##### Table of Contents

---

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

---



(Mark One)

|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|x  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|   |                                                                                         
|   | For the quarterly period ended June 30, 2003                                            
|   |                                                                                         
|OR
|   |                                                                                         
|o  | 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

---



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

---



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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes  o     No  x

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

---



---

##### Table of Contents

G&L REALTY CORP.

INDEX

|          |                                                                                                                              |            
|--------- | ---------------------------------------------------------------------------------------------------------------------------- | -----------
|          |                                                                                                                              | Page Number
|Part I    | Financial Information                                                                                                        |            
|          |                                                                                                                              |            
|Item 1    | Financial Statements                                                                                                         |            
|          | Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002                                  | 3          
|          | Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2003 and 2002 (unaudited) | 4          
|          | Condensed Consolidated Statements of Cash Flows for the Three and Six Month Periods Ended June 30, 2003 and 2002 (unaudited) | 5 - 6      
|          | Notes to Condensed Consolidated Financial Statements (unaudited)                                                             | 7  22     
|Item 2    | Managements Discussion and Analysis of Financial Condition and Results of Operations                                        | 23  31    
|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                                                                                             | 35  36    
|          |                                                                                                                              |            
|Signature |                                                                                                                              | 37         

Page 2



---

##### Table of Contents

G&L REALTY CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

|                                                                                                                                               |              |  |                  |             |   |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | ------------ |  | ---------------- | ----------- | - | - | ------- | -
|                                                                                                                                               | June 30,2003 |  | December 31,2002 |            
|                                                                                                                                               |              |  |                  |            
|                                                                                                                                               |              |  |                  | (Unaudited) |   |   |         |  
|ASSETS                                                                                                                                         |              |  |                  |             |   |   |         |  
|Rental properties (Note 3):                                                                                                                    |              |  |                  |             |   |   |         |  
|Land                                                                                                                                           |              |  | $                | 27,547      |   | $ | 23,614  |  
|Buildings and improvements, net                                                                                                                |              |  |                  | 117,865     |   |   | 119,682 |  
|Projects under development                                                                                                                     |              |  |                  | 736         |   |   | 240     |  
|                                                                                                                                               |              |  |                  |            
|Total rental properties                                                                                                                        |              |  |                  | 146,148     |   |   | 143,536 |  
|Assets held for sale (Note 3)                                                                                                                  |              |  |                  | 27,790      |   |   | 27,676  |  
|Cash and cash equivalents                                                                                                                      |              |  |                  | 2,349       |   |   | 2,366   |  
|Restricted cash                                                                                                                                |              |  |                  | 3,541       |   |   | 3,118   |  
|Tenant rent, reimbursements and other receivables, net                                                                                         |              |  |                  | 7,839       |   |   | 7,238   |  
|Unbilled rent receivable, net                                                                                                                  |              |  |                  | 2,569       |   |   | 2,551   |  
|Mortgage loans and notes receivable, net (Note 9)                                                                                              |              |  |                  | 1,311       |   |   | 1,829   |  
|Investments in unconsolidated affiliates (Note 6)                                                                                              |              |  |                  | 5,174       |   |   | 4,139   |  
|Deferred charges and other assets, net (Note 4)                                                                                                |              |  |                  | 5,690       |   |   | 5,555   |  
|                                                                                                                                               |              |  |                  |            
|TOTAL ASSETS                                                                                                                                   |              |  | $                | 202,411     |   | $ | 198,008 |  
|                                                                                                                                               |              |  |                  |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                           |              |  |                  |             |   |   |         |  
|LIABILITIES:                                                                                                                                   |              |  |                  |             |   |   |         |  
|Notes payable                                                                                                                                  |              |  | $                | 184,226     |   | $ | 175,109 |  
|Liabilities of assets held for sale (Note 3)                                                                                                   |              |  |                  | 19,057      |   |   | 19,311  |  
|Accounts payable and other liabilities                                                                                                         |              |  |                  | 6,698       |   |   | 5,733   |  
|Tenant security deposits                                                                                                                       |              |  |                  | 1,312       |   |   | 1,275   |  
|                                                                                                                                               |              |  |                  |            
|Total liabilities                                                                                                                              |              |  |                  | 211,293     |   |   | 201,428 |  
|Minority interest in consolidated affiliates                                                                                                   |              |  |                  | (1,355      | ) |   | (1,148  | )
|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 June 30,
2003 and December 31, 2002                                      |              |  |                  | 15          |   |   | 15      |  
| Series B Preferred - 1,380,000 shares issued and outstanding  as of June 30, 2003 and December
31, 2002                                      |              |  |                  | 14          |   |   | 14      |  
|Common shares - $.01 par value, 50,000,000 shares authorized, 710,199 shares issued and
outstanding as of June 30, 2003 and  December 31, 2002 |              |  |                  | 7           |   |   | 7       |  
|Additional paid-in capital                                                                                                                     |              |  |                  | 40,827      |   |   | 40,827  |  
|Distributions in excess of net income                                                                                                          |              |  |                  | (43,150     | ) |   | (37,895 | )
|Notes receivable from stockholders                                                                                                             |              |  |                  | (5,240      | ) |   | (5,240  | )
|                                                                                                                                               |              |  |                  |            
|Total stockholders equity                                                                                                                     |              |  |                  | (7,527      | ) |   | (2,272  | )
|                                                                                                                                               |              |  |                  |            
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                     |              |  | $                | 202,411     |   | $ | 198,008 |  
|                                                                                                                                               |              |  |                  |            

See accompanying notes to Condensed Consolidated Financial Statements

Page
3



---

##### Table of Contents

G&L REALTY CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)

|                                                                                                                                      |      |  |                                           |        |                                         |   |        |   |   |        |   |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ----------------------------------------- | ------ | --------------------------------------- | - | ------ | - | - | ------ | - | - | ------ | -
|                                                                                                                                      |      |  | For the Three MonthPeriods Ended June 30, |        | For the Six MonthPeriods Ended June 30, |  
|                                                                                                                                      |      |  |                                           |       
|                                                                                                                                      | 2003 |  | 2002                                      |        | 2003                                    |   | 2002   |  
|                                                                                                                                      |      |  |                                           |       
|REVENUES:                                                                                                                             |      |  |                                           |        |                                         |   |        |   |   |        |   |   |        |  
|Rent                                                                                                                                  |      |  | $                                         | 5,640  |                                         | $ | 6,562  |   | $ | 11,356 |   | $ | 12,677 |  
|Patient revenues                                                                                                                      |      |  |                                           | 6,337  |                                         |   | 5,852  |   |   | 12,236 |   |   | 11,576 |  
|Tenant reimbursements                                                                                                                 |      |  |                                           | 694    |                                         |   | 845    |   |   | 1,377  |   |   | 1,314  |  
|Parking                                                                                                                               |      |  |                                           | 384    |                                         |   | 367    |   |   | 738    |   |   | 701    |  
|Interest and loan fees                                                                                                                |      |  |                                           | 192    |                                         |   | 232    |   |   | 399    |   |   | 2,032  |  
|Other income                                                                                                                          |      |  |                                           | 69     |                                         |   | 429    |   |   | 591    |   |   | 798    |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  
|Total revenues                                                                                                                        |      |  |                                           | 13,316 |                                         |   | 14,287 |   |   | 26,697 |   |   | 29,098 |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  
|EXPENSES:                                                                                                                             |      |  |                                           |        |                                         |   |        |   |   |        |   |   |        |  
|Property operations                                                                                                                   |      |  |                                           | 1,906  |                                         |   | 1,934  |   |   | 3,773  |   |   | 3,783  |  
|Skilled nursing operations                                                                                                            |      |  |                                           | 5,843  |                                         |   | 5,264  |   |   | 11,252 |   |   | 10,362 |  
|Depreciation and amortization                                                                                                         |      |  |                                           | 1,385  |                                         |   | 1,362  |   |   | 2,734  |   |   | 2,738  |  
|Provision for doubtful accounts, notes and bonds receivable                                                                           |      |  |                                           | 114    |                                         |   | 355    |   |   | 393    |   |   | 564    |  
|Loss on sale of bonds receivable (Note 9)                                                                                             |      |  |                                           |       |                                         |   |       |   |   | 120    |   |   |       |  
|Interest (Note 10)                                                                                                                    |      |  |                                           | 8,359  |                                         |   | 4,222  |   |   | 12,163 |   |   | 8,471  |  
|General and administrative                                                                                                            |      |  |                                           | 879    |                                         |   | 814    |   |   | 1,832  |   |   | 1,603  |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  
|Total expenses                                                                                                                        |      |  |                                           | 18,486 |                                         |   | 13,951 |   |   | 32,267 |   |   | 27,521 |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  
|(Loss) income from operations before minority interests, equity in earnings of unconsolidated affiliates
and  discontinued operations |      |  |                                           | (5,170 | )                                       |   | 336    |   |   | (5,570 | ) |   | 1,577  |  
|Equity in (loss) earnings of unconsolidated affiliates (Notes 6 and 10)                                                               |      |  |                                           | (84    | )                                       |   | 9      |   |   | 3,800  |   |   | 98     |  
|Minority interest in consolidated affiliates                                                                                          |      |  |                                           | (81    | )                                       |   | (13    | ) |   | (10    | ) |   | (138   | )
|Corporate income tax expense                                                                                                          |      |  |                                           | (22    | )                                       |   |       |   |   | (45    | ) |   |       |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  
|(Loss) income from operations before discontinued operations                                                                          |      |  |                                           | (5,357 | )                                       |   | 332    |   |   | (1,825 | ) |   | 1,537  |  
|Discontinued operations                                                                                                               |      |  |                                           |        |                                         |   |        |   |   |        |   |   |        |  
|Net income from operations of discontinued operations  (Note 3)                                                                       |      |  |                                           | 673    |                                         |   | 299    |   |   | 951    |   |   | 532    |  
|Net (loss)gain from discontinued operations                                                                                           |      |  |                                           |       |                                         |   | (138   | ) |   |       |   |   | 2,320  |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |   |   |       
|Net (loss) income                                                                                                                     |      |  |                                           | (4,684 | )                                       |   | 493    |   |   | (874   | ) |   | 4,389  |  
|Dividends on preferred stock                                                                                                          |      |  |                                           | (1,791 | )                                       |   | (1,791 | ) |   | (3,581 | ) |   | (3,581 | )
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  
|Net (loss) income available to common stockholders                                                                                    |      |  | $                                         | (6,475 | )                                       | $ | (1,298 | ) | $ | (4,455 | ) | $ | 808    |  
|                                                                                                                                      |      |  |                                           |        |                                         |   |        |  

See accompanying notes to Condensed Consolidated Financial Statements

Page
4



---

##### Table of Contents

G&L REALTY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)




|                                                                                  |      |      |                           |         |   |   |         |  
|--------------------------------------------------------------------------------- | ---- | ---- | ------------------------- | ------- | - | - | ------- | -
|                                                                                  |      |      | Six Months Ended June 30, |        
|                                                                                  | 2003 | 2002
|                                                                                  |      |      | (Unaudited)               |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |      |      |                           |         |   |   |         |  
|Net (loss) income                                                                 |      |      | $                         | (874    | ) | $ | 4,389   |  
|Adjustments to reconcile net income to net cash provided by Operating activities: |      |      |                           |         |   |   |         |  
|Depreciation and amortization                                                     |      |      |                           | 2,749   |   |   | 3,132   |  
|Amortization of deferred loan costs                                               |      |      |                           | 385     |   |   | 502     |  
|Write-off of deferred loan costs                                                  |      |      |                           | 272     |   |   |        |  
|Loss on sale of bonds receivable                                                  |      |      |                           | 120     |   |   |        |  
|Net gain on sale of assets                                                        |      |      |                           |        |   |   | (2,320  | )
|Loss on change in value of interest rate hedge                                    |      |      |                           | 319     |   |   | 582     |  
|Minority interests                                                                |      |      |                           | 10      |   |   | 138     |  
|Equity in income of unconsolidated affiliates                                     |      |      |                           | (3,800  | ) |   | (98     | )
|Provision for doubtful accounts, notes and bonds receivable                       |      |      |                           | 393     |   |   | 564     |  
|Unbilled rent receivable, net                                                     |      |      |                           | (10     | ) |   | (317    | )
|(Increase) decrease in:                                                           |      |      |                           |         |   |   |         |  
|Tenant rent, reimbursements and other receivables                                 |      |      |                           | (946    | ) |   | (1,526  | )
|Prepaid expense and other assets                                                  |      |      |                           | (34     | ) |   | (38     | )
|Accrued interest and loan fees receivable                                         |      |      |                           | (239    | ) |   | (183    | )
|Increase (decrease) in:                                                           |      |      |                           |         |   |   |         |  
|Accounts payable and other liabilities                                            |      |      |                           | 823     |   |   | (4,914  | )
|Tenant security deposits                                                          |      |      |                           | 46      |   |   | (20     | )
|                                                                                  |      |      |                           |        
|Net cash used in operating activities                                             |      |      |                           | (786    | ) |   | (109    | )
|                                                                                  |      |      |                           |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |      |      |                           |         |   |   |         |  
|Sale of real estate assets                                                        |      |      |                           |        |   |   | 5,141   |  
|Sale of bonds receivable                                                          |      |      |                           | 600     |   |   |        |  
|Purchase of real estate assets                                                    |      |      |                           | (3,932  | ) |   |         |  
|Additions to rental properties                                                    |      |      |                           | (1,105  | ) |   | (832    | )
|Pre-acquisition costs, net                                                        |      |      |                           | 6       |   |   | 122     |  
|Construction in progress                                                          |      |      |                           | (546    | ) |   | (19     | )
|Leasing commissions                                                               |      |      |                           | (49     | ) |   | (68     | )
|Investment in mortgage loans and notes receivable                                 |      |      |                           |        |   |   | (310    | )
|Contributions to unconsolidated affiliates                                        |      |      |                           | (159    | ) |   | (1,470  | )
|Distributions from unconsolidated affiliates                                      |      |      |                           | 2,924   |   |   | 1,490   |  
|Principal payments received from mortgage loans and notes receivable              |      |      |                           |        |   |   | 9,333   |  
|                                                                                  |      |      |                           |        
|Net cash (used in) provided by investing activities                               |      |      |                           | (2,261  | ) |   | 13,387  |  
|                                                                                  |      |      |                           |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |      |      |                           |         |   |   |         |  
|Notes payable proceeds                                                            |      |      |                           | 64,425  |   |   | 9,160   |  
|Repayment of notes payable                                                        |      |      |                           | (55,492 | ) |   | (20,060 | )
|Payment of deferred loan costs                                                    |      |      |                           | (909    | ) |   | 90      |  
|(Increase) decrease in restricted cash                                            |      |      |                           | (458    | ) |   | 821     |  
|Minority interest equity contribution                                             |      |      |                           |        |   |   | 25      |  
|Distributions                                                                     |      |      |                           | (4,535  | ) |   | (3,824  | )
|                                                                                  |      |      |                           |        
|Net cash provided by (used in) financing activities                               |      |      |                           | 3,031   |   |   | (13,788 | )
|                                                                                  |      |      |                           |        

Continued...

See accompanying notes to Condensed Consolidated Financial
Statements

Page 5



---

##### Table of Contents

G&L REALTY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                                         |      |      |                           |             |   |   |        |  
|------------------------------------------------------------------------ | ---- | ---- | ------------------------- | ----------- | - | - | ------ | -
|                                                                         |      |      | Six Months Ended June 30, |            
|                                                                         | 2003 | 2002
|                                                                         |      |      |                           | (Unaudited) |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                |      |      |                           | (16         | ) |   | (510   | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                           |      |      |                           | 2,366       |   |   | 2,039  |  
|                                                                         |      |      |                           |            
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                 |      |      | $                         | 2,350       |   | $ | 1,529  |  
|                                                                         |      |      |                           |            
|SUPPLEMENTAL CASH FLOW INFORMATION                                       |      |      |                           |             |   |   |        |  
|Cash paid during the period for interest                                 |      |      | $                         | 12,717      |   | $ | 8,742  |  
|                                                                         |      |      |                           |            
|NONCASH INVESTING AND FINANCING ACTIVITIES                               |      |      |                           |             |   |   |        |  
|Preferred distributions due to minority partner                          |      |      | $                         | 63          |   | $ | 30     |  
|                                                                         |      |      |                           |            
|Acquisition of property and other assets for assumption of note payable: |      |      |                           |             |   |   |        |  
|Restricted cash                                                          |      |      |                           |             |   | $ | 597    |  
|Land                                                                     |      |      |                           |             |   |   | 1,390  |  
|Buildings and improvements                                               |      |      |                           |             |   |   | 10,760 |  
|Deferred charges and other assets                                        |      |      |                           |             |   |   | 463    |  
|Note receivable                                                          |      |      |                           |             |   |   | (1,269 | )
|                                                                         |      |      |                          
|Total                                                                    |      |      |                           |             |   | $ | 11,941 |  
|                                                                         |      |      |                          
|Assumption of note payable for property and other assets:                |      |      |                           |             |   |   |        |  
|Note payable                                                             |      |      |                           |             |   | $ | 11,941 |  
|                                                                         |      |      |                          

Concluded.

See accompanying notes to Condensed Consolidated Financial
Statements

Page 6



---

##### Table of Contents

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

| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                
| | * | The Medical Partnership, 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 is a co-managing member), Tarzana (in which the Operating
Partnership owns a 85% membership interest and is a co-

Page 7



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED(Unaudited)

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 and 435
Bedford (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:

| |  |                                                                
| |  | ---------------------------------------------------------------
| |  | GLN Capital Co., LLC (GLN)                                   
| |  | 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)                              

GLN, 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 six-month period ended June 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 six months ended June 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

Page 8



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED(Unaudited)

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 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 June 30, 2003. The Companys maximum exposure to loss represents its recorded investment in these real estate joint
ventures totaling $5.2 million as of June

Page 9



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED(Unaudited)

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.

Page 10



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED(Unaudited)

3.  BUILDINGS AND IMPROVEMENTS

Buildings and improvements
consist of the following:

|                                               |                |  |                   |         |   |   |         |  
|---------------------------------------------- | -------------- |  | ----------------- | ------- | - | - | ------- | -
|                                               | June 30, 2003  |  | December 31, 2002 |        
|                                               |                | 
|                                               | (in thousands) | 
|Buildings and improvements                     |                |  | $                 | 137,972 |   | $ | 137,575 |  
|Tenant improvements                            |                |  |                   | 11,452  |   |   | 11,160  |  
|Furniture, fixtures and equipment              |                |  |                   | 5,150   |   |   | 5,047   |  
|                                               |                |  |                   |        
|                                               |                |  |                   | 154,574 |   |   | 153,782 |  
|Less accumulated depreciation and amortization |                |  |                   | (36,709 | ) |   | (34,100 | )
|                                               |                |  |                   |        
|Total                                          |                |  | $                 | 117,865 |   | $ | 119,682 |  
|                                               |                |  |                   |        

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 June 30, 2003, the Company had listed for sale or
was under contract to sell a total of four properties. The properties include a three-story, approximately 71,000 square foot MOB located in Mission Hills, California, a two-floor, 26,000 square foot MOB located in Burbank, California, a
three-story, 40,000 square foot office and retail complex located in Coronado, California and a one-story, 9,100 square foot retail facility located in Aliso Viejo, California. 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 June 30, 2003 and
December 31, 2002:

Page 11



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED


(Unaudited)


|                                               |               |  |         |        |          |   |             |  |       |       |  |   |       |  |   |       
|---------------------------------------------- | ------------- |  | ------- | ------ | -------- | - | ----------- |  | ----- | ----- |  | - | ----- |  | - | ------
|Assets & Liabilities of Assets Held for Sale  
|As of June 30, 2003                           
|                                               |               |  |        
|                                               | Mission Hills |  | Burbank |        | Coronado |   | Aliso Viejo |  | Total
|Rental properties:                             |               |  |         |        |          |   |             |  |       |       |  |   |       |  |   |       
|                                               |               |  |         |        |          |   |            
|Land                                           |               |  | $       | 2,556  |          | $ | 1,300       |  | $     | 809   |  | $ | 560   |  | $ | 5,225 
|Buildings and improvements, net                |               |  |         | 8,529  |          |   | 3,316       |  |       | 8,276 |  |   | 1,191 |  |   | 21,312
|Projects under development                     |               |  |         | 4      |          |   |            |  |       | 52    |  |   |      |  |   | 56    
|                                               |               |  |         |        |          |   |             |  |      
|Total rental properties                        |               |  |         | 11,089 |          |   | 4,616       |  |       | 9,137 |  |   | 1,751 |  |   | 26,593
|Restricted cash                                |               |  |         | 39     |          |   | 17          |  |       | 128   |  |   |      |  |   | 184   
|Tenant rent and reimbursements receivable, net |               |  |         | 10     |          |   |            |  |       | 40    |  |   | 16    |  |   | 66    
|Unbilled rent receivable, net                  |               |  |         | 481    |          |   | 75          |  |       | 25    |  |   | 42    |  |   | 623   
|Deferred charges and other assets, net         |               |  |         | 102    |          |   | 71          |  |       | 119   |  |   | 32    |  |   | 324   
|                                               |               |  |         |        |          |   |             |  |      
|Total assets held for sale                     |               |  | $       | 11,721 |          | $ | 4,779       |  | $     | 9,449 |  | $ | 1,841 |  | $ | 27,790
|                                               |               |  |         |        |          |   |             |  |      
|LIABILITIES:                                   |               |  |         |        |          |   |             |  |       |       |  |   |       |  |   |       
|Notes Payable                                  |               |  | $       | 7,370  |          | $ | 2,973       |  | $     | 7,109 |  | $ | 1,347 |  | $ | 18,799
|Accounts payable and other liabilities         |               |  |         | 51     |          |   | 31          |  |       | 12    |  |   |      |  |   | 94    
|Tenant security deposits                       |               |  |         | 103    |          |   | 27          |  |       | 34    |  |   |      |  |   | 164   
|                                               |               |  |         |        |          |   |             |  |      
|Total liabilities of assets held for sale      |               |  | $       | 7,524  |          | $ | 3,031       |  | $     | 7,155 |  | $ | 1,347 |  | $ | 19,057
|                                               |               |  |         |        |          |   |             |  |      

|                                               |               |  |         |        |          |   |             |  |       |       |  |   |       |  |   |       
|---------------------------------------------- | ------------- |  | ------- | ------ | -------- | - | ----------- |  | ----- | ----- |  | - | ----- |  | - | ------
|Assets & Liabilities of Assets Held for Sale  
|As of December 31, 2002                       
|                                               |               |  |        
|                                               | Mission Hills |  | Burbank |        | Coronado |   | Aliso Viejo |  | Total
|Rental properties:                             |               |  |         |        |          |   |             |  |       |       |  |   |       |  |   |       
|Land                                           |               |  | $       | 2,557  |          | $ | 1,300       |  | $     | 809   |  | $ | 560   |  | $ | 5,226 
|Buildings and improvements, net                |               |  |         | 8,451  |          |   | 3,296       |  |       | 8,257 |  |   | 1,190 |  |   | 21,194
|Projects under development                     |               |  |         |       |          |   |            |  |       | 6     |  |   |      |  |   | 6     
|                                               |               |  |         |        |          |   |             |  |      
|Total rental properties                        |               |  |         | 11,008 |          |   | 4,596       |  |       | 9,072 |  |   | 1,750 |  |   | 26,426
|Restricted cash                                |               |  |         | 38     |          |   | 18          |  |       | 93    |  |   |      |  |   | 149   
|Tenant rent and reimbursements receivable, net |               |  |         | 5      |          |   | 65          |  |       | 1     |  |   | 5     |  |   | 76    
|Unbilled rent receivable, net                  |               |  |         | 515    |          |   | 65          |  |       | 14    |  |   | 37    |  |   | 631   
|Deferred charges and other assets, net         |               |  |         | 127    |          |   | 90          |  |       | 141   |  |   | 36    |  |   | 394   
|                                               |               |  |         |        |          |   |             |  |      
|Total assets held for sale                     |               |  | $       | 11,693 |          | $ | 4,834       |  | $     | 9,321 |  | $ | 1,828 |  | $ | 27,676
|                                               |               |  |         |        |          |   |             |  |      
|LIABILITIES:                                   |               |  |         |        |          |   |             |  |       |       |  |   |       |  |   |       
|Notes Payable                                  |               |  | $       | 7,456  |          | $ | 3,007       |  | $     | 7,160 |  | $ | 1,360 |  | $ | 18,983
|Accounts payable and other liabilities         |               |  |         | 131    |          |   | 41          |  |       |      |  |   |      |  |   | 172   
|Tenant security deposits                       |               |  |         | 96     |          |   | 27          |  |       | 33    |  |   |      |  |   | 156   
|                                               |               |  |         |        |          |   |             |  |      
|Total liabilities of assets held for sale      |               |  | $       | 7,683  |          | $ | 3,075       |  | $     | 7,193 |  | $ | 1,360 |  | $ | 19,311
|                                               |               |  |         |        |          |   |             |  |      

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 and a SNF located in Paso
Robles, California. The following tables summarize net income from operations of discontinued operations for the three and six month periods ended June 30, 2003 and June 30, 2002:

Page
12



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED


(Unaudited)


|                                                      |               |  |         |     |          |   |             |  |       |     |  |   |     |  |   |      
|----------------------------------------------------- | ------------- |  | ------- | --- | -------- | - | ----------- |  | ----- | --- |  | - | --- |  | - | -----
|Net income from operations of discontinued operations
|For the six month period ended June 30, 2003         
|                                                      |               |  |        
|                                                      | Mission Hills |  | Burbank |     | Coronado |   | Aliso Viejo |  | Total
|Revenues:                                             |               |  |         |     |          |   |             |  |       |     |  |   |     |  |   |      
|Rent                                                  |               |  | $       | 875 |          | $ | 373         |  | $     | 608 |  | $ | 95  |  | $ | 1,951
|Tenant reimbursements                                 |               |  |         | 35  |          |   | 34          |  |       | 163 |  |   | 9   |  |   | 241  
|Parking                                               |               |  |         | 34  |          |   | 17          |  |       | 12  |  |   |    |  |   | 63   
|Other income                                          |               |  |         | 5   |          |   | 10          |  |       | 1   |  |   |    |  |   | 16   
|                                                      |               |  |         |     |          |   |             |  |      
|Total revenues                                        |               |  |         | 949 |          |   | 434         |  |       | 784 |  |   | 104 |  |   | 2,271
|                                                      |               |  |         |     |          |   |             |  |      
|Expenses:                                             |               |  |         |     |          |   |             |  |       |     |  |   |     |  |   |      
|Property operations                                   |               |  |         | 289 |          |   | 136         |  |       | 187 |  |   | 9   |  |   | 621  
|Depreciation and amortization                         |               |  |         | 7   |          |   | 4           |  |       | 4   |  |   | 1   |  |   | 16   
|Interest                                              |               |  |         | 268 |          |   | 109         |  |       | 253 |  |   | 53  |  |   | 683  
|                                                      |               |  |         |     |          |   |             |  |      
|Total expenses                                        |               |  |         | 564 |          |   | 249         |  |       | 444 |  |   | 63  |  |   | 1,320
|                                                      |               |  |         |     |          |   |             |  |      
|Net income from operations of discontinued operations |               |  | $       | 385 |          | $ | 185         |  | $     | 340 |  | $ | 41  |  | $ | 951  
|                                                      |               |  |         |     |          |   |             |  |      

|                                                             |             |  |        |     |               |   |         |  |          |       |             |   |       |  |   |     |  |   |     |  |   |      
|------------------------------------------------------------ | ----------- |  | ------ | --- | ------------- | - | ------- |  | -------- | ----- | ----------- | - | ----- |  | - | --- |  | - | --- |  | - | -----
|Net income from operations of discontinued operations       
|For the six month period ended June 30, 2002                
|                                                             |             |  |       
|                                                             | Paso Robles |  | Tustin |     | Mission Hills |   | Burbank |  | Coronado |       | Aliso Viejo |   | Total
|Revenues:                                                    |             |  |        |     |               |   |         |  |          |       |             |   |       |  |   |     |  |   |     |  |   |      
|Rent                                                         |             |  |        |    |               | $ | 20      |  | $        | 919   |             | $ | 361   |  | $ | 567 |  | $ | 96  |  | $ | 1,963
|Tenant reimbursements                                        |             |  |        |    |               |   |        |  |          | 59    |             |   | 23    |  |   | 138 |  |   | 8   |  |   | 228  
|Parking                                                      |             |  |        |    |               |   |        |  |          | 31    |             |   | 17    |  |   | 10  |  |   |    |  |   | 58   
|Other income                                                 |             |  |        |    |               |   |        |  |          | 7     |             |   | 5     |  |   | 2   |  |   |    |  |   | 14   
|                                                             |             |  |        |     |               |   |         |  |          |       |             |   |      
|Total revenues                                               |             |  |        |    |               |   | 20      |  |          | 1,016 |             |   | 406   |  |   | 717 |  |   | 104 |  |   | 2,263
|                                                             |             |  |        |     |               |   |         |  |          |       |             |   |      
|Expenses:                                                    |             |  |        |     |               |   |         |  |          |       |             |   |       |  |   |     |  |   |     |  |   |      
|Property operations                                          |             |  |        | 11  |               |   | 4       |  |          | 270   |             |   | 146   |  |   | 189 |  |   | 9   |  |   | 629  
|Depreciation and amortization                                |             |  |        | 3   |               |   |        |  |          | 186   |             |   | 66    |  |   | 121 |  |   | 18  |  |   | 394  
|Interest                                                     |             |  |        |    |               |   | 14      |  |          | 274   |             |   | 111   |  |   | 256 |  |   | 53  |  |   | 708  
|                                                             |             |  |        |     |               |   |         |  |          |       |             |   |      
|Total expenses                                               |             |  |        | 14  |               |   | 18      |  |          | 730   |             |   | 323   |  |   | 566 |  |   | 80  |  |   | 1,731
|                                                             |             |  |        |     |               |   |         |  |          |       |             |   |      
|Net (loss) income from operations of discontinued operations |             |  | $      | (14 | )             | $ | 2       |  | $        | 286   |             | $ | 83    |  | $ | 151 |  | $ | 24  |  | $ | 532  
|                                                             |             |  |        |     |               |   |         |  |          |       |             |   |      

Page 13



---

##### Table of Contents

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 June 30,
2003        |              
|                                                      |               |  |         |     |          |   |             |   |       |    
|                                                      | Mission Hills |  | Burbank |     | Coronado |   | Aliso Viejo |   | Total |    
|Revenues:                                             |               |  |         |     |          |   |             |   |       |     |   |   |    |   |   |       |  
|Rent                                                  |               |  | $       | 433 |          | $ | 191         |   | $     | 307 |   | $ | 48 |   | $ | 979   |  
|Tenant reimbursements                                 |               |  |         | 17  |          |   | 24          |   |       | 83  |   |   | 4  |   |   | 128   |  
|Parking                                               |               |  |         | 19  |          |   | 9           |   |       | 8   |   |   |   |   |   | 36    |  
|Other income                                          |               |  |         | 2   |          |   | 6           |   |       |    |   |   |   |   |   | 8     |  
|                                                      |               |  |         |     |          |   |             |   |       |    
|Total revenues                                        |               |  |         | 471 |          |   | 230         |   |       | 398 |   |   | 52 |   |   | 1,151 |  
|                                                      |               |  |         |     |          |   |             |   |       |    
|Expenses:                                             |               |  |         |     |          |   |             |   |       |     |   |   |    |   |   |       |  
|Property operations                                   |               |  |         | 144 |          |   | 70          |   |       | 100 |   |   | 4  |   |   | 318   |  
|Depreciation and amortization                         |               |  |         | (88 | )        |   | (29         | ) |       | (57 | ) |   | (8 | ) |   | (182  | )
|Interest                                              |               |  |         | 135 |          |   | 54          |   |       | 127 |   |   | 26 |   |   | 342   |  
|                                                      |               |  |         |     |          |   |             |   |       |    
|Total expenses                                        |               |  |         | 191 |          |   | 95          |   |       | 170 |   |   | 22 |   |   | 478   |  
|                                                      |               |  |         |     |          |   |             |   |       |    
|Net income from operations of discontinued operations |               |  | $       | 280 |          | $ | 135         |   | $     | 228 |   | $ | 30 |   | $ | 673   |  
|                                                      |               |  |         |     |          |   |             |   |       |    



|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |       |  |   |     |  |   |    |  |   |      
|------------------------------------------------------------ | ----------- |  | ------ | -- | ------------- | - | ------- | - | -------- | --- | ----------- | - | ----- |  | - | --- |  | - | -- |  | - | -----
|Net income from operations of discontinued operations       
|For the three month period ended June 30, 2002              
|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |      
|                                                             | Paso Robles |  | Tustin |    | Mission Hills |   | Burbank |   | Coronado |     | Aliso Viejo |   | Total
|Revenues:                                                    |             |  |        |    |               |   |         |   |          |     |             |   |       |  |   |     |  |   |    |  |   |      
|Rent                                                         |             |  |        |   |               | $ |        |   | $        | 467 |             | $ | 183   |  | $ | 288 |  | $ | 48 |  | $ | 986  
|Tenant reimbursements                                        |             |  |        |   |               |   |        |   |          | 52  |             |   | 13    |  |   | 66  |  |   | 3  |  |   | 134  
|Parking                                                      |             |  |        |   |               |   |        |   |          | 16  |             |   | 7     |  |   | 12  |  |   |   |  |   | 35   
|Other income                                                 |             |  |        |   |               |   |        |   |          | 1   |             |   | 3     |  |   | 1   |  |   | 1  |  |   | 6    
|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |      
|Total revenues                                               |             |  |        |   |               |   |        |   |          | 536 |             |   | 206   |  |   | 367 |  |   | 52 |  |   | 1,161
|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |      
|Expenses:                                                    |             |  |        |    |               |   |         |   |          |     |             |   |       |  |   |     |  |   |    |  |   |      
|Property operations                                          |             |  |        | (1 | )             |   | 1       |   |          | 135 |             |   | 74    |  |   | 105 |  |   | 4  |  |   | 318  
|Depreciation and amortization                                |             |  |        | 1  |               |   |        |   |          | 93  |             |   | 31    |  |   | 61  |  |   | 9  |  |   | 195  
|Interest                                                     |             |  |        |   |               |   |        |   |          | 137 |             |   | 56    |  |   | 129 |  |   | 27 |  |   | 349  
|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |      
|Total expenses                                               |             |  |        |   |               |   | 1       |   |          | 365 |             |   | 161   |  |   | 295 |  |   | 40 |  |   | 862  
|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |      
|Net (loss) income from operations of discontinued operations |             |  | $      |   |               | $ | (1      | ) | $        | 171 |             | $ | 45    |  | $ | 72  |  | $ | 12 |  | $ | 299  
|                                                             |             |  |        |    |               |   |         |   |          |     |             |   |      

Page 14



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

4.  DEFERRED CHARGES AND OTHER ASSETS

| |                                                            
| | -----------------------------------------------------------
| |                                                            
| | Deferred charges and other assets consist of the following:

|                                 |  |  |                |        |                   |   |        |  
|-------------------------------- |  |  | -------------- | ------ | ----------------- | - | ------ | -
|                                 |  |  | June 30, 2003  |        | December 31, 2002 |  
|                                 |  |  |               
|                                 |  |  | (in thousands) |       
|Deferred loan costs              |  |  | $              | 6,149  |                   | $ | 6,426  |  
|Pre-acquisition costs            |  |  |                |       |                   |   | 6      |  
|Leasing commissions              |  |  |                | 1,519  |                   |   | 1,693  |  
|Prepaid expense and other assets |  |  |                | 754    |                   |   | 486    |  
|                                 |  |  |                |        |                   |  
|                                 |  |  |                | 8,422  |                   |   | 8,611  |  
|Less accumulated amortization    |  |  |                | (2,732 | )                 |   | (3,056 | )
|                                 |  |  |                |        |                   |  
|Total                            |  |  | $              | 5,690  |                   | $ | 5,555  |  
|                                 |  |  |                |       

5.  STOCKHOLDERS EQUITY

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

|                                                             |                |  |   |               |   |   |                   |  
|------------------------------------------------------------ | -------------- |  | - | ------------- | - | - | ----------------- | -
|                                                             |                |  |   | June 30, 2003 |   |   | December 31, 2002 |  
|                                                             |                | 
|                                                             | (in thousands) | 
|Distributions in excess of net income at beginning of period |                |  | $ | (37,895       | ) | $ | (34,722           | )
|Net (loss) income during period                              |                |  |   | (874          | ) |   | 4,489             |  
|Less: Distributions declared                                 |                |  |   | (4,381        | ) |   | (7,662            | )
|                                                             |                |  |   |               |   |  
|Distributions in excess of net income                        |                |  | $ | (43,150       | ) | $ | (37,895           | )
|                                                             |                |  |   |               |   |  

Page 15



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

6.  INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company has investments in various unconsolidated affiliates as described in Note 1. The following table
provides a summary of the Companys investment in each of these entities as of June 30, 2003. (In thousands).

|                                         |        |  |           |       |                 |   |                |  |              |      |                 |   |           |  |          |        |       |   |      |   |   |        |   |   |       |   |   |        |  
|---------------------------------------- | ------ |  | --------- | ----- | --------------- | - | -------------- |  | ------------ | ---- | --------------- | - | --------- |  | -------- | ------ | ----- | - | ---- | - | - | ------ | - | - | ----- | - | - | ------ | -
|                                         | Radius |  | San Pedro |       | Penasquitos LLC |   | Heritage Place |  | Pacific Park |      | Eagle Run, Inc. |   | Eagle Run |  | Lakeview |        | Total
|                                         |        |  |           |      
|Opening balance at beginning of period   |        |  | $         | 1,217 |                 | $ | 1,520          |  | $            | (475 | )               | $ |          |  | $        | 48     |       | $ | (916 | ) | $ | 423    |   | $ | 442   |   | $ | 2,259  |  
|Equity in earnings (loss) of affiliates  |        |  |           | 18    |                 |   | 84             |  |              | (29  | )               |   |          |  |          | 1,276  |       |   | 51   |   |   | 2,597  |   |   | (197  | ) |   | 3,800  |  
|Cash contributions                       |        |  |           |       |                 |   |               |  |              |     |                 |   |          |  |          | 25     |       |   |     |   |   |       |   |   | 114   |   |   | 139    |  
|Cash distributions                       |        |  |           | (7    | )               |   |               |  |              |     |                 |   |          |  |          | (1,233 | )     |   |     |   |   | (1,745 | ) |   |      |   |   | (2,985 | )
|Intercompany elimination                 |        |  |           |      |                 |   |               |  |              |     |                 |   |          |  |          | (672   | )     |   | 36   |   |   | 48     |   |   |      |   |   | (588   | )
|Gain (loss) on investment                |        |  |           |      |                 |   |               |  |              |     |                 |   |          |  |          | 556    |       |   | 829  |   |   | (1,323 | ) |   |      |   |   | 62     |  
|                                         |        |  |           |       |                 |   |                |  |              |      |                 |   |           |  |          |        |       |  
|Equity, before inter-company adjustments |        |  |           | 1,228 |                 |   | 1,604          |  |              | (504 | )               |   |          |  |          |       |       |   |     |   |   |       |   |   | 359   |   |   | 2,687  |  
|                                         |        |  |           |       |                 |   |                |  |              |      |                 |   |           |  |          |        |       |  
|Intercompany transactions:               |        |  |           |       |                 |   |                |  |              |      |                 |   |           |  |          |        |       |   |      |   |   |        |   |   |       |   |   |        |  
|Receivable, net                          |        |  |           |      |                 |   | 36             |  |              | 291  |                 |   | 14        |  |          |       |       |   |     |   |   |       |   |   | 2,146 |   |   | 2,487  |  
|                                         |        |  |           |       |                 |   |                |  |              |      |                 |   |           |  |          |        |       |  
|Investment in unconsolidated affiliates  |        |  | $         | 1,228 |                 | $ | 1,640          |  | $            | (213 | )               | $ | 14        |  | $        |       |       | $ |     |   | $ |       |   | $ | 2,505 |   | $ | 5,174  |  
|                                         |        |  |           |       |                 |   |                |  |              |      |                 |   |           |  |          |        |       |  

Page 16



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS-CONTINUED(Unaudited)

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

|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |   |      |   |   |       |   |   |        |   |   |         |  
|-------------------------------- | ------ |  | --------- | ------ | --------------- | - | -------------- | - | ------------ | ------ | ------------- | - | --------- | - | -------- | ----- | ----- | - | ---- | - | - | ----- | - | - | ------ | - | - | ------- | -
|                                 | Radius |  | San Pedro |        | Penasquitos LLC |   | Heritage Place |   | Pacific Park |        | EagleRun Inc. |   | Eagle Run |   | Lakeview |       | Total
|                                 |        |  |           |       
|Financial Position:              |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |   |      |   |   |       |   |   |        |   |   |         |  
|Land                             |        |  | $         | 200    |                 | $ | 2,011          |   | $            | 641    |               | $ | 750       |   | $        |      |       |   |     |   |   |      |   | $ | 947    |   | $ | 4,549   |  
|Buildings                        |        |  |           | 5,651  |                 |   | 4,171          |   |              | 5,962  |               |   |          |   |          |      |       |   |     |   |   |      |   |   | 7,883  |   |   | 23,667  |  
|Other assets                     |        |  |           | 1,218  |                 |   | 502            |   |              | 1,230  |               |   | 238       |   |          |      |       |   |     |   |   |      |   |   | 408    |   |   | 3,596   |  
|Notes payable                    |        |  |           | (5,437 | )               |   | (4,489         | ) |              | (8,350 | )             |   | (940      | ) |          |      |       |   |     |   |   |      |   |   | (7,825 | ) |   | (27,041 | )
|Other liabilities                |        |  |           |       |                 |   | (1,046         | ) |              | (408   | )             |   | (48       | ) |          |      |       |   |     |   |   |      |   |   | (1,291 | ) |   | (2,793  | )
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Net assets                       |        |  | $         | 1,632  |                 | $ | 1,149          |   | $            | (925   | )             | $ |          |   | $        |      |       | $ |     |   | $ |      |   | $ | 122    |   | $ | 1,978   |  
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Partners equity:                |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |   |      |   |   |       |   |   |        |   |   |         |  
|Company                          |        |  | $         | 1,228  |                 | $ | 1,604          |   | $            | (504   | )             | $ |          |   | $        |      |       | $ |     |   | $ |      |   | $ | 359    |   | $ | 2,687   |  
|Others                           |        |  |           | 404    |                 |   | (455           | ) |              | (421   | )             |   |          |   |          |      |       |   |     |   |   |      |   |   | (237   | ) |   | (709    | )
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Total equity                     |        |  | $         | 1,632  |                 | $ | 1,149          |   | $            | (925   | )             | $ |          |   | $        |      |       | $ |     |   | $ |      |   | $ | 122    |   | $ | 1,978   |  
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Operations:                      |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |   |      |   |   |       |   |   |        |   |   |         |  
|Revenues                         |        |  | $         | 334    |                 | $ | 589            |   | $            | 459    |               | $ |          |   | $        | 108   |       | $ | 624  |   | $ | 143   |   | $ | 375    |   | $ | 2,632   |  
|Net gain on sale                 |        |  |           |       |                 |   |               |   |              |       |               |   |          |   |          | 2,632 |       |   |     |   |   | 5,295 |   |   |       |   |   | 7,927   |  
|Expenses                         |        |  |           | (310   | )               |   | (492           | ) |              | (518   | )             |   |          |   |          | (188  | )     |   | (522 | ) |   | (243  | ) |   | (768   | ) |   | (3,041  | )
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Net income (loss)                |        |  | $         | 24     |                 | $ | 97             |   | $            | (59    | )             | $ |          |   | $        | 2,552 |       | $ | 102  |   | $ | 5,195 |   | $ | (393   | ) | $ | 7,518   |  
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Allocation of net (loss) income: |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |   |      |   |   |       |   |   |        |   |   |         |  
|Company                          |        |  | $         | 18     |                 | $ | 84             |   | $            | (29    | )             | $ |          |   | $        | 1,276 |       | $ | 51   |   | $ | 2,597 |   | $ | (197   | ) | $ | 3,800   |  
|Others                           |        |  |           | 6      |                 |   | 13             |   |              | (30    | )             |   |          |   |          | 1,276 |       |   | 51   |   |   | 2,598 |   |   | (196   | ) |   | 3,718   |  
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  
|Net income (loss)                |        |  | $         | 24     |                 | $ | 97             |   | $            | (59    | )             | $ |          |   | $        | 2,552 |       | $ | 102  |   | $ | 5,195 |   | $ | (393   | ) | $ | 7,518   |  
|                                 |        |  |           |        |                 |   |                |   |              |        |               |   |           |   |          |       |       |  

Page 17



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 made any new loans for a 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 June 30, 2003, the
Company had seven loans outstanding with a net book value of $1.3 million.

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

Page 18



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)



|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |   |     |  |   |        |   |   |        |  
|------------------------------------------------------- | -------------- |  | --------------- | ------ | --------------- | - | ---------------- | - | ----- | ----- | ----- | - | --- |  | - | ------ | - | - | ------ | -
|2003 Reconciliation of Reportable Segment Information   |               
|For the six months ended June 30, 2003                  |               
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  
|                                                        | Medical Office |  | Skilled Nursing |        | Assisted Living |   | Debt Obligations |   | Other |       | Total |  
|                                                        |                |  | (In thousands)  |       
|Revenue:                                                |                |  |                 |        |                 |   |                  |   |       |       |       |   |     |  |   |        |   |   |        |  
|Rents, tenant reimb. and parking                        |                |  | $               | 10,836 |                 | $ | 1,047            |   | $     | 1,588 |       | $ |    |  | $ |       |   | $ | 13,471 |  
|Patient revenues                                        |                |  |                 |       |                 |   | 12,236           |   |       |      |       |   |    |  |   |       |   |   | 12,236 |  
|Interest and loan fees                                  |                |  |                 | 19     |                 |   | 14               |   |       |      |       |   | 356 |  |   | 10     |   |   | 399    |  
|Other income                                            |                |  |                 | 1,020  |                 |   | 31               |   |       | (494  | )     |   |    |  |   | 34     |   |   | 591    |  
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  
|Total revenues                                          |                |  |                 | 11,875 |                 |   | 13,328           |   |       | 1,094 |       |   | 356 |  |   | 44     |   |   | 26,697 |  
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  
|Expenses:                                               |                |  |                 |        |                 |   |                  |   |       |       |       |   |     |  |   |        |   |   |        |  
|Property operations                                     |                |  |                 | 3,291  |                 |   | 278              |   |       | 122   |       |   | 82  |  |   |       |   |   | 3,773  |  
|Skilled nursing operations                              |                |  |                 |       |                 |   | 11,252           |   |       |      |       |   |    |  |   |       |   |   | 11,252 |  
|Depreciation and amortization                           |                |  |                 | 1,690  |                 |   | 762              |   |       | 262   |       |   |    |  |   | 20     |   |   | 2,734  |  
|Interest                                                |                |  |                 | 8,172  |                 |   | 1,213            |   |       | 731   |       |   |    |  |   | 2,047  |   |   | 12,163 |  
|Loss on sale of bonds receivable                        |                |  |                 |       |                 |   |                 |   |       |      |       |   | 120 |  |   |       |   |   | 120    |  
|Provision for doubtful accounts and notes receivable    |                |  |                 |       |                 |   | 393              |   |       |      |       |   |    |  |   |       |   |   | 393    |  
|General and administrative                              |                |  |                 |       |                 |   |                 |   |       |      |       |   |    |  |   | 1,832  |   |   | 1,832  |  
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  
|Total expenses                                          |                |  |                 | 13,153 |                 |   | 13,898           |   |       | 1,115 |       |   | 202 |  |   | 3,899  |   |   | 32,267 |  
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  
|(Loss) income from operations                           |                |  |                 | (1,278 | )               |   | (570             | ) |       | (21   | )     |   | 154 |  |   | (3,855 | ) |   | (5,570 | )
|Equity in earnings of unconsolidated affiliates         |                |  |                 | 1,359  |                 |   | 18               |   |       | 2,423 |       |   |    |  |   |       |   |   | 3,800  |  
|Net income from operations of discontinued operations   |                |  |                 | 951    |                 |   |                 |   |       |      |       |   |    |  |   |       |   |   | 951    |  
|Corporate income tax expense                            |                |  |                 |       |                 |   | (45              | ) |       |      |       |   |    |  |   |       |   |   | (45    | )
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  
|Income (loss) from operations before minority interests |                |  | $               | 1,032  |                 | $ | (597             | ) | $     | 2,402 |       | $ | 154 |  | $ | (3,855 | ) | $ | (864   | )
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |  

Page 19



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)



|                                                        |                |  |                 |        |                 |   |                  |   |       |       |       |   |       |  |   |        |   |   |       
|------------------------------------------------------- | -------------- |  | --------------- | ------ | --------------- | - | ---------------- | - | ----- | ----- | ----- | - | ----- |  | - | ------ | - | - | ------
|2002 Reconciliation of Reportable Segment Information  
|For the six months ended June 30, 2002                 
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      
|                                                        | Medical Office |  | Skilled Nursing |        | Assisted Living |   | Debt Obligations |   | Other |       | Total
|                                                        |                |  | (In thousands) 
|Revenue:                                                |                |  |                 |        |                 |   |                  |   |       |       |       |   |       |  |   |        |   |   |       
|Rents, tenant reimb. and parking                        |                |  | $               | 11,717 |                 | $ | 1,525            |   | $     | 1,450 |       | $ |      |  | $ |       |   | $ | 14,692
|Patient revenues                                        |                |  |                 |       |                 |   | 11,576           |   |       |      |       |   |      |  |   |       |   |   | 11,576
|Interest and loan fees                                  |                |  |                 | 23     |                 |   | 17               |   |       |      |       |   | 1,961 |  |   | 31     |   |   | 2,032 
|Other income                                            |                |  |                 | 388    |                 |   | 376              |   |       |      |       |   |      |  |   | 34     |   |   | 798   
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      
|Total revenues                                          |                |  |                 | 12,128 |                 |   | 13,494           |   |       | 1,450 |       |   | 1,961 |  |   | 65     |   |   | 29,098
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      
|Expenses:                                               |                |  |                 |        |                 |   |                  |   |       |       |       |   |       |  |   |        |   |   |       
|Property operations                                     |                |  |                 | 3,268  |                 |   | 314              |   |       | 128   |       |   | 73    |  |   |       |   |   | 3,783 
|Skilled nursing operations                              |                |  |                 |       |                 |   | 10,362           |   |       |      |       |   |      |  |   |       |   |   | 10,362
|Depreciation and amortization                           |                |  |                 | 1,782  |                 |   | 679              |   |       | 256   |       |   |      |  |   | 21     |   |   | 2,738 
|Provision for doubtful accounts and notes receivable    |                |  |                 | 6      |                 |   | 513              |   |       |      |       |   | 45    |  |   |       |   |   | 564   
|Interest                                                |                |  |                 | 3,654  |                 |   | 943              |   |       | 1,459 |       |   | 150   |  |   | 2,265  |   |   | 8,471 
|General and administrative                              |                |  |                 |       |                 |   |                 |   |       |      |       |   |      |  |   | 1,603  |   |   | 1,603 
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      
|Total expenses                                          |                |  |                 | 8,710  |                 |   | 12,811           |   |       | 1,843 |       |   | 268   |  |   | 3,889  |   |   | 27,521
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      
|Income (loss) from operations                           |                |  |                 | 3,418  |                 |   | 683              |   |       | (393  | )     |   | 1,693 |  |   | (3,824 | ) |   | 1,577 
|Equity in earnings of unconsolidated affil.             |                |  |                 | 142    |                 |   | 12               |   |       | (63   | )     |   | 7     |  |   |       |   |   | 98    
|Net income from operations of discontinued operations   |                |  |                 | 545    |                 |   | (13              | ) |       |      |       |   |      |  |   |       |   |   | 532   
|Net gain from discontinued operations                   |                |  |                 |       |                 |   | 2,320            |   |       |      |       |   |      |  |   |       |   |   | 2,320 
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      
|Income (loss) from operations before minority interests |                |  | $               | 4,105  |                 | $ | 3,002            |   | $     | (456  | )     | $ | 1,700 |  | $ | (3,824 | ) | $ | 4,527 
|                                                        |                |  |                 |        |                 |   |                  |   |       |       |      



|                                                      |                |  |                 |         |                 |   |                  |  |       |        |       |   |       |  |   |       |   |   |        
|----------------------------------------------------- | -------------- |  | --------------- | ------- | --------------- | - | ---------------- |  | ----- | ------ | ----- | - | ----- |  | - | ----- | - | - | -------
|2003 Reconciliation of Reportable Segment Information
|As of June 30, 2003                                  
|                                                      |                |  |                 |         |                 |   |                  |  |       |        |      
|                                                      | Medical Office |  | Skilled Nursing |         | Assisted Living |   | Debt Obligations |  | Other |        | Total
|                                                      |                |  | (In thousands) 
|Rental properties                                     |                |  | $               | 86,180  |                 | $ | 39,011           |  | $     | 20,791 |       | $ |      |  | $ | 166   |   | $ | 146,148
|Assets held for sale                                  |                |  |                 | 27,790  |                 |   |                 |  |       |       |       |   |      |  |   |      |   |   | 27,790 
|Mortgage loans and notes receivable, net              |                |  |                 |        |                 |   | 268              |  |       |       |       |   | 1,043 |  |   |      |   |   | 1,311  
|Cash and cash equivalents                             |                |  |                 | 2,106   |                 |   | 434              |  |       | (140   | )     |   |      |  |   | (51   | ) |   | 2,349  
|Restricted cash                                       |                |  |                 | 2,203   |                 |   | 940              |  |       | 339    |       |   |      |  |   | 59    |   |   | 3,541  
|Tenant rent and reimb. receivable, net                |                |  |                 | 1,323   |                 |   | 3,516            |  |       | 1,804  |       |   |      |  |   | 1,196 |   |   | 7,839  
|Unbilled rent receivable, net                         |                |  |                 | 2,569   |                 |   |                 |  |       |       |       |   |      |  |   |      |   |   | 2,569  
|Investment in unconsolidated affiliates               |                |  |                 | 1,640   |                 |   | 1,228            |  |       | 2,306  |       |   |      |  |   |      |   |   | 5,174  
|Deferred loan costs, net                              |                |  |                 | 3,175   |                 |   | 639              |  |       | 544    |       |   |      |  |   |      |   |   | 4,358  
|Deferred lease costs, net                             |                |  |                 | 579     |                 |   |                 |  |       |       |       |   |      |  |   |      |   |   | 579    
|Prepaid expense and other                             |                |  |                 | 246     |                 |   | 464              |  |       | 43     |       |   |      |  |   |      |   |   | 753    
|                                                      |                |  |                 |         |                 |   |                  |  |       |        |      
|Total assets                                          |                |  | $               | 127,811 |                 | $ | 46,500           |  | $     | 25,687 |       | $ | 1,043 |  | $ | 1,370 |   | $ | 202,411
|                                                      |                |  |                 |         |                 |   |                  |  |       |        |      

Page 20



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

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 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 in favor of the California
actions.

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 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 intentional interference with contract, intentional interference with prospective economic advantage, and unfair competition in violation of business and professions code sections 17200 et seq. and fraud. The Weisman suit has
been consolidated with the Lukoff class actions for purposes of discovery. No trial date has been set in any action.

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

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 June 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.

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

Page 21



---

##### Table of Contents

G&L REALTY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited)

10.      ACQUISITIONS, DISPOSITIONS AND FINANCINGS

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 June 30, 2003 the outstanding balance on this loan was $13.0 million.

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. The balance on the GMAC loan as of June 30, 2003 was $17.5 million.

Page 22



---

##### Table of Contents

|     |                                                                                        
|---- | ---------------------------------------------------------------------------------------
|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 six months of 2003, the Company has been actively refinancing its fixed rate mortgages with new 10-year fixed rate mortgages at interest rates that are 150 to
250 basis points lower than the previous mortgages. During the first six months of 2003, the Company obtained six new mortgages totaling $63.8 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 refinancing 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.

Page 23



---

##### Table of Contents

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 recorded no impairment losses in 2002, 2001 and 2000.



Results of Operations

Comparison of the Six Month Period Ended June 30, 2003 versus the Six Month
Period Ended June 30, 2002.

Total revenues decreased by $2.4 million, or 8%, from $29.1 million in the first half of 2002, to $26.7 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 $2.0 million in the first half of 2002, to $0.4 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 $0.6 million, or 5% from
$11.6 million in the first half of 2002, to $12.2 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 half 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 half of
2003.

Rents, tenant reimbursements and parking revenues decreased by $1.2 million, or 8%, from $14.7 million in the first half of 2002, to $13.5 million
for the same period in 2003. $1.5 million of this decrease is 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 the ALFs to the Company. Due to operating losses at the SNF, the Company is not recording any rental revenue
from this facility. These decreases were offset by a $0.3 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 $4.7 million, or 17%, from $27.5 million for the six months ended June 30, 2002, to $32.2 million for the same period in 2003. The primary
reason for this increase was an increase in prepayment fees and the write-off of deferred loan fees of $4.6 million relating to the early repayment of three separate loans totaling $38.0. In addition, increased skilled nursing operating costs at the
three Hampden SNFs accounted for $0.9 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 $3.8 million for the first half of 2003.

Depreciation and amortization expense remained unchanged at $2.7 million for the first half of 2003.

Interest expense increased $3.7 million, or 44%, from $8.5 million for the six months ended June 30, 2002, to $12.2 million for the same period in 2003. $4.6 million of
this increase was due to prepayment fees and the write-off of deferred loan fees relating to the early repayment of three separate loans totaling $38.0 million. During the first half of 2003, the Company refinanced a $26.2 million loan secured by
four of its MOBs located in Beverly Hills, California, a $7.2 million loan secured by another MOB located in Beverly Hills, California as well as a $4.6 million loan secured by an MOB located in Valencia, California. In addition, the Company paid
down $14.9 million against the balance of its $35 million loan obtained in October 2001 in order to repurchase the Companys outstanding common stock, incurring pre-payment fees of $0.3 million. Finally, interest expense increased $0.2 million
due to a new $4.3 million loan secured by its SNF located in Phoenix, Arizona that was obtained in December 2002. These increases were offset by decreases in interest expense totaling $1.4 million. A decrease in interest expense on the
Companys variable

Page 24



---

##### Table of Contents

rate mortgages due to lower interest rates accounted for $0.4 million of the total decrease. $0.7 million of the total decrease was due to pre-payment fees and the write-off of deferred
loan fees relating to the early repayment, in 2002, of $7.3 million in loans secured by an ALF located in Tarzana, California. 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 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 half of 2003, the Company recognized a $0.6 million loss in the first half of 2002. While the Company recognized a $0.3 million loss in the first half of 2003 relating to the decline in the fair market value of its LIBOR
interest rate cap, 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.

General & administrative costs increased $0.2 million, or 13%, from $1.6 million for the six months ended June 30, 2002, to $1.8 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 decreased by $0.2 million, or 33%, from $0.6 million for the six months ended June 30, 2002, to $0.4 million for the same period in 2003. This decrease is the result of a decrease 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 earnings of unconsolidated affiliates
increased $3.7 million for the six months ended June 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 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 $0.2 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 therefore 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 $5.3 million, from a net gain of $4.4 million for the six months ended June 30, 2002 to a net loss of $0.9
million for the same period in 2003. This decrease was primarily due to the $3.7 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 $1.2 million decrease in rents, tenant reimbursements and parking revenues, the $0.9 million increase in skilled nursing expenses and the $0.2 million increase
in general and administrative costs. These were offset by the $3.7 million increase in equity in earnings of unconsolidated affiliates and the $0.6 million increase in patient revenues.

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

Total revenues decreased by $1.0 million, or 7%, from $14.3 million in the second quarter of 2002, to $13.3 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 $0.5 million, or 9% from $5.8
million in the second quarter of 2002, to $6.3 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.

Page 25



---

##### Table of Contents

Rents, tenant reimbursements and parking revenues decreased by $1.1 million, or 14%, from $7.8 million in the second quarter of
2002, to $6.7 million for the same period in 2003. This decrease is 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 the ALFs to the Company. Due to operating losses at the SNF, the Company is not recording any rental
revenue from this facility.

Total expenses increased by $4.6 million, or 33%, from $13.9 million for the three months ended June 30, 2002, to $18.5
million for the same period in 2003. The primary reason for this increase was an increase in prepayment fees and the write-off of deferred loan fees of $4.4 million related to the early repayment of two loans totaling $30.8 million. In addition,
increased skilled nursing operating costs at the three Hampden SNFs accounted for $0.6 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 unchanged at $1.9 million for the second quarter of 2002 as well as the same period in 2003.

Depreciation and amortization expense remained unchanged at $1.4 million for the second quarter of 2002 as well as the same period in 2003.

Interest expense increased $4.1 million, or 98%, from $4.2 million for the three months ended June 30, 2002, to $8.3 million for the same period in 2003. $4.4 million of
this increase was due to pre-payment fees and the write-off of deferred loan fees relating to the early repayment of two separate loans totaling $30.8 million. During the second quarter of 2003, the Company refinanced a $26.2 million loan secured by
four of its MOBs located in Beverly Hills, California as well as a $4.6 million loan secured by an MOB located in Valencia, California. In addition, the Company paid down $14.9 million against the balance of its $35 million loan obtained in October
2001 in order to repurchase the Companys outstanding common stock, incurring pre-payment fees of $0.3 million. An additional $0.2 million of this increase was due to an increase in the decline in the fair market value of the LIBOR interest
rate cap associated with the $35 million loan obtained in October 2001. While the Company recognized a $0.2 million loss related to the decline in the fair market value of its LIBOR interest rate cap during the second quarter of 2003, the fair
market value of the interest rate cap remained unchanged in the second quarter of 2002. These increases were offset by decreases in interest expense totaling $0.8 million. A decrease in interest expense on the Companys variable rate mortgages
due to lower interest rates accounted for $0.1 million of the total decrease and a decrease of $0.7 million in pre-payment fees and the write-off of deferred loan fees relating to the early repayment, in 2002, of $7.3 million in loans secured by an
ALF located in Tarzana, California accounted for the remaining decrease.

General & administrative costs increased $0.1 million, or 13%, from $0.8
million for the three months ended June 30, 2002, to $0.9 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 decreased by $0.2 million, or 67%, from $0.3 million for the three months ended June 30, 2002, to $0.1 million
for the same period in 2003. This decrease is the result of a decrease 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 earnings of unconsolidated affiliates decreased $0.1 million for the three months ended June 30, 2003 compared to the same period in 2002. This decrease was due
to 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 therefore producing a net loss.

Net income decreased $5.2 million, from a net gain of $0.5 million for the three months
ended June 30, 2002 to a net loss of $4.7 million for the same period in 2003. This decrease was primarily due to the $4.1 million increase in interest expense due to early prepayment penalties, the $1.1 million decrease in rents, tenant
reimbursements and parking revenues, the $0.6 million increase in skilled nursing expenses and the $0.1 million increase in general and administrative costs. These were offset by the $0.5 million increase in patient revenues and the $0.2 million
decrease in provisions for doubtful accounts, notes and bonds receivable.

Page 26



---

##### Table of Contents

Liquidity and Capital Resources

As of June 30, 2003, the
Companys direct investment in net real estate assets totaled approximately $146.1 million, $27.8 million in assets held for sale, $5.2 million in joint ventures and $1.3 million invested in notes receivable. Total debt outstanding as of June
30, 2003 totaled $203.0 million.

The Company obtains its liquidity from multiple internal and external sources. Internally, funds are derived from the
operation of MOBs, SNFs, ALFs and senior care lending activities. The MOBs produced approximately $1.0 million of net income before minority interests for the six months ended June 30, 2003. The MOBs contain approximately 857,000 rentable square
feet and, as of June 30, 2003, were approximately 97.7% leased to over 425 tenants with lease terms typically ranging from three to ten years. The ALFs produced approximately $2.4 million of net income for the six months ended June 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 $0.6 million for the six months ended June 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 June 30, 2003, the Company had secured loans outstanding of approximately $203.0 million. While the Company will still consider selective property acquisitions that are accretive to earnings, the Companys primary goal over
the next year is to reduce the balance on the $35 million loan obtained from GMAC in October 2001. The Companys ability to reduce the balance on the $35 million loan along with its ability to make selective acquisitions requires continued
access to capital. If the Company is unable to obtain access to new capital or to refinance its existing investments, the Companys ability to reduce the balance on the $35 million loan and to expand and even its ability to maintain its current
level of distributions to its stockholders may be impaired. The Company is also considering selling some of its assets in order to provide additional liquidity. During the second quarter of 2003, the Company used the net proceeds of $14.9 million
from four new 10-year loans totaling $47.0 and individually secured by four of its MOBs located in Beverly Hills, California to pay down the $35 million loan. As of June 30, 2003, the outstanding balance on the $35 million loan with GMAC was $17.5
million.

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 5.55% 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 5.48%. In June 2003, the Company refinanced a loan secured by four of its MOBs located in Beverly Hills, California with a
$47.0 million loan. 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 loan has a ten year term
and bears interest at 5.68%. The net proceeds from these transactions were used by the Company to pay down the $35 million loan with GMAC, to purchase a parcel of land in Valencia, California and for working capital

The Company is currently in the process of refinancing a $35.0 million loan secured by three of its MOBs and a research and development facility owned by the Company. The
current loan, obtained from Nomura Asset Capital Corporation in August 1996, is due on August 11, 2006 and bears interest at a fixed rate of 8.492%. The loan balance as of July 31, 2003 was $31.6 million. Pursuant to the loan agreement, the Company
has the option

Page 27



---

##### Table of Contents

to prepay this loan at any time upon the payment of a premium, which, when added to the remaining principal amount of the note, will be sufficient to purchase non-callable obligations
of the U.S. government sufficient to provide for the scheduled payments remaining under the note. The Company has signed applications with Morgan Stanley Mortgage Capital, Inc. (Morgan Stanley) for three new loans totaling $60.0 million
to be individually secured by the three MOBs. Although the Company has signed applications with Morgan Stanley, no assurances can be given that the loans will fund or that the Company will be able to obtain other loans with similar terms and
conditions. The net proceeds from this refinancing will be used to repay in full the approximately $17 million outstanding balance on the Companys loan with GMAC.

As of August 14, 2003, the Company is under contract to sell its one-story, 9,100 square foot retail facility located in Aliso Viejo, California for $2.82 million and has
listed for sale three other properties. The properties that have been listed for sale include a three-story, approximately 71,000 square foot MOB located in Mission Hills, California, a two-floor, 26,000 square foot MOB located in Burbank,
California and a three-story, 40,000 square foot office and retail complex located in Coronado, California. The Company plans to use the net proceeds from these sales to pay down its loan with GMAC if the loan has not already been repaid, 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 and second 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 six months of
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 used in operating activities increased $0.7 million from a net cash use
of $0.1 million for the six months ended June 30, 2002 to a net cash use of $0.8 million for the same period in 2003. The increase is due primarily to a $5.3 million decrease in net income, a $3.7 million increase in equity in income of
unconsolidated affiliates and a $0.3 million decrease in the loss on the change in fair market value of the Companys LIBOR interest rate cap. These were offset by a decrease in gains on sale of assets of $2.3 million, a decrease in accounts
payable of $5.7 million and a $0.6 million increase in tenant rent and reimbursements receivable.

Net cash from investing activities decreased $15.7
million, or 117%, from net cash provided of $13.4 million for the six months ended June 30, 2002 to a net cash use of $2.3 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 and a $3.9 million increase in purchases of real estate assets. These were offset by an increase in distributions from unconsolidated affiliates of $1.4
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 $16.8 million from a net use of $13.8 million for the six months ended June 30, 2002, to net cash provided of $3.0 million for the same period in 2003. The increase is mainly due to a $55.3 million
increase in the notes payable proceeds. This was offset by a $35.4 million increase in the repayment of notes payable as well as 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

Page 28



---

##### Table of Contents

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 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

Page 29



---

##### Table of Contents

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 June 30, 2003. The Companys maximum exposure to loss represents its recorded investment in these
real estate joint ventures totaling $5.2 million as of June 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 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 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, convert their units into 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 six month periods ended June 30, 2003 and 2002.

Page 30



---

##### Table of Contents

G&L REALTY CORP. FUNDS FROM OPERATIONS AND ADDITIONAL DATA(Unaudited)

|                                                            |                                             |  |                                          |        |                |   |        |   |   |        |   |   |         |  
|----------------------------------------------------------- | ------------------------------------------- |  | ---------------------------------------- | ------ | -------------- | - | ------ | - | - | ------ | - | - | ------- | -
|                                                            | For the Three Month  Periods Ended June 30, |  | For the Six Month Periods Ended June 30, |       
|                                                            |                                             | 
|                                                            | 2003                                        |  | 2002                                     |        | 2003           |   | 2002   |  
|                                                            |                                             |  |                                          |       
|                                                            |                                             |  | (in thousands)                           |        | (in thousands) |  
|Funds from Operations(1)                                    |                                             |  |                                          |        |                |   |        |   |   |        |   |   |         |  
|Net (loss) income                                           |                                             |  | $                                        | (4,684 | )              | $ | 493    |   | $ | (874   | ) | $ | 4,389   |  
|Depreciation of real estate assets                          |                                             |  |                                          | 976    |                |   | 1,338  |   |   | 2,286  |   |   | 2,691   |  
|Amortization of deferred lease costs                        |                                             |  |                                          | 55     |                |   | 63     |   |   | 116    |   |   | 128     |  
|Net gain from discontinued operations                       |                                             |  |                                          |       |                |   | 138    |   |   | (62    | ) |   | (2,320  | )
|Depreciation from unconsolidated affiliates                 |                                             |  |                                          | 119    |                |   | 117    |   |   | 290    |   |   | 216     |  
|Adjustment for minority interest in consolidated affiliates |                                             |  |                                          | (38    | )              |   | (37    | ) |   | (76    | ) |   | (72     | )
|Dividends on preferred stock                                |                                             |  |                                          | (1,791 | )              |   | (1,791 | ) |   | (3,581 | ) |   | (3,581  | )
|                                                            |                                             |  |                                          |        |                |   |        |  
|Funds from Operations(1)                                    |                                             |  | $                                        | (5,363 | )              | $ | 321    |   | $ | (1,901 | ) | $ | 1,451   |  
|                                                            |                                             |  |                                          |        |                |   |        |  
|Additional Data                                             |                                             |  |                                          |        |                |   |        |   |   |        |   |   |         |  
|Cash flows:                                                 |                                             |  |                                          |        |                |   |        |   |   |        |   |   |         |  
|Operating activities                                        |                                             |  | $                                        | (2,015 | )              | $ | 693    |   | $ | (786   | ) | $ | (109    | )
|Investing activities                                        |                                             |  |                                          | (4,809 | )              |   | (946   | ) |   | (2,261 | ) |   | 13,387  |  
|Financing activities                                        |                                             |  |                                          | 7,064  |                |   | (944   | ) |   | 3,031  |   |   | (13,788 | )
|Capital expenditures                                        |                                             |  |                                          |        |                |   |        |   |   |        |   |   |         |  
|Building improvements                                       |                                             |  | $                                        | 106    |                | $ | 237    |   | $ | 398    |   | $ | 335     |  
|Tenant improvements                                         |                                             |  |                                          | 332    |                |   | 190    |   |   | 590    |   |   | 337     |  
|Furniture, fixtures & equipment                             |                                             |  |                                          | 50     |                |   | 115    |   |   | 116    |   |   | 156     |  
|Leasing commissions                                         |                                             |  |                                          | 38     |                |   | 24     |   |   | 49     |   |   | 68      |  
|Depreciation and amortization                               |                                             |  |                                          |        |                |   |        |   |   |        |   |   |         |  
|Depreciation of real estate assets                          |                                             |  | $                                        | 976    |                | $ | 1,338  |   | $ | 2,286  |   | $ | 2,691   |  
|Depreciation of non-real estate assets                      |                                             |  |                                          | 159    |                |   | 144    |   |   | 322    |   |   | 287     |  
|Amortization of deferred lease costs                        |                                             |  |                                          | 55     |                |   | 63     |   |   | 116    |   |   | 128     |  
|Amortization of deferred licensing costs                    |                                             |  |                                          | 13     |                |   | 13     |   |   | 26     |   |   | 26      |  
|Amortization of capitalized financing costs                 |                                             |  |                                          | 164    |                |   | 195    |   |   | 385    |   |   | 502     |  
|Accrued rent in excess of billed rent                       |                                             |  | $                                        | (43    | )              | $ | 186    |   | $ | 10     |   | $ | 317     |  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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.

Page 31



---

##### Table of Contents

Item 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary risk inherent in
the Companys market sensitive instruments is the risk of loss resulting from interest rate fluctuations. As of June 30, 2003, approximately 18% of the Companys notes payable bear interest at a rate indexed to the one-month LIBOR rate or
Prime Rate. However, approximately 47% of the Companys variable rate debt is protected by an interest rate cap. The tables below provide information as of June 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 June 30, 2003
and December 31, 2002.

|                      |                                            |  |                |       |                   |   |        |   |      |       |            |   |        |   |               |       |   |   |         |   |   |         |   |   |        
|--------------------- | ------------------------------------------ |  | -------------- | ----- | ----------------- | - | ------ | - | ---- | ----- | ---------- | - | ------ | - | ------------- | ----- | - | - | ------- | - | - | ------- | - | - | -------
|                      | AS OF JUNE 30, 2003 PRINCIPAL MATURING IN: |  |                |       | Fair Market Value
|                      | 2003                                       |  | 2004           |       | 2005              |   | 2006   |   | 2007 |       | Thereafter |   | Total  |   | June 30, 2003
|                      |                                            |  | (in thousands) |       |                   |   |        |   |     
|Liabilities:          |                                            |  |                |       |                   |   |        |   |      |       |            |   |        |   |               |       |   |   |         |   |   |         |   |   |        
|Mortgage debt:        |                                            |  |                |       |                   |   |        |   |      |       |            |   |        |   |               |       |   |   |         |   |   |         |   |   |        
|Fixed rate            |                                            |  | $              | 1,481 |                   | $ | 2,527  |   | $    | 2,659 |            | $ | 32,061 |   | $             | 2,128 |   | $ | 124,614 |   | $ | 165,470 |   | $ | 203,276
|Average interest rate |                                            |  |                | 6.82  | %                 |   | 6.82   | % |      | 6.82  | %          |   | 6.81   | % |               | 6.81  | % |   | 6.40    | % |   | 6.76    | % |   |        
|Variable rate         |                                            |  |                | 2,009 |                   |   | 15,048 |   |      | 6,727 |            |   | 3,006  |   |               | 3,489 |   |   | 5,147   |   |   | 35,426  |   |   | 35,426 
|Average interest rate |                                            |  |                | 6.81  | %                 |   | 6.81   | % |      | 6.81  | %          |   | 6.81   | % |               | 6.81  | % |   | 6.81    | % |   | 6.81    | % |   |        
|Line of credit:       |                                            |  |                |       |                   |   |        |   |      |       |            |   |        |   |               |       |   |   |         |   |   |         |   |   |        
|Variable rate         |                                            |  |                | 2,129 |                   |   |        |   |      |       |            |   |        |   |               |       |   |   |         |   |   | 2,129   |   |   | 2,129  
|Average interest rate |                                            |  |                | 6.00  | %                 |   |        |   |      |       |            |   |        |   |               |       |   |   |         |   |   | 6.00    | % |   |        
|                      |                                            |  |                |       |                   |   |        |   |      |       |            |   |        |   |              
|                      |                                            |  | $              | 5,619 |                   | $ | 17,575 |   | $    | 9,386 |            | $ | 35,067 |   | $             | 5,617 |   | $ | 129,761 |   | $ | 203,025 |   | $ | 240,831
|                      |                                            |  |                |       |                   |   |        |   |      |       |            |   |        |   |              

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 June 30, 2003, a 1% increase in the LIBOR rate would decrease future earnings by $370,000 annually, and decrease future cash
flow by $239,000 annually. A 1% decrease in the LIBOR rate would increase future earnings by $370,000 annually, and increase future cash flow by $239,000 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: |  |      |                | Fair Market Value
|                      | 2003                                           |  | 2004 |                | 2005              |   | 2006   |   | 2007 |        | Thereafter |   | Total  |   | December 31, 2002
|                      |                                                |  |      | (in thousands) |                   |   |        |   |      |       
|Liabilities:          |                                                |  |      |                |                   |   |        |   |      |        |            |   |        |   |                   |       |   |   |        |   |   |         |   |   |        
|Mortgage debt:        |                                                |  |      |                |                   |   |        |   |      |        |            |   |        |   |                   |       |   |   |        |   |   |         |   |   |        
|Fixed rate            |                                                |  | $    | 2,564          |                   | $ | 2,752  |   | $    | 27,508 |            | $ | 31,665 |   | $                 | 1,750 |   | $ | 74,713 |   | $ | 140,952 |   | $ | 168,016
|Average interest rate |                                                |  |      | 7.57           | %                 |   | 7.57   | % |      | 7.56   | %          |   | 7.49   | % |                   | 7.14  | % |   | 7.14   | % |   | 7.52    | % |   |        
|Variable rate         |                                                |  |      | 2,174          |                   |   | 15,367 |   |      | 6,890  |            |   | 3,006  |   |                   | 3,489 |   |   | 19,857 |   |   | 50,783  |   |   | 50,783 
|Average interest rate |                                                |  |      | 7.82           | %                 |   | 7.82   | % |      | 7.82   | %          |   | 7.82   | % |                   | 7.82  | % |   | 7.82   | % |   | 7.82    | % |   |        
|Line of credit:       |                                                |  |      |                |                   |   |        |   |      |        |            |   |        |   |                   |       |   |   |        |   |   |         |   |   |        
|Variable rate         |                                                |  |      | 2,357          |                   |   |        |   |      |        |            |   |        |   |                   |       |   |   |        |   |   | 2,357   |   |   | 2,357  
|Average interest rate |                                                |  |      | 6.75           | %                 |   |        |   |      |        |            |   |        |   |                   |       |   |   |        |   |   | 6.75    | % |   |        
|                      |                                                |  |      |                |                   |   |        |   |      |        |            |   |        |   |                  
|                      |                                                |  | $    | 7,095          |                   | $ | 18,119 |   | $    | 34,398 |            | $ | 34,671 |   | $                 | 5,239 |   | $ | 94,570 |   | $ | 194,092 |   | $ | 221,156
|                      |                                                |  |      |                |                   |   |        |   |      |        |            |   |        |   |                  

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.

Page 32



---

##### Table of Contents

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 June 30,
2003.

Page 33



---

##### Table of Contents

PART II OTHER INFORMATION

Item 1.      Legal Proceedings.

| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Neither the Company or any of its consolidated or unconsolidated affiliates nor any of the assets within their portfolios of 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 June 30, 2003.

Page 34



---

##### Table of Contents

(a)    Exhibits

| |             |  |      |  |                                                                                                                                                                                                      | 
| | ----------- |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | Exhibit No. |  | Note |  | Description                                                                                                                                                                                          | 
| | 2.1         |  | (10) |  | The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp.                                                                                                                   | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 2.2         |  | (11) |  | 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         |  | (12) |  | 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         |  | (14) |  | 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.          | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.12.2     |  | (3)  |  | Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L                                                                                                                  | 
| |             |  |      |  | Financing Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of                                                                                                           | 
| |             |  |      |  | New York.                                                                                                                                                                                            | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.22       |  | (4)  |  | Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing Partnership II, L.P., as Borrower, and Nomura Asset Capital Corporation, as Lender, dated as of October 31,
1995.   | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.24       |  | (4)  |  | Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner, and G&L Realty Partnership, L.P., as agent, made August 10, 1995                                          | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.25       |  | (5)  |  | Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital Corporation, dated as of September 29, 1995.                                                                        | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.30       |  | (6)  |  | Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership, L.P. as Borrower and Nomura Asset Capital Corporation as Lender.                                            | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.58       |  | (7)  |  | Limited Liability Company Agreement of G&L Hampden, LLC.                                                                                                                                             | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.77       |  | (8)  |  | 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       |  | (8)  |  | 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       |  | (8)  |  | Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively Guarantor) in favor of G&L Coronado, LLC (Landlord).                                                           | 
| |             |  |      |  |                                                                                                                                                                                                      | 
| | 10.81       |  | (9)  |  | Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and GMAC Commercial Mortgage Corporation, as Lender.                                                           | 

Page 35



---

##### Table of Contents

(a)   Exhibits - (continued from previous page)

| |             |  |      |  |                                                                                                                                                                                                                                | 
| | ----------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | Exhibit No. |  | Note |  | Description                                                                                                                                                                                                                    | 
| | 10.82       |  | (13) |  | 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       |  | (13) |  | 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                                                                                                                                                                               | 
| |             |  |      |  |                                                                                                                                                                                                                                | 

|   |                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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) | Previously filed as Exhibits 10.1 (with respect to Exhibit 10.22), 10.2 (with respect to Exhibit 10.23), and 10.3 (with respect to Exhibit 10.24) to the Registrants Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1995 and incorporated herein by reference.

|   |                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5) | Previously filed as an exhibit of like number to the Companys Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.

|   |                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6) | Previously filed as an exhibit of like number to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference.

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

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

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

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

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

|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|12) | 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.

|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|13) | 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.

|    |                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14) | 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

Page 36



---

##### Table of Contents

SIGNATURE

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

|                      |     |                         
|--------------------- | --- | ------------------------
|                      |     | G&L REALTY CORP.        
|                      |     |                         
|                      |     |                         
|Date:   Aug. 14, 2003 | By: | /s/ DAVID E. HAMER      
|                      |     |                         
|                      |     | David E. Hamer          
|                      |     | Chief Accounting Officer

Page 37