |          |     |            |   |      



Net income from
operations of discontinued operations

For the nine month period ended September 30, 2002



|                                                             |  | PasoRobles |     |   | Tustin |   | Chico |  |   | Irwindale |   |  | Burbank |      | Coronado |  | AlisoViejo |     | Total
|------------------------------------------------------------ |  | ---------- | --- | - | ------ | - | ----- |  | - | --------- | - |  | ------- | ---- | -------- |  | ---------- | --- | -----
|Revenues:                                                    |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      
|Rent                                                         |  | $          |    |   |        | $ | 20    |  | $ |          |   |  | $       | 522  |          |  | $          | 543 |      
|Tenant reimbursements                                        |  |            |    |   |        |   |      |  |   |          |   |  |         |     |          |  |            | 33  |      
|Parking                                                      |  |            |    |   |        |   |      |  |   |          |   |  |         |     |          |  |            | 21  |      
|Other income                                                 |  |            |    |   |        |   |      |  |   |          |   |  |         |     |          |  |            | 8   |      
|                                                             |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      
|Total revenues                                               |  |            |    |   |        |   | 20    |  |   |          |   |  |         | 522  |          |  |            | 605 |      
|                                                             |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      
|Expenses:                                                    |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      
|Property operations                                          |  |            | 11  |   |        |   | 4     |  |   | 46        |   |  |         | 22   |          |  |            | 223 |      
|Depreciation and amortization                                |  |            | 3   |   |        |   |      |  |   | 12        |   |  |         | 271  |          |  |            | 99  |      
|Interest                                                     |  |            |    |   |        |   | 14    |  |   |          |   |  |         | 427  |          |  |            | 167 |      
|                                                             |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      
|Total expenses                                               |  |            | 14  |   |        |   | 18    |  |   | 58        |   |  |         | 720  |          |  |            | 489 |      
|                                                             |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      
|Net (loss) income from operations of discontinued operations |  | $          | (14 | ) |        | $ | 2     |  | $ | (58       | ) |  | $       | (198 | )        |  | $          | 116 |      
|                                                             |  |            |     |   |        |   |       |  |   |           |   |  |         |      |          |  |            |     |      



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G&L REALTY CORP.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)



Net income from operations of discontinued operations

For the three month period ended September 30, 2003

|                                                             |  | Chico |     |   | Irwindale |   |     | Burbank |  | Coronado |     | AlisoViejo |   | Total
|------------------------------------------------------------ |  | ----- | --- | - | --------- | - | --- | ------- |  | -------- | --- | ---------- | - | -----
|Revenues:                                                    |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Rent                                                         |  | $     |    |   |           | $ | 176 |         |  | $        | 185 |            | $ | 306  
|Tenant reimbursements                                        |  |       |    |   |           |   |    |         |  |          | 13  |            |   | 96   
|Parking                                                      |  |       |    |   |           |   |    |         |  |          | 9   |            |   | 28   
|Other income                                                 |  |       |    |   |           |   |    |         |  |          | 12  |            |   |     
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Total revenues                                               |  |       |    |   |           |   | 176 |         |  |          | 219 |            |   | 430  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Expenses:                                                    |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Property operations                                          |  |       | 9   |   |           |   | 3   |         |  |          | 87  |            |   | 107  
|Depreciation and amortization                                |  |       | 4   |   |           |   | 64  |         |  |          | 1   |            |   | 2    
|Interest                                                     |  |       |    |   |           |   | 163 |         |  |          | 55  |            |   | 128  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Total expenses                                               |  |       | 13  |   |           |   | 230 |         |  |          | 143 |            |   | 237  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Net (loss) income from operations of discontinued operations |  | $     | (13 | ) |           | $ | (54 | )       |  | $        | 76  |            | $ | 193  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      



Net income from
operations of discontinued operations

For the three month period ended September 30, 2002



|                                                             |  | Chico |     |   | Irwindale |   |     | Burbank |  | Coronado |     | AlisoViejo |   | Total
|------------------------------------------------------------ |  | ----- | --- | - | --------- | - | --- | ------- |  | -------- | --- | ---------- | - | -----
|Revenues:                                                    |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Rent                                                         |  | $     |    |   |           | $ | 174 |         |  | $        | 181 |            | $ | 287  
|Tenant reimbursements                                        |  |       |    |   |           |   |    |         |  |          | 11  |            |   | 69   
|Parking                                                      |  |       |    |   |           |   |    |         |  |          | 4   |            |   | 16   
|Other income                                                 |  |       |    |   |           |   |    |         |  |          | 3   |            |   | 2    
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Total revenues                                               |  |       |    |   |           |   | 174 |         |  |          | 199 |            |   | 374  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Expenses:                                                    |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Property operations                                          |  |       | 13  |   |           |   | 27  |         |  |          | 76  |            |   | 113  
|Depreciation and amortization                                |  |       | 4   |   |           |   | 90  |         |  |          | 34  |            |   | 61   
|Interest                                                     |  |       |    |   |           |   | 151 |         |  |          | 54  |            |   | 130  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Total expenses                                               |  |       | 17  |   |           |   | 268 |         |  |          | 164 |            |   | 304  
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      
|Net income (loss) from operations of discontinued operations |  | $     | (17 | ) |           | $ | (94 | )       |  | $        | 35  |            | $ | 70   
|                                                             |  |       |     |   |           |   |     |         |  |          |     |            |   |      



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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:



|                                 |  | September 30, 2003 |        |   | December 31, 2002 |  
|-------------------------------- |  | ------------------ | ------ | - | ----------------- | -
|                                 |  | (in thousands)     |       
|Deferred loan costs              |  | $                  | 3,511  |   |                   | $
|Pre-acquisition costs            |  |                    |       |   |                   |  
|Leasing commissions              |  |                    | 1,415  |   |                   |  
|Prepaid expense and other assets |  |                    | 1,211  |   |                   |  
|                                 |  |                    |        |   |                   |  
|                                 |  |                    | 6,137  |   |                   |  
|Less accumulated amortization    |  |                    | (1,452 | ) |                   |  
|                                 |  |                    |        |   |                   |  
|Total                            |  | $                  | 4,685  |   |                   | $
|                                 |  |                    |        |   |                   |  



5.    STOCKHOLDERS EQUITY



Distributions in excess of net incomeThe Company has elected to be treated, for federal income tax purposes, as a REIT. As such, the Company is required to distribute annually, in the form of distributions to its stockholders,
at least 90% of its taxable income. In reporting periods in which distributions exceed net income, stockholders equity will be reduced by the distributions in excess of net income in such period and will be increased by the excess of net
income over distributions in reporting periods in which net income exceeds distributions. For tax reporting purposes, a portion of the dividends declared represents a return of capital. The following table reconciles net income and distributions in
excess of net income for the nine months ended September 30, 2003 and for the year ended December 31, 2002:



|                                                             |  | September 30, 2003 |         |   | December 31,2002 |  
|------------------------------------------------------------ |  | ------------------ | ------- | - | ---------------- | -
|                                                             |  | (in thousands)     |        
|Distributions in excess of net income at beginning of period |  | $                  | (37,895 | ) |                  | $
|Net (loss) income during period                              |  |                    | (7,980  | ) |                  |  
|Less: Distributions declared                                 |  |                    | (6,171  | ) |                  |  
|                                                             |  |                    |         |   |                  |  
|Distributions in excess of net income                        |  | $                  | (52,046 | ) |                  | $
|                                                             |  |                    |         |   |                  |  



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(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 as of September 30, 2003. (In thousands).



|                                         |  | Radius |       |   | SanPedro |   |       | PenasquitosLLC |  |   | HeritagePlace |   | PacificPark |   |      | Eagle RunInc. |   |        | Eagle Run |  |   | Lakeview |   |  | Total |       
|---------------------------------------- |  | ------ | ----- | - | -------- | - | ----- | -------------- |  | - | ------------- | - | ----------- | - | ---- | ------------- | - | ------ | --------- |  | - | -------- | - |  | ----- | ------
|Opening balance at beginning of period   |  | $      | 1,217 |   |          | $ | 1,520 |                |  | $ | (475          | ) |             | $ |     |               | $ | 48     |           |  | $ | (916     | ) |  | $     | 423   
|Equity in earnings (loss) of affiliates  |  |        | 41    |   |          |   | 114   |                |  |   | (52           | ) |             |   |     |               |   | 1,276  |           |  |   | 51       |   |  |       | 2,597 
|Cash contributions.                      |  |        |       |   |          |   |      |                |  |   |              |   |             |   |     |               |   | 25     |           |  |   |         |   |  |       |      
|Cash distributions                       |  |        | (88   | ) |          |   | (400  | )              |  |   |              |   |             |   |     |               |   | (1,233 | )         |  |   |         |   |  |       | (1,745
|Intercompany elimination                 |  |        |      |   |          |   |      |                |  |   |              |   |             |   |     |               |   | (672   | )         |  |   | 36       |   |  |       | 48    
|Gain (loss) on investment                |  |        |      |   |          |   |      |                |  |   |             |   |             |   |    |               |   | 556    |           |  |   | 829      |   |  |       | (1,323
|                                         |  |        |       |   |          |   |       |                |  |   |               |   |             |   |      |               |   |        |           |  |   |          |   |  |       |       
|Equity, before inter-company adjustments |  |        | 1,170 |   |          |   | 1,234 |                |  |   | (527          | ) |             |   |     |               |   |       |           |  |   |         |   |  |       |      
|                                         |  |        |       |   |          |   |       |                |  |   |               |   |             |   |      |               |   |        |           |  |   |          |   |  |       |       
|Intercompany transactions:               |  |        |       |   |          |   |       |                |  |   |               |   |             |   |      |               |   |        |           |  |   |          |   |  |       |       
|Receivable, net                          |  |        |      |   |          |   | 40    |                |  |   | 297           |   |             |   | 14   |               |   |       |           |  |   |         |   |  |       |      
|                                         |  |        |       |   |          |   |       |                |  |   |               |   |             |   |      |               |   |        |           |  |   |          |   |  |       |       
|Investment in unconsolidated affiliates  |  | $      | 1,170 |   |          | $ | 1,274 |                |  | $ | (230          | ) |             | $ | 14   |               | $ |       |           |  | $ |         |   |  | $     |      
|                                         |  |        |       |   |          |   |       |                |  |   |               |   |             |   |      |               |   |        |           |  |   |          |   |  |       |       



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Following is a summary of the condensed financial information of each of the unconsolidated
affiliates as of and for the nine months ended September 30, 2003. (In thousands).



|                                 |  | Radius |        |   | SanPedro |   |        | PenasquitosLLC |  |   | HeritagePlace |   |  | PacificPark |      |   | Eagle RunInc. |   |       | Eagle Run |  |   | Lakeview |   |  | Total |      
|-------------------------------- |  | ------ | ------ | - | -------- | - | ------ | -------------- |  | - | ------------- | - |  | ----------- | ---- | - | ------------- | - | ----- | --------- |  | - | -------- | - |  | ----- | -----
|Financial Position:              |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Land                             |  | $      | 200    |   |          | $ | 2,011  |                |  | $ | 641           |   |  | $           | 750  |   |               | $ |      |           |  | $ |         |   |  | $     |     
|Buildings                        |  |        | 5,609  |   |          |   | 4,152  |                |  |   | 5,915         |   |  |             |     |   |               |   |      |           |  |   |         |   |  |       |     
|Other assets                     |  |        | 1,205  |   |          |   | 542    |                |  |   | 1,222         |   |  |             | 238  |   |               |   |      |           |  |   |         |   |  |       |     
|Notes payable                    |  |        | (5,427 | ) |          |   | (4,464 | )              |  |   | (8,338        | ) |  |             | (940 | ) |               |   |      |           |  |   |         |   |  |       |     
|Other liabilities                |  |        | (7     | ) |          |   | (1,079 | )              |  |   | (409          | ) |  |             | (48  | ) |               |   |      |           |  |   |         |   |  |       |     
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Net assets                       |  | $      | 1,580  |   |          | $ | 1,162  |                |  | $ | (969          | ) |  | $           |     |   |               | $ |      |           |  | $ |         |   |  | $     |     
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Partners equity:                |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Company                          |  | $      | 1,170  |   |          | $ | 1,234  |                |  | $ | (527          | ) |  | $           |     |   |               | $ |      |           |  | $ |         |   |  | $     |     
|Others                           |  |        | 410    |   |          |   | (72    | )              |  |   | (442          | ) |  |             |     |   |               |   |      |           |  |   |         |   |  |       |     
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Total equity                     |  | $      | 1,580  |   |          | $ | 1,162  |                |  | $ | (969          | ) |  | $           |     |   |               | $ |      |           |  | $ |         |   |  | $     |     
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Operations:                      |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Revenues                         |  | $      | 511    |   |          | $ | 889    |                |  | $ | 687           |   |  | $           |     |   |               | $ | 108   |           |  | $ | 624      |   |  | $     | 143  
|Net gain on sale                 |  |        |       |   |          |   |       |                |  |   |              |   |  |             |     |   |               |   | 2,632 |           |  |   |         |   |  |       | 5,295
|Expenses                         |  |        | (457   | ) |          |   | (754   | )              |  |   | (791          | ) |  |             |     |   |               |   | (188  | )         |  |   | (522     | ) |  |       | (243 
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Net income (loss)                |  | $      | 54     |   |          | $ | 135    |                |  | $ | (104          | ) |  | $           |     |   |               | $ | 2,552 |           |  | $ | 102      |   |  | $     | 5,195
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Allocation of net income (loss): |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Company                          |  | $      | 41     |   |          | $ | 114    |                |  | $ | (52           | ) |  | $           |     |   |               | $ | 1,276 |           |  | $ | 51       |   |  | $     | 2,597
|Others                           |  |        | 13     |   |          |   | 21     |                |  |   | (52           | ) |  |             |     |   |               |   | 1,276 |           |  |   | 51       |   |  |       | 2,598
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      
|Net income (loss)                |  | $      | 54     |   |          | $ | 135    |                |  | $ | (104          | ) |  | $           |     |   |               | $ | 2,552 |           |  | $ | 102      |   |  | $     | 5,195
|                                 |  |        |        |   |          |   |        |                |  |   |               |   |  |             |      |   |               |   |       |           |  |   |          |   |  |       |      



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7.    SEGMENT INFORMATION



The Companys business currently consists of the following segments:



| |  |  | Medical office buildings  These investments consist of 22 high quality MOBs, two retail facilities, one research and development facility and one parking facility totaling
approximately 857,000 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 consist of eight SNFs and one senior apartment complex which is located adjacent to the SNF in Phoenix, Arizona. The SNFs are
located in Hampden, Massachusetts; Phoenix, Arizona; Hoquiam, Washington; Hyattsville, Maryland and Chico, California. Seven of the SNFs and the apartment complex are owned 100% by the Company. The Company currently holds 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, all of the assets, liabilities, revenues and expenses of these SNFs are reflected in the condensed consolidated financial statements of the Company and the segment information provided below.
The Company will be 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 will not be affected. While the Company does not intend to hold
these operating licenses for the long term, the Company believes it is currently in its best interests to own the licenses to operate these facilities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assisted living facilities  These investments consist of four ALFs, all owned through joint ventures. The four ALFs contain over 340 units that are typically occupied by
residents who require a less intense level of care in comparison to the SNFs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 over the past couple of years. 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 September 30, 2003, the Company had seven loans outstanding with a net book value of $1.5 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The tables on the following pages reconcile the Companys income and expense activity for the nine months ended September 30, 2003 and 2002 and
balance sheet data as of September 30, 2003.



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2003 Reconciliation of Reportable Segment Information

For the nine months ended September 30, 2003



|                                                        |  | MedicalOffice  |        |   | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |       | Total |  
|------------------------------------------------------- |  | -------------- | ------ | - | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | ----- | ----- | -
|                                                        |  | (In thousands) |       
|Revenue:                                                |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|Rents, tenant reimb. and parking                        |  | $              | 19,359 |   |                | $ | 1,573  |                |  | $ | 650             |   |       | $ |      |       | $
|Patient revenues                                        |  |                |       |   |                |   | 19,118 |                |  |   |                |   |       |   |      |       |  
|Interest and loan fees                                  |  |                | 29     |   |                |   | 22     |                |  |   |                |   |       |   | 533   |       |  
|Other income                                            |  |                | 1,211  |   |                |   | 45     |                |  |   | (494            | ) |       |   | 1,000 |       |  
|                                                        |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|Total revenues                                          |  |                | 20,599 |   |                |   | 20,758 |                |  |   | 156             |   |       |   | 1,533 |       |  
|                                                        |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|Expenses:                                               |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|Property operations                                     |  |                | 5,342  |   |                |   | 494    |                |  |   | 241             |   |       |   | 88    |       |  
|Skilled nursing operations                              |  |                |       |   |                |   | 17,533 |                |  |   |                |   |       |   |      |       |  
|Depreciation and amortization                           |  |                | 2,552  |   |                |   | 1,130  |                |  |   | 389             |   |       |   |      |       |  
|Interest                                                |  |                | 16,438 |   |                |   | 1,795  |                |  |   | 1,097           |   |       |   |      |       |  
|Loss on sale of bonds receivable                        |  |                |       |   |                |   |       |                |  |   |                |   |       |   | 120   |       |  
|Provision for doubtful accounts and notes receivable    |  |                |       |   |                |   | 662    |                |  |   |                |   |       |   |      |       |  
|General and administrative                              |  |                |       |   |                |   |       |                |  |   |                |   |       |   |      |       |  
|                                                        |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|Total expenses                                          |  |                | 24,332 |   |                |   | 21,614 |                |  |   | 1,727           |   |       |   | 208   |       |  
|                                                        |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|(Loss) income from operations                           |  |                | (3,733 | ) |                |   | (856   | )              |  |   | (1,571          | ) |       |   | 1,325 |       |  
|Equity in earnings of unconsolidated affiliates         |  |                | 1,390  |   |                |   | 41     |                |  |   | 2,328           |   |       |   |      |       |  
|Net income from operations of discontinued operations   |  |                | 697    |   |                |   | (35    | )              |  |   |                |   |       |   |      |       |  
|Corporate income tax expense                            |  |                |       |   |                |   | (118   | )              |  |   |                |   |       |   |      |       |  
|                                                        |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  
|(Loss) income from operations before minority interests |  | $              | (1,646 | ) |                | $ | (968   | )              |  | $ | 757             |   |       | $ | 1,325 |       | $
|                                                        |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |  



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|2002 Reconciliation of Reportable Segment Information For the nine months ended September 30, 2002 | 
|-------------------------------------------------------------------------------------------------- | 
|                                                                                                   | 
|                                                                                                   | 
|Revenue:                                                                                           | 
|Rents, tenant reimb. and parking                                                                   | 
|Patient revenues                                                                                   | 
|Interest and loan fees                                                                             | 
|Other income                                                                                       | 
|                                                                                                   | 
|Total revenues                                                                                     | 
|                                                                                                   | 
|Expenses:                                                                                          | 
|Property operations                                                                                | 
|Skilled nursing operations                                                                         | 
|Depreciation and amortization                                                                      | 
|Provision for doubtful accounts and notes receivable                                               | 
|Interest                                                                                           | 
|General and administrative                                                                         | 
|                                                                                                   | 
|Total expenses                                                                                     | 
|                                                                                                   | 
|Income (loss) from operations                                                                      | 
|Equity in earnings of unconsolidated affil.                                                        | 
|Net income from operations of discontinued operations                                              | 
|Corporate income tax expense                                                                       | 
|Net gain from discontinued operations                                                              | 
|                                                                                                   | 
|Income (loss) from operations before minority interests                                            | 
|                                                                                                   | 



2003 Reconciliation
of Reportable Segment Information

As of September 30, 2003



|                                         |  | MedicalOffice  |         |   | SkilledNursing |   | AssistedLiving |  |   | DebtObligations |   | Other |   | Total
|---------------------------------------- |  | -------------- | ------- | - | -------------- | - | -------------- |  | - | --------------- | - | ----- | - | -----
|                                         |  | (In thousands)
|Rental properties                        |  | $              | 88,925  |   |                | $ | 38,161         |  | $ | 20,614          |   |       | $ |     
|Assets held for sale                     |  |                | 24,424  |   |                |   | 745            |  |   |                |   |       |   |     
|Mortgage loans and notes receivable, net |  |                |        |   |                |   | 268            |  |   |                |   |       |   | 1,238
|Cash and cash equivalents                |  |                | 37      |   |                |   | 1,009          |  |   | (69             | ) |       |   |     
|Restricted cash                          |  |                | 4,210   |   |                |   | 599            |  |   | 334             |   |       |   |     
|Tenant rent and reimb. receivable, net   |  |                | (177    | ) |                |   | 4,682          |  |   | 1,729           |   |       |   |     
|Unbilled rent receivable, net            |  |                | 2,704   |   |                |   |               |  |   |                |   |       |   |     
|Investment in unconsolidated affiliates  |  |                | 1,274   |   |                |   | 1,170          |  |   | 2,185           |   |       |   |     
|Deferred loan costs, net                 |  |                | 1,936   |   |                |   | 579            |  |   | 540             |   |       |   |     
|Deferred lease costs, net                |  |                | 419     |   |                |   |               |  |   |                |   |       |   |     
|Prepaid expense and other                |  |                | 737     |   |                |   | 431            |  |   | 43              |   |       |   |     
|                                         |  |                |         |   |                |   |                |  |   |                 |   |       |   |      
|Total assets                             |  | $              | 124,489 |   |                | $ | 47,644         |  | $ | 25,376          |   |       | $ | 1,238
|                                         |  |                |         |   |                |   |                |  |   |                 |   |       |   |      



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8.    COMMITMENTS AND CONTINGENCIES



Neither the Company, the Operating Partnership, the Financing Entities, the
Subsidiaries, the Roxbury Partnership, Valencia, Pacific Gardens, Hoquiam, Lyons, Coronado, Tarzana, Massachusetts, Aspen, Tustin II, Tustin III, St. Thomas More, St. Thomas More, Inc., 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, except as
discussed below.



There are a number of stockholder class
actions pending against the Company and its directors that arose out of the proposal by Daniel M. Gottlieb, the Chief Executive Officer of the Company, and Steven D. Lebowitz, the President of the Company, to acquire all of the outstanding shares of
the Companys common stock not then owned by them. The first suit, Lukoff v. G & L Realty Corp. et al., case number BC 241251, was filed in the Superior Court for the State of California, County of Los Angeles, on December 4, 2000. A second
suit, Abrons v. G & L Realty Corp. et al., case number 24-C-00-006109, was filed in the Circuit Court for Baltimore City, Maryland, on December 14, 2000. This suit was voluntarily dismissed without prejudice on June 7, 2001, and re-filed in the
Superior Court for the State of California, County of Los Angeles, case number BC 251479, on May 31, 2001. Morse v. G & L Realty Corp. et al., case number 221719-V, was filed in the Circuit Court for Montgomery County, Maryland, on May 17, 2001.
Another suit, Harbor Finance Partners v. Daniel M. Gottlieb et al., case number BC 251593, was filed in the Superior Court for the State of California, County of Los Angeles, on June 1, 2001. All these actions assert claims for breach of fiduciary
duty and seek compensatory damages and other relief. The Lukoff, Abrons and Harbor Finance actions have been consolidated for all purposes and the Morse action has been stayed by stipulation of the parties subject to approval of the court.



In addition, a group of four individual shareholders who made
proposals to acquire the Company also filed suit against the Company and its directors arising out of the same conduct alleged in the class actions and making similar claims. This suit, Lyle Weisman, et al. v. G & L Realty Corp., et al., case
number BC 271401, was filed in the Superior Court of California, County of Los Angeles, on April 4, 2002. The Weisman plaintiffs also assert claims for intentional and negligent interference with prospective economic advantage against the individual
defendants on the theory that they interfered with the Weisman plaintiffs purported acquisition proposals. On April 29, 2003, the Court dismissed the Weisman plaintiffs interference claims for failure to state a claim, with leave to
amend. On June 2, 2003, the Weisman plaintiffs amended their complaint, reasserting their breach of fiduciary duty and intentional and negligent interference claims and adding claims for unjust enrichment and violation of business and professions
code sections 17200 et seq. against Messrs. Gottlieb and Lebowitz. In addition, the second amended complaint names the following additional defendants: Houlihan Lokey Howard and Zukin, Inc., which advised the special committee of the Companys
board of directors regarding the merger; General Motors Acceptance Corporation, which provided financing for the merger; and St. Thomas More, Inc., an entity acquired by the Company in January 2002 as part of the Companys acquisition of a
nursing and rehabilitation center in Hyattsville, Maryland. The Company has agreed to indemnify Houlihan Lokey against certain liabilities related to this lawsuit. On July 31, 2003, the Court dismissed the Weisman plaintiffs negligent
interference claim, without leave to amend, and their intentional interference claim, with leave to amend. On September 15, 2003, the Weisman plaintiffs amended their complaint again, reasserting their breach of fiduciary duty, intentional
interference, unjust enrichment and 17200 claims and adding a claim for fraud against the individual defendants. The Weisman plaintiffs latest complaint drops the Company as a defendant to their fiduciary duty claims, but adds the Company as a
defendant to their 17200 claim. In addition, the Weisman plaintiffs no longer name Houlihan Lokey, General Motors Acceptance Corporation or St. Thomas More, Inc. as defendants in their third amended complaint.



On January 17, 2003, the Company and Messrs. Gottlieb and Lebowitz jointly
filed a cross-complaint against the Weisman plaintiffs alleging that their acquisition proposals were made with no real intent to acquire the Company, but simply to disrupt the Companys existing merger agreement with Messrs. Gottlieb and
Lebowitz. The cross-complaint asserts causes of action for, among other things, intentional interference with contract, intentional interference with prospective economic advantage, and fraud. The Weisman suit has been consolidated with the Lukoff
class actions for purposes of discovery. No trial date has been set in this action.



These lawsuits are covered by $5 million of directors and officers liability insurance.



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The Company is the guarantor on a $250,000 letter of credit in favor of NVHF Affiliates, LLC
(NVHF), a non-profit low-income apartment owner. In December 1999, the Company purchased $1.3 million of subordinated bonds issued by NVHF for the acquisition of an apartment complex located in Tulsa, Oklahoma. In order to facilitate the
acquisition of the property, the Company agreed to guarantee a letter of credit issued by the Bank of Oklahoma. The letter of credit was established 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. To date, the letter of credit has not been accessed and the property is current on its interest payments to all debt holders. The Companys maximum liability under the guarantee is $250,000,
although the Company does not anticipate having to pay anything under this letter of credit. As such, the Company has recorded no liability on its balance sheet related to this guarantee as of September 30, 2003. In addition, the Company holds an
unsecured promissory note from NVHF in the amount of $562,000. The Company has held the note for almost three years and NVHF is current on all payments due under the terms of the note.



In the third quarter of 2003, Lakeview, a joint venture in which the Company owns a 50% interest, received a one-year
extension on a $6.4 million mortgage loan secured by an ALF that is owned by Lakeview. The Company, along with the Companys joint venture partner, is a guarantor on the loan. The individual owners of the Companys joint venture partner
have also personally guaranteed the loan. The Companys maximum liability under the guarantee is $6.4 million although the Company does not anticipate having to pay anything under this guarantee. The Company has recorded no liability on its
balance sheet related to this guarantee as of September 30, 2003.



9.      RELATED PARTY TRANSACTIONS



In February 2003, the Company sold $720,000 of its $1.3 million of Tulsa Industrial Authority Subordinate Multifamily Housing Revenue Bonds (the Bonds) to Reese L. Milner for $600,000. Mr. Milner currently
owns approximately 2% of the Operating Partnership and the Senior Care Partnership and is also a limited partner in the Roxbury Partnership. Mr. Milner was a member of the Companys board of directors from 1993 to 1999. The Bonds are
tax-exempt, bear interest at 8.75% per annum and are due on June 15, 2030. The Company recognized a loss of $120,000 on the sale of the Bonds to Mr. Milner.



10.    ACQUISITIONS, DISPOSITIONS AND FINANCINGS



During the first nine months of 2003, the Company incurred prepayment penalties related to the early repayment of its long-term debt of $11.2 million. The
$11.2 million of prepayment penalties were recorded as interest expense. An additional $2.0 million was charged to interest expense during the year related to the write off of the loan fees associated with the refinanced loans. The mortgage
refinancings that gave rise to these charges along with the asset acquisitions and dispositions made by the Company during 2003 are discussed below.



On February 23, 2003, a joint venture, in which the Company holds a 50% interest, sold a 23,000 square foot MOB located in Aliso Viejo, California for
$7.3 million. The joint venture recognized a gain of $2.6 million from the sale. The Company received net proceeds of $1.2 million from the sale and recorded net earnings from the joint venture of $1.3 million.



On February 28, 2003, the Company refinanced one of its MOBs located in
Beverly Hills, California with a new $8.2 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The Company repaid the remaining balance on the old loan of $7.2 million along with a prepayment penalty of $144,000 with the proceeds from
the new loan. The new loan bears interest at a fixed rate of 5.55% and is due on February 1, 2013.



Also on February 28, 2003, another joint venture, in which the Company holds a 50% interest, sold an ALF located in Omaha, Nebraska for $11.1 million. The
joint venture recognized a gain of $5.3 million from the sale. The Company received net proceeds of $1.8 million from the sale and recorded net earnings from the joint venture of $2.6 million.



In March 2003, the Company received an extension on a $13.9 million loan that
was originally due on October 1, 2002, but which had been previously extended to January 1, 2003. The loan, which is secured by three SNFs located in Massachusetts, was extended until January 1, 2004. Per the terms of the extension, the interest
rate was increased to LIBOR plus 4.0% per annum. The Company expects to repay this loan in 2003 using the proceeds from a new long-term loan. As of September 30, 2003 the outstanding balance on this loan was $13.0 million.



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(Unaudited)



On May 22, 2003, the Company refinanced one of its MOBs located in Valencia, California with a new
$8.6 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The Company repaid the remaining balance on the old loan of $4.6 million along with a prepayment penalty of $231,000 with the proceeds from the new loan. The new loan has a
ten-year term and bears interest at a fixed rate of 5.48% per annum. On June 9, 2003, the Company used a portion of the net refinancing proceeds of $3.6 million along with its net proceeds from the sale of its Aliso Viejo MOB to purchase a parcel of
land in Valencia, California on which six of its MOBs are located and an adjacent parcel of land on which a 10,000 square foot building is situated. The Henry Mayo Newhall Memorial Hospital is leasing this building for $10,634 per month. The total
purchase price was $3.9 million. The Company had previously been paying $22,000 per month to Henry Mayo Newhall Memorial Hospital in order to lease this land.



On June 3, 2003, the Company refinanced a loan secured by four of its MOBs located in Beverly Hills, California with a new $47.0 million loan from GMAC
Commercial Mortgage Corp. (GMAC). The Company used the proceeds to repay the remaining balance on the old loan of $26.2 million along with a prepayment penalty of $4.05 million. The new loan bears interest at a fixed rate of 5.68% per
annum and is due on June 1, 2013. The Company used the net proceeds of $14.9 million to reduce the balance on its $35 million loan obtained from GMAC in October 2001 and incurred an additional prepayment penalty of $0.3 million.



On September 30, 2003, the Company refinanced a loan secured by MOBs located
in Beverly Hills, Sherman Oaks and La Jolla, California as well as a research and development facility located in Irwindale, California with three new loans from Morgan Stanley Mortgage Capital, Inc. totaling $59.5 million. The Company used the
proceeds to repay the remaining balance on the old loan of $31.5 million along with a prepayment penalty of $6.1 million. The new loans bear interest at a fixed rate of 5.34% per annum and are due on October 1, 2010. The Company used the remaining
proceeds to repay the outstanding balance of $16.8 million on its $35 million loan obtained from GMAC in October 2001 and incurred an additional prepayment penalty of $0.3 million. As of September 30, 2003, the $35 million GMAC loan had been repaid
in full.



On October 15, 2003, the Company sold its one-story,
9,100 square foot retail facility located in Aliso Viejo, California for $2.86 million. The Company received net proceeds of $0.9 million from the sale and recognized a net gain on sale of $0.9 million.



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



The following discussion should be read in conjunction with the Companys Unaudited Condensed Consolidated Financial Statements and Notes thereto
included elsewhere in this Quarterly Report on Form 10-Q and the Companys 2002 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, the
availability of financing, 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 2002 Annual Report on Form 10-K as previously
filed with the SEC.



Recent
Developments



In the first nine months of 2003, the
Company has been actively refinancing its fixed rate mortgages with new 7-year and 10-year fixed rate mortgages at interest rates that are 150 to 250 basis points lower than the previous mortgages. During the first nine months of 2003, the Company
obtained nine new mortgages totaling $123.3 million. Although the Company incurred significant prepayment penalties in refinancing its existing mortgages with new mortgages, the Company used the majority of the net proceeds from these refinancings
to pay down its variable rate debt and believes that the lower interest rates on the new mortgages will, over time, make up for the prepayment penalties incurred.



Critical Accounting Policies



Revenue recognition.    The majority of the Companys revenues results from rents from
operating leases. 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. The remaining source of the Companys revenue is from patient revenue derived from its operation of three SNFs located in Massachusetts. 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.



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Long-lived assets.    The Companys assets consist mainly of
investments in real property. 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 has recorded no impairment losses during 2003 and none
were recorded in 2002, 2001 and 2000.



Results of Operations



Comparison of the
Nine Month Period Ended September 30, 2003 versus the Nine Month Period Ended September 30, 2002.



Total revenues decreased by $1.4 million, or 3%, from $44.5 million in the first three quarters of 2002, to $43.1 million for the same period in 2003. The
main reason for this decrease was a decrease in interest and loan fee income of approximately $1.6 million from $2.2 million in the first nine months of 2002, to $0.6 million for the same period in 2003. This decrease was due to the non-recurrence
in 2003 of fees associated with the early repayment in 2002 of the Companys two notes receivable related to a SNF located in Hyattsville, Maryland.



Patient revenues relating to the skilled nursing facilities located in Hampden, Massachusetts, which are operated by the Company, increased by $1.0
million, or 6% from $18.1 million in the first nine months of 2002, to $19.1 million for the same period in 2003. This increase was mainly due to increased occupancy and a higher percentage of Medicare patients for which the government pays a higher
reimbursement rate. Although patient revenues increased 5% over the first three quarters of 2002, higher operating expenses reduced the total net operating income produced by the Companys skilled nursing facilities located in Hampden,
Massachusetts in the first nine months of 2003.



Rents, tenant
reimbursements and parking revenues decreased by $1.1 million, or 5%, from $22.7 million in the first three quarters of 2002, to $21.6 million for the same period in 2003. Rents, tenant reimbursements and parking revenues decreased $2.0 million due
to lease amendments at two of the Companys ALFs as well as one of its SNFs. Although the cash flow that the Company is receiving from the two ALFs has not decreased from the prior year, the difference between the cash flow and the rent is
being applied to reduce the outstanding rent receivable balance due from these ALFs to the Company. Due to continuing operating losses at the aforementioned SNF, the Company is not recording any rental revenue from this facility as it had in 2002.
In August, the Company hired a new operator to manage this SNF. The new operator has begun to stabilize the SNF and the Company expects the SNF to start producing a profit in 2004. These decreases were offset by a $0.9 million increase in rental
revenue due to increased occupancy and rental rates per the terms of its lease agreements at the Companys MOB properties.



Total expenses increased by $13.7 million, or 33%, from $41.6 million for the nine months ended September 30, 2002, to $55.3 million for the same period
in 2003. The primary reason for this increase was an increase in prepayment penalties and the write-off of deferred loan fees of $13.2 million relating to the early repayment of five separate loans totaling $101.3 million. In addition, increased
skilled nursing operating costs at the three SNFs located in Hampden, Massachusetts accounted for $1.6 million of this increase in total expenses. Rising liability insurance and staffing costs at these SNFs were the main reason for this increase.



Property operating expenses remained unchanged at $6.2 million
for the first three quarters of 2003 compared to the first three quarters of 2002.



Depreciation and amortization expense remained unchanged at $4.1 million for the first three quarters of 2003 compared to the first three quarters of 2002.



Interest expense increased $11.2 million, or 98%, from $12.3 million for the nine months ended September 30, 2002, to $23.5
million for the same period in 2003. Interest expense increased by $13.2 million from 2002 to 2003 due to prepayment penalties and the write-off of deferred loan fees relating to the early repayment of five separate loans totaling $101.3 million.
Interest expense also increased an additional $0.2 million due to a new $4.3 million loan secured by a SNF located in Phoenix, Arizona that was obtained



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in December 2002. These increases were offset by decreases in interest expense totaling $2.2 million. A decrease in
interest expense on the Companys variable rate mortgages due to lower interest rates accounted for $1.0 million of the total decrease. $0.7 million of the total decrease was due to pre-payment penalties and the write-off of deferred loan fees
relating to the early repayment, in 2002, of $7.3 million of loans secured by an ALF located in Tarzana, California. The remaining $0.5 million decrease was due to the decline in the fair market value of the LIBOR interest rate cap associated with
the $35 million loan obtained in October 2001 in order to repurchase the Companys outstanding common stock. The Company recognized a $0.3 million loss related to the decline in the fair market value of its LIBOR interest rate cap during the
first three quarters of 2003 compared to a $0.8 million loss in the first three quarters of 2002. The value of the LIBOR interest rate cap fluctuates based upon current prevailing market interest rates. For the years ended December 31, 2001 and
2002, the Company recognized a $0.5 million gain and a $0.9 million loss, respectively, on the fair market value of its LIBOR interest rate cap, thus, the net effect on earnings since the Companys purchase of this financial instrument has been
a $0.7 million loss. In October, the Company sold the LIBOR interest rate cap for $0.2 million.



General and administrative costs increased $0.8 million, or 33%, from $2.4 million for the nine months ended September 30, 2002, to $3.2 million for the
same period in 2003. This increase was attributed to an increase in corporate staffing costs as well as additional legal costs.



Provisions for doubtful accounts, notes and bonds receivable remained unchanged at $0.7 million for the first three quarters of 2003 compared to the first
three quarters of 2002.



Equity in earnings of unconsolidated
affiliates increased $3.8 million for the nine months ended September 30, 2003 compared to the same period in 2002. This increase was partially due to the sale of a 23,000 square foot MOB located in Aliso Viejo, California in which the Company held
a 50% interest. The Company recognized a gain of approximately $1.3 million as a result of this sale. In addition, another joint venture, in which the Company also held a 50% interest, sold an ALF located in Omaha, Nebraska. The Company recognized a
gain of approximately $2.6 million as a result of the sale. These increases were offset by $0.1 million in losses associated with the Companys 50% investment in Lakeview. Lakeview was formed for the purpose of developing a two-story, 80-unit,
92 bed assisted living facility in Yorba Linda, California. The facility has been in a lease-up phase since opening in March 2002 and has therefore been producing a net loss.



The Company recognized a net gain from discontinued operations in the amount of $2.3 million during the year ended December
31, 2002. The sale, in January 2002, of a 183-bed hospital located in Tustin, California to Pacific Health Corporation, the operator of the hospital, accounted for a gain of $2.4 million. This gain was offset by a loss of $0.1 million realized upon
the sale, in May 2002, of a SNF located in Paso Robles, California.



Net income decreased $13.0 million, from a net gain of $5.0 million for the nine months ended September 30, 2002 to a net loss of $8.0 million for the same period in 2003. This decrease was primarily due to the $11.2 million increase in
interest expense due to early prepayment penalties, the $2.3 million decrease in gains from sales of assets (treated for accounting purposes as discontinued operations), the $1.6 million decrease in interest and loan fee income, the $1.1 million
decrease in rents, tenant reimbursements and parking revenues, the $1.6 million increase in skilled nursing expenses and the $0.8 million increase in general and administrative costs. These amounts were offset by the $3.8 million increase in equity
in earnings of unconsolidated affiliates and the $1.0 million increase in patient revenues.



Comparison of the Three Month Period Ended September 30, 2003 versus the Three Month Period Ended September 30, 2002.



Total revenues increased by $1.1 million, or 8%, from $14.7 million in the third quarter of 2002, to $15.8 million for the same period in 2003.



Patient revenues relating to the skilled nursing facilities
located in Hampden, Massachusetts, which are operated by the Company, increased by $0.4 million, or 6% from $6.5 million in the third quarter of 2002, to $6.9 million for the same period in 2003. This increase was due to increased occupancy and a
higher percentage of Medicare patients for which the government pays a higher reimbursement rate.



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Rents, tenant reimbursements and parking revenues increased by $0.1 million, or 1%, from $7.4 million in
the third quarter of 2002, to $7.5 million for the same period in 2003. This increase is due to increased occupancy and rental rates per the terms of its lease agreements at the Companys MOB properties.



Other income increased by $0.6 million, or 100%, from $0.6 million in the
third quarter of 2002, to $1.2 million for the same period in 2003. This increase is due to the collection of $1.0 million related to a $4.6 million note receivable funded by the Company in December 1997. The outstanding loan balance was previously
fully reserved for. This increase was offset by a $0.4 million decrease in other income relating to outstanding payables at the Companys skilled nursing facilities located in Hampden, Massachusetts.



Total expenses increased by $9.0 million, or 65%, from $13.8 million for the
three months ended September 30, 2002, to $22.8 million for the same period in 2003. The primary reason for this increase was an increase in prepayment penalties and the write-off of deferred loan fees of $8.2 million related to the early repayment
of two loans totaling $48.3 million. In addition, increased skilled nursing operating costs at the three SNFs located in Hampden, Massachusetts accounted for $0.7 million of this increase in total expenses. Rising liability insurance and staffing
costs at these SNFs were the primary reason for this increase.



Property operating expenses remained relatively unchanged at $2.1 million for the third quarter of 2003 compared to $2.2 million for the same period in 2002.



Depreciation and amortization expense remained unchanged at $1.4 million for the third quarter of 2003 compared to the same
period in 2002.



Interest expense increased $7.6 million, or
200%, from $3.8 million for the three months ended September 30, 2002, to $11.4 million for the same period in 2003. Interest expense increased by $8.2 million due to pre-payment penalties and the write-off of deferred loan fees relating to the
early repayment of two separate loans totaling $48.3 million. These increases were offset by decreases in interest expense totaling $0.6 million. A decrease in interest expense on the Companys variable rate mortgages due to lower interest
rates accounted for $0.3 million of the total decrease. The remaining $0.3 million decrease was due to the decline in the fair market value of the LIBOR interest rate cap associated with the $35 million loan obtained in October 2001 in order to
repurchase the Companys outstanding common stock. While the fair market value of its LIBOR interest rate cap remained unchanged during the third quarter of 2003, the Company recognized a $0.3 million loss in the third quarter of 2002.



General and administrative costs increased $0.6 million, or
75%, from $0.8 million for the three months ended September 30, 2002, to $1.4 million for the same period in 2003. This increase was attributed to an increase in corporate staffing costs as well as additional legal costs.



Provisions for doubtful accounts, notes and bonds receivable increased by
$0.1 million, or 50%, from $0.2 million for the three months ended September 30, 2002, to $0.3 million for the same period in 2003. This increase is the result of an increase in reserves relating to the Companys concern about the
collectibility of working capital advances made to its SNF located in Hoquiam, Washington.



Equity in loss of unconsolidated affiliates remained unchanged for the third quarter of 2003 compared to the same period in 2002.



Net income decreased $7.5 million, from a net gain of $0.6 million for the three months ended September 30, 2002 to a net
loss of $6.9 million for the same period in 2003. This decrease was primarily due to the $7.6 million increase in interest expense due to early prepayment penalties, the $0.7 million increase in skilled nursing expenses and the $0.6 million increase
in general and administrative costs. These were offset by the $0.4 million increase in patient revenues, the $0.1 million increase in rents, tenant reimbursements and parking revenues as well as the $0.6 million increase in other income.



Liquidity and Capital Resources



As of September 30, 2003, the Companys direct investment in net real
estate assets totaled approximately $147.9 million, $25.2 million in assets held for sale, $4.6 million in joint ventures and $1.5 million invested in notes receivable. Total debt outstanding as of September 30, 2003 totaled $213.2 million.



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The Company obtains its liquidity from multiple internal and external sources. Internally, funds are
derived from the operation of MOBs, SNFs and ALFs as well as from senior care lending activities. The MOBs produced a net loss of approximately $1.6 million of net income before minority interests for the nine months ended September 30, 2003. The
net loss of $1.6 million included $11.2 million of early prepayment penalties and the write off of $2.0 million of deferred loan costs related to the Companys 2003 MOB refinancings as discussed below. The MOBs contain approximately 857,000
rentable square feet and, as of September 30, 2003, were approximately 97.3% leased to over 425 tenants with lease terms typically ranging from three to ten years. The ALFs produced approximately $0.8 million of net income for the nine months ended
September 30, 2003. The ALFs are leased to operators who manage the facilities for the Company. All of the leases are for five years or less with non-credit tenants. The SNFs produced a net loss of approximately $1.0 million for the nine months
ended September 30, 2003. All of the SNFs, with the exception of the three SNFs located in Hampden, Massachusetts where the Company holds the operating licenses and has entered into a management agreement with a local operator and also the North
Valley Nursing and Rehabilitation Center which is closed, are leased to operators who manage the facilities for the Company. In the event that the operators of the ALFs and SNFs are unable to effectively operate the facilities, the ability of the
operators to make rental payments to the Company may become impaired and the Company may need to commit additional capital to the facilities in order to keep them operating. If any of these operators experience financial difficulty, the financial
position of the Company and the ability of the Company to make expected distributions might be adversely affected.



The Companys principal external sources of capital consist of various secured loans. As of September 30, 2003, the Company had secured loans
outstanding of approximately $213.2 million. The Company is also considering selling some of its assets in order to provide additional liquidity. During the first three quarters of 2003, the Company used the net proceeds from four new 10-year loans
totaling $47.0 million as well as three new 7-year loans totaling $59.5 million to repay the outstanding balance of $31.7 million on the Companys $35 million loan obtained in October 2001 in order to repurchase the Companys outstanding
common stock. These new loans are individually secured by five of the Companys MOBs located in Beverly Hills, California, an MOB located in Sherman Oaks, California and an MOB located in La Jolla, California.



In February 2003, a joint venture, in which the Company held a 50% interest,
sold a 23,000 square foot MOB located in Aliso Viejo, California for $7.3 million. The Company received net proceeds of $1.2 million from the sale. Also in February 2003, another joint venture, in which the Company held a 50% interest, sold an ALF
located in Omaha, Nebraska for $11.1 million. The Company received net proceeds of $1.8 million from the sale. Furthermore, in February 2003, the Company refinanced an MOB located in Beverly Hills, California for $8.2 million. The loan proceeds were
used to repay the existing loan of $7.2 million along with other costs associated with the loan. The new loan bears interest at a fixed rate of 5.55% per annum and is due on February 1, 2013. In May 2003, the Company refinanced a loan secured by an
MOB located in Valencia, California with an $8.6 million loan. The loan proceeds were used to repay the existing $4.6 million as well as other financing costs. The new loan has a ten year term and bears interest at a fixed rate of 5.48% per annum.
In June 2003, the Company refinanced a loan secured by four of its MOBs located in Beverly Hills, California with four new loans totaling $47.0 million. The proceeds were used to repay the existing $26.2 million loan as well as $14.9 million against
the outstanding balance of the Companys $35 million loan obtained from GMAC in October 2001. The new loans have ten year terms and bear interest at a fixed rate of 5.68% per annum. In September 2003, the Company refinanced a loan secured by
MOBs located in Beverly Hills, Sherman Oaks and La Jolla, California as well as a research and development facility located in Irwindale, California with three new loans totaling $59.5 million. The loan proceeds were used to repay the remaining
balance on the old loan of $31.5 million and to repay the outstanding balance of $16.8 million on the Companys $35 million loan with GMAC. The new loans bear interest at a fixed rate of 5.34% per annum and are due on October 1, 2010. The
remaining net proceeds from these transactions were used to purchase a parcel of land in Valencia, California and for working capital.



On October 15, 2003, the Company sold its one-story, 9,100 square foot retail facility located in Aliso Viejo, California for $2.86 million. The Company
received net proceeds of $0.9 million from the sale and recognized a net gain of $0.9 million. The net proceeds were used for working capital.



As of November 14, 2003, the Company had listed for sale or was under contract to sell a total of four properties. The properties include a two-story,
26,000 square foot MOB located in Burbank, California; a three-story, 40,000 square foot office and retail complex located in Coronado, California; a two-story, 48,000 square foot research and development building located in Irwindale, California
and a 59-bed nursing and



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rehabilitation center in Chico, California. The Company plans to use the net proceeds from these sales for new
acquisitions and for general corporate purposes.



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, second and third quarters to holders of record on the first day of each month. The Company distributed $0.8
million in dividends to holders of the Companys Common Stock during the first nine months of 2003. In addition, the Company distributed $1.5 million in dividends to holders of the Companys Common Stock in October 2003.



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. 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 and the sale of
assets.



Historical Cash Flows



The Companys net cash from operating activities
decreased $7.9 million from net cash provided of $3.2 million for the nine months ended September 30, 2002 to net cash used of $4.7 million for the same period in 2003. The decrease is due primarily to a $13.0 million decrease in net income, a $3.7
million increase in equity in income of unconsolidated affiliates and a $0.6 million decrease in the loss on the change in fair market value of the Companys LIBOR interest rate cap. These amounts were offset by a decrease in net gain on sale
of assets of $2.3 million, a decrease in the change in accounts payable and other liabilities of $3.9 million, a $2.0 million increase in the write-off of deferred loan costs and a $1.6 million increase in the change in tenant rent and
reimbursements receivable.



Net cash from investing activities
decreased $15.2 million from net cash provided of $12.8 million for the nine months ended September 30, 2002 to net cash used of $2.4 million for the same period in 2003. The decrease was primarily due to a $5.1 million decrease in sales of real
estate assets, a $9.3 million decrease in principal payments received from mortgage loans and notes receivable, a $4.0 million increase in purchases of real estate assets and a $0.7 million increase in construction in progress expenditures. These
amounts were partially offset by an increase in distributions from unconsolidated affiliates of $1.8 million, a $1.3 million decrease in contributions to unconsolidated affiliates and a $0.6 million increase in sales of bonds receivable.



Cash flows from financing activities increased by approximately $25.3
million from a net use of $16.1 million for the nine months ended September 30, 2002, to net cash provided of $9.2 million for the same period in 2003. The increase is mainly due to a $114.6 million increase in the notes payable proceeds offset by
the $83.6 million increase in the repayment of notes payable, a $1.5 million increase in the payment of deferred loan costs, a $3.4 million increase in restricted cash and a $0.7 million increase in distributions to shareholders.



New Accounting Pronouncements



On January 1, 2003, the Company adopted the provisions of SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). The most significant provisions of this statement relate to the rescission of Statement No. 4 Reporting
Gains and Losses from Extinguishment of Debt. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. Under SFAS 145,
any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet certain defined criteria must be reclassified. The adoption of this statement did not have a material effect on the
Companys results of operations or financial condition.



On January 1, 2003, the Company adopted the provisions of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task



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Force Issue No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The adoption of this statement did not have a material effect on the Companys results of
operations or financial condition.



On January 1, 2003, the
Company adopted the initial recognition and measurement provisions of Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN
45). FIN 45 significantly changes the current practice in the accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements meeting the characteristics described in FIN 45 are required to be initially recorded as a
liability at fair value. FIN 45 also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor having to make payment under the guarantee is remote. The Company adopted the
disclosure provisions of FIN 45 as of December 31, 2002. The adoption of the provisions of this interpretation did not have a material effect on the Companys results of operations or financial condition.



In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and provides guidance on the identification of
entities for which control is achieved through means other than voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE. This new model for
consolidation applies to an entity in which either: (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without receiving
additional subordinated financial support from other parties. The provisions of this interpretation are immediately effective for VIEs formed after January 31, 2003. For VIEs formed prior to January 31, 2003, the provisions of this interpretation
apply to the first fiscal year or interim period beginning after June 15, 2003. The Company is in the process of evaluating all of its investments and other interests in entities that may be deemed VIEs under the provisions of FIN 46. These
investments include real estate joint ventures with assets totaling $32 million as of September 30, 2003. The Companys maximum exposure to loss represents its recorded investment in these real estate joint ventures totaling $4.6 million as of
September 30, 2003 and $4.1 million as of December 31, 2002. The Company believes that all of its real estate joint ventures do not fall under the provisions of FIN 46 and will not be consolidated. However, the Company cannot make any definitive
conclusions until it completes its evaluation.



In April 2003,
the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instrumnets ans Hedging Activities(SFAS 149). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments imbedded in other contracts and for hedging activites under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. The provisions of SFAS 149 are generally effective for
contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. Management does not expect that the adoption of this statement will have a material effect on the Companys results of
operations or financial condition.



In May 2003, the FASB
issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Management does not expect that the adoption of this statement will have a material effect on the Companys results of operations or financial condition.



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



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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 2002 Annual Report on Form 10-K and the additional data presented below. The table on the following page presents an analysis of FFO
and additional data for the three and nine month periods ended September 30, 2003 and 2002.



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G&L REALTY CORP.



FUNDS FROM OPERATIONS AND ADDITIONAL DATA

(Unaudited)



|                                                            |  | For the Three MonthPeriods EndedSeptember 30, |        |   | For the Nine MonthPeriods EndedSeptember 30, |  
|----------------------------------------------------------- |  | --------------------------------------------- | ------ | - | -------------------------------------------- | -
|                                                            |  | 2003                                          |        |   | 2002                                         |  
|                                                            |  | (in thousands)                                |        |   | (in thousands)                               |  
|Funds from Operations(1)                                    |  |                                               |        |   |                                              |  
|Net (loss) income                                           |  | $                                             | (6,924 | ) |                                              | $
|Depreciation of real estate assets                          |  |                                               | 1,394  |   |                                              |  
|Amortization of deferred lease costs                        |  |                                               | 51     |   |                                              |  
|Net gain from discontinued operations                       |  |                                               |       |   |                                              |  
|Depreciation from unconsolidated affiliates                 |  |                                               | 91     |   |                                              |  
|Adjustment for minority interest in consolidated affiliates |  |                                               | (38    | ) |                                              |  
|Dividends on preferred stock                                |  |                                               | (1,790 | ) |                                              |  
|                                                            |  |                                               |        |   |                                              |  
|Funds from Operations(1)                                    |  | $                                             | (7,216 | ) |                                              | $
|                                                            |  |                                               |        |   |                                              |  
|Additional Data                                             |  |                                               |        |   |                                              |  
|Cash flows:                                                 |  |                                               |        |   |                                              |  
|Operating activities                                        |  | $                                             | (3,895 | ) |                                              | $
|Investing activities                                        |  |                                               | (113   | ) |                                              |  
|Financing activities                                        |  |                                               | 6,167  |   |                                              |  
|Capital expenditures                                        |  |                                               |        |   |                                              |  
|Building improvements                                       |  | $                                             | 118    |   |                                              | $
|Tenant improvements                                         |  |                                               | 189    |   |                                              |  
|Furniture, fixtures & equipment                             |  |                                               | 27     |   |                                              |  
|Leasing commissions                                         |  |                                               | 44     |   |                                              |  
|Depreciation and amortization                               |  |                                               |        |   |                                              |  
|Depreciation of real estate assets                          |  | $                                             | 1,394  |   |                                              | $
|Depreciation of non-real estate assets                      |  |                                               | 156    |   |                                              |  
|Amortization of deferred lease costs                        |  |                                               | 51     |   |                                              |  
|Amortization of deferred licensing costs                    |  |                                               | 14     |   |                                              |  
|Amortization of capitalized financing costs                 |  |                                               | 178    |   |                                              |  
|Accrued rent in excess of billed rent                       |  | $                                             | 32     |   |                                              | $



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



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Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The primary risk inherent in the Companys market sensitive instruments is the risk of loss resulting from interest rate fluctuations. As of
September 30, 2003, approximately 8% of the Companys notes payable bear interest at a rate indexed to the one-month LIBOR rate or Prime Rate. The tables below provide information as of September 30, 2003 and December 31, 2002 about the
Companys long-term debt obligations that are sensitive to changes in interest rates, including principal cash flows by scheduled maturity, weighted average interest rate and estimated fair value. The weighted average interest rates presented
are the actual rates as of September 30, 2003 and December 31, 2002.



|                      |  | AS OF SEPTEMBER 30, 2003 PRINCIPAL MATURING IN: |       |   |      |   |        |     
|--------------------- |  | ----------------------------------------------- | ----- | - | ---- | - | ------ | ----
|                      |  | 2003                                            |       |   | 2004 |   |        | 2005
|                      |  | (in thousands)                                  |       |   |      |   |        |     
|Liabilities:          |  |                                                 |       |   |      |   |        |     
|Mortgage debt:        |  |                                                 |       |   |      |   |        |     
|Fixed rate            |  | $                                               | 679   |   |      | $ | 2,653  |     
|Average interest rate |  |                                                 | 6.09  | % |      |   | 6.09   | %   
|Variable rate         |  |                                                 | 842   |   |      |   | 12,817 |     
|Average interest rate |  |                                                 | 6.30  | % |      |   | 6.22   | %   
|Line of credit:       |  |                                                 |       |   |      |   |        |     
|Variable rate         |  |                                                 |       |   |      |   |        |     
|Average interest rate |  |                                                 |       |   |      |   |        |     
|                      |  |                                                 |       |   |      |   |        |     
|                      |  | $                                               | 1,521 |   |      | $ | 15,470 |     
|                      |  |                                                 |       |   |      |   |        |     



The
Companys future earnings and cash flows relating to market sensitive instruments are primarily dependent upon prevailing LIBOR market interest rate. Based upon interest rates as of September 30, 2003, a 1% increase in the LIBOR rate would
decrease future earnings by $198,000 annually, and decrease future cash flow by $68,000 annually. A 1% decrease in the LIBOR rate would increase future earnings by $198,000 annually, and increase future cash flow by $68,000 annually. A 1% change in
the LIBOR rate would not have a material impact on the fair value of the Companys debt.



|                      |  | AS OF DECEMBER 31, 2002 PRINCIPAL MATURING IN: |       |   |      |   |        |     
|--------------------- |  | ---------------------------------------------- | ----- | - | ---- | - | ------ | ----
|                      |  | 2003                                           |       |   | 2004 |   |        | 2005
|                      |  | (in thousands)                                 |       |   |      |   |        |     
|Liabilities:          |  |                                                |       |   |      |   |        |     
|Mortgage debt:        |  |                                                |       |   |      |   |        |     
|Fixed rate            |  | $                                              | 2,564 |   |      | $ | 2,752  |     
|Average interest rate |  |                                                | 7.57  | % |      |   | 7.57   | %   
|Variable rate         |  |                                                | 2,174 |   |      |   | 15,367 |     
|Average interest rate |  |                                                | 7.82  | % |      |   | 7.82   | %   
|Line of credit:       |  |                                                |       |   |      |   |        |     
|Variable rate         |  |                                                |       |   |      |   |        |     
|Average interest rate |  |                                                |       |   |      |   |        |     
|                      |  |                                                |       |   |      |   |        |     
|                      |  | $                                              | 4,738 |   |      | $ | 18,119 |     
|                      |  |                                                |       |   |      |   |        |     



The Companys
future earnings and cash flows relating to market sensitive instruments are primarily dependent upon prevailing LIBOR market interest rate. Based upon interest rates as of December 31, 2002, a 1% increase in the LIBOR rate would decrease future
earnings by $531,000 and future cash flow would decrease by $400,000. A 1% decrease in the LIBOR rate would increase future earnings by $531,000 and future cash flow would increase by $400,000. A 1% change in the LIBOR rate would not have a material
impact on the fair value of the Companys debt.



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Item 4.    CONTROLS AND PROCEDURES



The Company evaluated the effectiveness of its disclosure controls and procedures. This evaluation was performed by the Companys Chief Accounting Officer, its President and its Chief Executive Officer.
These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in its periodic reports filed with the Securities and Exchange Commission (the Commission) is recorded,
processed, summarized and reported, within the time periods specified by the Commissions rules and forms, and that the information is communicated to the certifying officers on a timely basis. Based on this evaluation, the certifying officers
concluded that the Companys disclosure controls and procedures were effective as of September 30, 2003. 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 likely to materially affect, the Companys internal control over financial reporting.



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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 MOBs, SNFs, ALFs, parking facilities and retail space is currently a party to any material
litigation, except as discussed in Note 8 to the Condensed Consolidated Financial Statements.



Item 2    Changes in Securities.



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.



Item 6    Exhibits and Reports on Form 8-K



There were no reports on Form 8-K filed during the three month period ended September 30, 2003.



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(a)    Exhibits



|ExhibitNo. |  | Note |  | Description                                                                                                                                                                                                                   
|---------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           |  |     
|2.1        |  | (7)  |  | The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp.                                                                                                                                            
|           |  |     
|2.2        |  | (8)  |  | 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        |  | (11) |  | 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)  |  | Amended and Restated Articles of Incorporation of G&L Realty Corp.                                                                                                                                                            
|           |  |     
|3.2        |  | (3)  |  | Amended and Restated Bylaws of G&L Realty Corp.                                                                                                                                                                               
|           |  |     
|10.3       |  | (2)  |  | Agreement of Limited Partnership of G&L Realty Partnership, L.P.                                                                                                                                                              
|           |  |     
|10.3.2     |  | (13) |  | 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.                                   
|           |  |     
|10.58      |  | (4)  |  | Limited Liability Company Agreement of G&L Hampden, LLC.                                                                                                                                                                      
|           |  |     
|10.77      |  | (5)  |  | 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      |  | (5)  |  | 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      |  | (5)  |  | Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively Guarantor) in favor of G&L
Coronado, LLC (Landlord).                                                                                    
|           |  |     
|10.81      |  | (6)  |  | 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      |  | (10) |  | 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      |  | (10) |  | 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.
|           |  |     
|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                                                                                                                                                                              



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(a)    Exhibits  (continued from previous page)



|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 Current Report on Form 8-K (filed as of October 28, 1997) and incorporated herein by reference.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

|5) |  | 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.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6) |  | 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
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7) |  | 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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8) |  | 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------

|9) |  | 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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

|10) |  | 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.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

|11) |  | 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | Management contract or compensatory plan or arrangement
|-- |  | -------------------------------------------------------



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SIGNATURE



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



|                         |  |  |  | G&L REALTY CORP.
|------------------------ |  |  |  | ----------------
|                         |  |  | 
|Date:  November 14, 2003 |  |  |  | By:             
|                         |  |  |  |                 



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