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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
|- | ---------------------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
|- | ----------------------------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 1-12566



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G & L REALTY CORP.

(Exact name of Registrant as specified in its charter)



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



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



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Securities registered pursuant to Section 12(b) of the Act:



|                                         |  |                                          
|---------------------------------------- |  | -----------------------------------------
|Title of each class                      |  | Name of each exchange on which registered
|Series A Preferred Stock, $.01 par value |  | New York Stock Exchange                  
|Series B Preferred Stock, $.01 par value |  | New York Stock Exchange                  



Securities
registered pursuant to Section 12(g) of the Act:

None



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



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈



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



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter.



All voting and non-voting common equity is held by affiliates.



As of March 30, 2004, 710,199 shares of common stock of G&L Realty Corp. were outstanding.



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##### Table of Contents

ANNUAL REPORT ON FORM 10-K



FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2003



|         |  |                                                                                       |  |   
|-------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I   |  |                                                                                      
|         |  |                                                                                      
|ITEM 1.  |  | BUSINESS                                                                              |  | 1 
|ITEM 2.  |  | PROPERTIES                                                                            |  | 5 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 14
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 14
|         | 
|PART II  |  |                                                                                      
|         |  |                                                                                      
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 15
|ITEM 6.  |  | CONSOLIDATED SELECTED FINANCIAL DATA                                                  |  | 16
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 18
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 30
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                                            |  | 31
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 31
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                               |  | 31
|         | 
|PART III |  |                                                                                      
|         |  |                                                                                      
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 31
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  | 34
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 36
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 36
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                |  | 37
|         | 
|PART IV  |  |                                                                                      
|         |  |                                                                                      
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 38



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##### Table of Contents

PART I



|ITEM 1. |  | BUSINESS
|------- |  | --------



General



The Company is
a self-managed real estate investment trust (REIT) that owns, acquires, develops, manages and leases health care properties. The Companys business currently consists of investments, made either directly or through joint ventures,
in medical office buildings (MOB), assisted living facilities (ALF) and skilled nursing facilities (SNF). All of the Companys assets are held by, and all of its operations are conducted through, G&L
Realty Partnership, L.P. (the Operating Partnership) and G&L Senior Care Partnership, L.P. (the Senior Care Partnership) or their subsidiaries. The Company was incorporated in Maryland on September 15, 1993, and is
controlled by its principal executive officers, Daniel M. Gottlieb and Steven D. Lebowitz.



Description of Business



The Companys MOB business strategy is to acquire, develop, manage and lease a portfolio of medical office buildings. The Company currently seeks growth opportunities mainly in Southern California through acquisition and development of
additional MOBs directly or through strategic joint ventures. The MOB portfolio currently consists of approximately 832,000 rentable square feet. The Company directly owns 19 high quality MOBs, an adjacent parking facility, a research and
development building (which was originally an MOB that the Company converted to a research and development building when the MOB tenant vacated the building) and one office and retail facility and owns three additional MOBs through a joint venture
(collectively, the MOB Properties). All of the MOB Properties are located in California. Several of the MOB Properties include retail space on the ground level. As of January 31, 2004, the MOB Properties were 97.7% leased.



The ALF and SNF business strategy is to capitalize on turnaround
opportunities in the assisted living and skilled nursing facility industry by making selected equity investments in ALFs and SNFs. As part of this strategy, the Company frequently sells its stabilized ALFs and SNFs or obtains long-term financing
guaranteed by the Department of Housing and Urban Development and retains long-term ownership of these assets. The Company directly, or through joint ventures, owns two ALFs, eight SNFs and one senior resident apartment complex (collectively, the
ALF and SNF Properties). All of the ALFs are located in Southern California. Four of the SNFs are located in Massachusetts, one in California, one in Arizona, one in Maryland and one in Washington. The senior resident apartment complex
is located in Arizona. The ALF and SNF Properties have an aggregate of 1,192 beds or units. The Company is currently under contract to acquire an existing 155-bed SNF located in Phoenix, Arizona.



The Companys business plan is to dispose of its non-core and turnaround
properties, and in implementation of that strategy, the Company sold the research and development building on March 18, 2004, and entered into a contract to sell the office and retail facility. The Company is also under contract to sell its SNF
located in California, a 10,000 square foot MOB located in Tustin, and two ALFs that are owned through joint ventures.



As part of its overall business strategy, the Company develops MOBs and ALFs either directly or through joint ventures. As part of its development
strategy, the Company may develop non-core assets which are sold after the assets are stabilized. The non-core assets are typically developed in connection with the development of healthcare properties. The Company has a long history of successful
developments and believes that it can achieve growth through a combination of development and acquisition.



See Note 13 of the Notes to the Consolidated Financial Statements for financial information about the Companys three main business segments:
investments in (i) MOBs, (ii) ALFs and (iii) SNFs.



Financing
for the Companys development and acquisition activities may be provided through existing or new joint ventures with third parties or third-party financing in the form of secured or unsecured debt or through selective asset sales. The
Companys capacity to obtain debt financing facilitates its ability to acquire ownership interests in additional MOBs, ALFs and SNFs. The Company and its investment affiliates will likely incur additional indebtedness in connection with future
acquisitions. However, notwithstanding any business policies or objectives of the Company, no assurance can be given that the Company, or its investment affiliates, will be able to make acquisitions on favorable terms or that such properties will be
profitably operated.



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The Company has determined to sell certain of its properties and has, in 2003 and to date in 2004, sold
or entered into contracts to sell a 9,100 square foot retail center located in Aliso Viejo, California that was developed in connection with a 40,000 square foot MOB by the Company; a 92-unit ALF located in Santa Monica, California; a 26,000 square
foot MOB located in Burbank, California; an 80-unit ALF located in Tarzana, California; a 48,000 square foot research and development building located in Irwindale, California which was originally an MOB that the Company converted to a research and
development building when the MOB tenant vacated the building; a 40,000 square foot office and retail center located in Coronado, California; a 10,000 square foot MOB located in Tustin, California; and, a 59-bed SNF located in Chico, California. The
proceeds from these sales may be used to acquire or develop additional healthcare properties, retire debt or preferred stock, for general corporate purposes and/or to make distributions to common stockholders.



The health care industry is facing various challenges, including increased
government and private payor pressure to reduce medical delivery costs. Substantially all of the Companys tenants are in the medical profession and could be or have been adversely affected by the new Medicare prospective payment system, cost
containment and other health care reform proposals. Any future proposals that limit access to medical care or reduce reimbursement for physicians services may also impact the ability of the Companys tenants to pay rent. However, the
Company believes that the aging population in the United States, combined with other recent trends in the health care industry, such as the performance of non-acute procedures outside of hospitals, could spur increased demand for space in full
service MOBs that contain surgery centers and out-patient facilities, such as those owned by the Company.



Property Management



The Company provides a full range of management services for the operation of MOBs. The ability of the Company to manage MOBs to meet the unique needs of medical practitioners has been critical to its success. The Company has experienced
lease renewal rates of approximately 79.7%, 85.9% and 83.0% for the years ended December 31, 2003, 2002 and 2001, respectively, in the MOB Properties. Developing and managing MOBs differs from developing and managing general office properties due to
the special requirements of the tenants and their patients. MOBs generally have higher maintenance requirements, increased plumbing and electrical capacity requirements and are subject to expanded environmental regulations due to stringent
restrictions on the disposal of medical waste. The management of MOBs also generally requires experience in specialized tenant improvements and higher levels of responsiveness required by medical practitioners. Additional important management
functions include the placement of tenants within MOBs to accommodate increased space needs and managing the tenant mix at properties in order to facilitate referrals by practitioners with different specialties within the building. The Company
stresses meeting these and other special demands of medical property tenants.



Tax Status



The Company believes that it has
operated in such a manner as to qualify for taxation as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code), commencing with its taxable year ended December 31, 1993, and the Company intends
to continue to operate in such a manner. As long as the Company qualifies for taxation as a REIT under the Code, the Company generally will not be taxed at the corporate level. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and
local taxes on its income and property and to federal income and excise taxes on its undistributed income.



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Employees



As of March 30, 2004, the Company employed 32 persons, 13 of whom are on-site building employees who provide maintenance services for the MOB Properties
and 8 of whom are professional employees engaged in leasing, asset management and administration.



Dependence on Key Tenants



The tenant mix at the Companys MOBs typically consist of several smaller tenancies rather than one or two large tenancies. As of December 31, 2003, with the exception of the Companys research and development facility located in
Irwindale, California which was sold on March 18, 2004, no MOB tenant accounted for more than 3% of the Companys total revenues. Although no MOB tenant accounts for more than 3% of the Companys total revenues, the risks associated with
smaller tenants include (i) less creditworthiness, (ii) greater potential tenant turnover and (iii) increased property management needs.



The ALFs and SNFs are either leased to senior care companies or managed by senior care companies. Although all of the Companys ALF and SNF
properties are currently leased or under management contracts, finding experienced senior care managers is a time-consuming and difficult task. During 2003, revenue from the Companys three SNFs in Hampden, Massachusetts accounted for
approximately 42% of the Companys total revenues. These three facilities are all operated by the same manager pursuant to a management agreement. Should these three facilities or any of the Companys other ALFs or SNFs require a change in
lessee or manager, the Companys financial results could be materially impacted despite the fact that no other ALF or SNF tenant or manager accounts for more than 10% of the Companys total revenues.



Government Regulation



Environmental Matters.Under various federal, state and local laws, ordinances and regulations, an owner or operator
of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in its property. These laws impose liability without regard to whether the owner knew of, or was responsible for, the presence of any
hazardous or toxic substances. The presence of such substances, or the failure to properly remediate these substances, may adversely affect the owners ability to borrow using the real estate as collateral and may subject the owner to material
remediation costs. All of the MOB Properties and ALF and SNF Properties have been subject to Phase I environmental assessments (which involve inspection of the subject property, but no soil sampling or groundwater analysis) by independent
environmental consultants. Although restricted in scope, these independent assessments revealed no material evidence of existing environmental liability, and the Company has not been notified by any governmental authority of any noncompliance by,
liability for, or other claim against the Company in connection with environmental matters related to the MOB Properties or the ALF and SNF Properties. While the Company is not aware of any environmental liability that it believes would have a
material adverse effect on its business, assets or results of operations, no assurance can be given that the environmental assessments revealed all potential environmental liabilities or that a prior owner did not create any material environmental
condition not known to the Company or that future uses or conditions (including changes in applicable environmental laws and regulations) will not result in imposition of environmental liability.



The independent environmental assessments include selective sampling for
asbestos where the age of the buildings or the types of materials warranted such sampling. Limited quantities of non-friable asbestos are present in some of the Companys properties. Management believes that it has undertaken adequate measures
to ensure that the asbestos will remain undisturbed and that it does not pose a current health risk. Management plans to continue to monitor this situation.



Physicians generate medical waste in the normal course of their practice. The Companys leases require the individual tenants to make arrangements
for the disposal of medical waste and require all tenants to provide proof that they have contracted with a third party service to remove waste from the premises each night. The handling and disposal of this waste is the responsibility of the
tenants; however, the Company remains responsible as the owner of the property. There can be no assurance that all such medical waste will be properly handled and disposed of or that the Company will not incur costs in connection with improper
disposal of medical waste by its tenants.



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Healthcare Industry Regulation.Physicians and senior care operators are subject to heavy
government regulation including the determination of the level of reimbursements for medical costs incurred and services provided under government programs. Changes in government regulations regarding medical reimbursements and other regulations
affecting the healthcare industry can have a dramatic impact on the operations of medical practitioners or senior care operators under government programs. Both the federal government and many state governments are exploring numerous reforms
concerning the healthcare industry that could have a significant impact on many healthcare-related businesses. If legislation were enacted that decreased the level of government medical reimbursements or increased the degree of regulatory oversight,
thereby increasing the expenses of healthcare businesses, the Companys tenant base could be adversely affected. This, in turn, could negatively impact the ability of the Company to make distributions.



Americans with Disabilities Act.All of the MOB Properties and ALF and
SNF Properties are required to comply with the Americans with Disabilities Act (ADA). The ADA generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of
access barriers and noncompliance could result in imposition of fines by the federal government or an award of damages to private litigants. The Company believes it is in substantial compliance with the ADA and that it will not be required to make
substantial capital expenditures to address the requirements of the ADA. If required changes involve a greater expenditure than the Company currently anticipates, the Companys ability to make distributions could be adversely affected.



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|ITEM 2. |  | PROPERTIES
|------- |  | ----------



The MOB Properties consist of 19 high quality MOBs directly owned by the Company, three MOBs indirectly-owned by the Company, an adjacent parking
facility, a research and development building and an office and retail facility. The ALF and SNF Properties consist of two ALFs, eight SNFs and one senior resident apartment complex. As of January 31, 2004, the MOB Properties were 97.7% leased to
413 tenants and the ALF and SNF Properties were 100% leased to operators or under contracts with management companies, other than the North Valley Nursing and Rehabilitation Center in Chico, California which is closed and under contract to be sold
by the Company. The Companys MOB tenants are primarily established medical practitioners representing a cross section of medical practices.



Description of the MOB Properties and ALF and SNF Properties



MOB Properties



The Company, through its MOB operations, acquires, develops, manages and leases MOBs, a research and development building, a parking facility and two
retail facilities. Developing and managing MOBs differs from developing and managing conventional office buildings due to the special requirements of physicians and their patients. Doctors now perform a variety of medical procedures in their
offices, and as a result, many MOBs have become sophisticated ambulatory centers that allow for outpatient surgery and procedures. In addition, the public areas of MOBs generally have higher maintenance requirements due to heavy foot traffic
generated by typically relatively short patient visits. The use of sophisticated medical equipment typically requires the MOBs to provide increased plumbing and electrical capacity and expanded environmental regulations impose more stringent
restrictions on the disposal of medical waste than applicable to other commercial office buildings. The management of MOBs generally requires experience in specialized tenant improvements and higher levels of responsiveness required by medical
practitioners. Additional important management functions include the placement and relocation of tenants to accommodate increased space needs and managing the tenant mix to facilitate referrals by practitioners with different specialties within the
building.



ALF and SNF Properties



The Company, as part of its overall strategy, acquires, develops and leases
ALFs and SNFs. The Company typically leases its ALFs and SNFs to third party senior care operators. The operation of ALFs and SNFs requires a high level of experience and expertise due to the specific needs of the residents and the complex
administrative functions surrounding the admission and care of residents and the administering of government programs. The operators of ALFs and SNFs must also maintain a positive relationship with local hospitals and other medical providers in
order to attract new residents. The Company considers all of the above factors when leasing its facilities to third party operators or hiring managers to operate its facilities.



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The following tables set forth certain information regarding each of the MOB Properties and ALF and SNF
Properties as of January 31, 2004. All of the MOB Properties and ALF and SNF Properties are held in fee by the Company or, in the case of jointly-owned properties, by a joint venture partnership or limited liability company. Except as noted below,
the Company owns 100% of each property.



MOB
PropertiesSummary Data



|                                                                       |  |                   |  |                                   |  |                         |  |                       |  |              |   |  |                          |            |                          |   |      
|---------------------------------------------------------------------- |  | ----------------- |  | --------------------------------- |  | ----------------------- |  | --------------------- |  | ------------ | - |  | ------------------------ | ---------- | ------------------------ | - | -----
|Property                                                               |  | NumberofBuildings |  | Year Constructed or Rehabilitated |  | Rentable Square Feet(1) |  | Rented Square Feet(2) |  | Occupancy(2) |   |  | Total Annualized Rent(3) |            | Average Rent per Sq. Ft.
|405 N. Bedford, Beverly Hills,                                         |  | 1                 |  | 1947/1987                         |  | 44,801                  |  | 42,826                |  | 95.6         | % |  | $                        | 1,946,000  |                          | $ | 45.44
|415 N. Bedford, Beverly Hills (6)                                      |  | 1                 |  | 1955                              |  | 5,720                   |  | 5,720                 |  | 100.0        |   |  |                          | 271,000    |                          |   | 47.38
|416 N. Bedford, Beverly Hills                                          |  | 1                 |  | 1946/1986                         |  | 40,292                  |  | 40,292                |  | 100.0        |   |  |                          | 1,707,000  |                          |   | 42.37
|435 N. Bedford, Beverly Hills                                          |  | 1                 |  | 1950/63/84                        |  | 53,717                  |  | 52,329                |  | 97.4         |   |  |                          | 2,194,000  |                          |   | 41.93
|435 N. Roxbury, Beverly Hills (7)                                      |  | 1                 |  | 1956/1983                         |  | 40,865                  |  | 39,964                |  | 97.8         |   |  |                          | 1,676,000  |                          |   | 41.94
|436 N. Bedford, Beverly Hills                                          |  | 1                 |  | 1987                              |  | 74,285                  |  | 74,285                |  | 100.0        |   |  |                          | 3,576,000  |                          |   | 48.14
|Sherman Oaks Medical Plaza4955 Van Nuys Blvd.Sherman Oaks              |  | 1                 |  | 1969/1993                         |  | 67,575                  |  | 67,575                |  | 100.0        |   |  |                          | 1,702,000  |                          |   | 25.19
|Irwindale Building (8)12701 Schabarum Ave.Irwindale                    |  | 1                 |  | 1992                              |  | 47,604                  |  | 47,604                |  | 100.0        |   |  |                          | 685,000    |                          |   | 14.39
|Coronado Plaza (9)1330 Orange Ave, Coronado                            |  | 1                 |  | 1977/1985                         |  | 39,780                  |  | 38,313                |  | 96.3         |   |  |                          | 1,247,000  |                          |   | 32.55
|Holy Cross Medical Plaza11550 Indian Hills RoadMission Hills           |  | 1                 |  | 1985                              |  | 72,476                  |  | 71,135                |  | 98.1         |   |  |                          | 2,053,000  |                          |   | 28.86
|Lyons Avenue Medical Building24355 Lyons Avenue, Santa Clarita         |  | 1                 |  | 1990                              |  | 48,904                  |  | 47,368                |  | 96.9         |   |  |                          | 1,090,000  |                          |   | 23.01
|TustinMedical Office I14591 Newport Avenue, Tustin                    |  | 1                 |  | 1969                              |  | 18,092                  |  | 18,092                |  | 100.0        |   |  |                          | 371,000    |                          |   | 20.51
|TustinMedical Office II14642 Newport Avenue, Tustin                   |  | 1                 |  | 1985                              |  | 48,621                  |  | 48,216                |  | 99.2         |   |  |                          | 1,216,000  |                          |   | 25.22
|Regents Medical Center4150 Regents Park Row, La Jolla                  |  | 1                 |  | 1989                              |  | 66,557                  |  | 61,711                |  | 92.7         |   |  |                          | 1,837,000  |                          |   | 29.77
|San Pedro Medical Plaza (10)1360 West 6thStreet, San Pedro             |  | 3                 |  | 1963/1979                         |  | 59,133                  |  | 53,494                |  | 90.5         |   |  |                          | 1,232,000  |                          |   | 23.03
|1095 Irvine Boulevard, Tustin (11)                                     |  | 1                 |  | 1995                              |  | 10,125                  |  | 10,125                |  | 100.0        |   |  |                          | 228,000    |                          |   | 22.52
|Santa Clarita Valley Medical Center23861 McBean Pkwy, Santa Clarita    |  | 5                 |  | 1981                              |  | 41,943                  |  | 41,943                |  | 100.0        |   |  |                          | 1,009,000  |                          |   | 24.06
|Santa Clarita Valley Medical Center, F23929 McBean Pkwy, Santa Clarita |  | 1                 |  | 1999                              |  | 43,912                  |  | 43,912                |  | 100.0        |   |  |                          | 1,207,000  |                          |   | 27.49
|Santa Clarita Valley Foundation Bldg23871 McBean Pkwy, Santa Clarita   |  | 1                 |  | 1981                              |  | 8,025                   |  | 8,025                 |  | 100.0        |   |  |                          | 130,000    |                          |   | 16.20
|                                                                       |  |                   |  |                                   |  |                         |  |                       |  |              |   |  |                          |            |                          |   |      
|Total/Weighted average of all MOB Properties                           |  | 25                |  |                                   |  | 832,427                 |  | 812,929               |  | 97.7         | % |  | $                        | 25,377,000 |                          |   | 31.22
|                                                                       |  |                   |  |                                   |  |                         |  |                       |  |              |   |  |                          |            |                          |   |      

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See footnotes on page 7



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##### Table of Contents

ALF and SNF PropertiesSummary Data



|                                                                               |  |                   |  |                                   |  |                      |  |             
|------------------------------------------------------------------------------ |  | ----------------- |  | --------------------------------- |  | -------------------- |  | ------------
|Property                                                                       |  | NumberofBuildings |  | Year Constructed or Rehabilitated |  | Number of Beds/Units |  | Occupancy(4)
|Southern California                                                            |  |                   |  |                                   |  |                      |  |             
|The Arbors (10)12979 Rancho PenasquitosBoulevard, San Diego                    |  | 1                 |  | 1998/1999                         |  | 92 U                 |  | 95.9        
|North Valley Nursing and Rehabilitation Center (5) 1645 Esplanade, Chico       |  | 1                 |  | 1960                              |  | 59 B                 |  | 0           
|Prestige Assisted Living at Yorba Linda (10)4792 Lakeview Ave,Yorba Linda      |  | 1                 |  | 2000-2002                         |  | 80 U                 |  | 91.4        
|Arizona                                                                        |  |                   |  |                                   |  |                      |  |             
|Maryland Gardens31 West Maryland Avenue,Phoenix                                |  | 1                 |  | 1951-1957                         |  | 60 B38 U             |  | 83.6        
|Maryland Gardens II39 West Maryland Avenue,Phoenix                             |  | 1                 |  | 1968                              |  | 20 U                 |  | 100.0       
|Maryland                                                                       |  |                   |  |                                   |  |                      |  |             
|St. Thomas More Nursing & Rehabilitation Center,4922 La Salle Road,Hyattsville |  | 1                 |  | 1955-56/1976                      |  | 220 B                |  | 98.1        
|Massachusetts                                                                  |  |                   |  |                                   |  |                      |  |             
|Riverdale Gardens42 Prospect Avenue,West Springfield                           |  | 1                 |  | 1957-1975                         |  | 168 B                |  | 86.8        
|Chestnut Hill32 Chestnut Street,East Longmeadow                                |  | 1                 |  | 1984                              |  | 123 B                |  | 96.0        
|Mary Lyon34 Main Street,Hampden                                                |  | 1                 |  | 1986                              |  | 100 B                |  | 95.2        
|Ring East Nursing Home (10)215 Bicentennial Highway,Springfield                |  | 1                 |  | 1987                              |  | 120 B                |  | 92.7        
|Washington                                                                     |  |                   |  |                                   |  |                      |  |             
|Pacific Care Center3035 Cherry Street,Hoquiam                                  |  | 1                 |  | 1954                              |  | 112 B                |  | 76.0        
|                                                                               |  |                   |  |                                   |  |                      |  |             
|Total of all ALF and SNF Properties                                            |  | 11                |  |                                   |  | 1,192                |  |             
|                                                                               |  |                   |  |                                   |  |                      |  |             

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|1) | Rentable square feet includes space used for management purposes but does not include storage space.
|-- | ----------------------------------------------------------------------------------------------------

|2) | Occupancy includes occupied space and space used for management purposes. Rented square feet includes space that is leased but not yet occupied. Occupancy figures have been
rounded to the nearest tenth of one percent.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3) | Rent is based on third-party leased space billed in January 2004.
|-- | -----------------------------------------------------------------

|4) | Occupancy is on a per-bed or unit basis. .
|-- | ------------------------------------------

|5) | The Company acquired this property through foreclosure of its first deed of trust in March 2000. The facility is currently closed and is under contract to be sold by the Company.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6) | This building is a parking structure that contains seven retail tenants.
|-- | ------------------------------------------------------------------------

|7) | The Company is the general partner and owns 32.8% of the partnership that owns this property.
|-- | ---------------------------------------------------------------------------------------------

|8) | This building is a research and development building and was sold on March 18, 2004.
|-- | ------------------------------------------------------------------------------------

|9) | This building is an office and retail building that the Company is currently under contract to sell.
|-- | ----------------------------------------------------------------------------------------------------

|10) | The Company owns 50% of this property.
|--- | --------------------------------------

|11) | This building is currently under contract to be sold.
|--- | -----------------------------------------------------



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##### Table of Contents

MOB Properties



Six of the MOB Properties are located on North Bedford and North Roxbury Drives in the Golden Triangle area of Beverly Hills, California, near
three major hospitalsCedars Sinai Medical Center, Century City Hospital and UCLA Medical Center. The buildings feature high quality interior improvements, including rich wood paneling and brass hardware appointments, both in the common areas
and in most of the doctors offices. These six MOB Properties include twenty-one operating rooms. The 405, 416 and 436 North Bedford Drive buildings each have emergency back-up generators. Parking for these six MOB Properties is provided in the
415 North Bedford garage and in subterranean parking at 436 North Bedford and 435 North Roxbury Drives. Each of these MOBs has copper insulated pipe with sufficient capacity for medical use, electrical systems designed for extra load requirements
and extensive security systems.



405 North Bedford Drive



405 North Bedford Drive, built in 1947 and extensively
remodeled in 1987, consists of approximately 45,000 rentable square feet in four stories plus a penthouse and a basement. The reinforced brick building, with ground floor retail space, features cherry wood paneled walls and brass hardware in the
common areas and decorative concrete trim on the exterior.



415 North Bedford Drive



415 North Bedford
Drive is a four-level parking structure with approximately 5,700 square feet of ground floor retail space for seven tenants. The parking structure contains 316 spaces and is valet operated.



416 North Bedford Drive



416 North Bedford Drive is a four-story, approximately 40,000 rentable
square foot reinforced brick MOB with a basement and ground floor retail space. Built in 1946 and extensively remodeled in 1986, the building features oak paneled walls and moldings, brass hardware, tinted concrete borders on the exterior, and
fourth floor skylights that provide an open, airy atmosphere in the hallway and in some of the suites.



435 North Bedford Drive



435 North Bedford Drive is a four-story, approximately 54,000 rentable square foot reinforced brick and masonry MOB with a penthouse, basement, and ground
floor retail space. Built in 1950 and extensively remodeled in 1984, the building features oak molding, wall sconces and paneling in the hallways plus stained runner boards and built-in stained hardwood cabinets in some of the medical office suites.



435 North Roxbury Drive



435 North Roxbury Drive is a four-story, approximately 41,000 rentable
square foot MOB with a penthouse, subterranean parking and retail space on the ground floor. The building, which was built in 1956 and extensively remodeled in 1983, features a reinforced brick and masonry exterior and raised, oak-stained paneling
and molding in the hallways.



436 North Bedford Drive



436 North Bedford Drive is a three-story, approximately
74,000 rentable square foot MOB with three levels of subterranean parking. Built in 1987, the building features ground floor retail and office space surrounding a central courtyard and balconies at selected locations on the second and third floors.
The exterior is clad in rose color sandstone with cast stone and granite trim. The central courtyard features a cascading waterfall sculpture and stone pavers with intricate marble and stone patterns. Cherry wood paneled walls also line the elevator
lobbies on all floors and portions of the hallways.



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##### Table of Contents

Sherman Oaks Medical Plaza



The Sherman Oaks Medical Plaza is a seven-story, approximately 68,000 rentable square foot MOB, constructed in 1969, that is
adjacent to the Sherman Oaks Hospital and Health Center, a 156-bed hospital which includes the major burn center for the San Fernando Valley. A $1 million capital improvement program renovating the building systems and common areas of the Sherman
Oaks Medical Plaza was completed in 1993. The Company also owns the adjacent air rights and three-level parking structure behind the property which provides a total of 426 parking spaces. The land beneath the parking structure is owned by Sherman
Oaks Hospital which also leases 150 parking spaces in the structure.



Irwindale Building



The Irwindale Building in
Irwindale, California is a two-story, approximately 48,000 square foot research and development building, constructed in 1992, on a site that provides two parking areas with a total of 244 spaces. The Company converted this building from an MOB to
an R&D building in 2001. Prior to 2001, this property was 100% leased to Cigna Healthcare of California (Cigna). After Cigna bought out their lease, the Company converted the building to an R&D facility in order to re-lease the
building to Autronics Corporation, a British-based electronics company. The lease with Autronics Corporation commenced on July 1, 2001 and expires on June 30, 2008. The lease is guaranteed by Curtiss-Wright Corporation, the parent company of
Autronics Corporation. The Irwindale Building was sold by the Company on March 18, 2004.



Coronado Plaza



Coronado Plaza is a three-story, approximately 40,000 rentable square foot office and retail complex located in Coronado, California. The building is located on the beach across the street from the Hotel Del Coronado and the majority of the
second and third floor suites have unobstructed ocean views. The building has subterranean parking for 96 vehicles plus street parking surrounding the entire property.



Holy Cross Medical Plaza



The Holy Cross Medical Plaza is situated on approximately 2.6 acres of the 15-acre campus of Holy Cross Medical Plaza, a 316-bed hospital. The campus also
includes the Villa de la Santa Cruz SNF, another MOB, a magnetic resonance imaging center, and an outpatient diagnostic center. Built in 1985, the Holy Cross Medical Plaza is a three-story, approximately 72,000 square foot MOB occupied primarily by
medical and dental practitioners. A two-story parking structure and an open asphalt-paved lot can accommodate a total of 333 vehicles. The surrounding site is landscaped with grass, trees, shrubs and planter boxes.



Lyons Avenue Medical Building



The Lyons Avenue Medical Building is a two-story, approximately 49,000
rentable square foot MOB located in Valencia, California only 1⁄2 mile from the Henry Mayo Newhall Memorial Hospital. The building has subterranean parking and a two-story atrium entry. The buildings excellent market position provides first
class medical space for those doctors that do not need an association with the hospital.



TustinMOB I



The
14591 Newport Avenue building in Tustin, California is a two-story, approximately 18,000 rentable square foot MOB that was constructed in 1969 on a 1.2-acre site. The site is landscaped with grass lawns, shrubs, and trees and includes an
asphalt-paved parking lot with approximately 105 parking spaces, representing a parking ratio of 5.8 parking spaces per 1,000 square feet of building area.



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##### Table of Contents

TustinMOB II



The 14642 Newport Avenue building in Tustin, California is a four-story, approximately 49,000 rentable square foot MOB,
developed in 1985, that features a surgery center with three operating rooms, a pharmacy, and an industrial clinic on the first floor. Medical offices are located on all of the other floors.



Regents Medical Center



The Regents Medical Center is a three-story, approximately 67,000 rentable
square foot MOB situated on approximately 2.6 acres in the University Town Center area of San Diego, near the University of California, San Diego. The building, which was constructed in 1989, has ground level retail spaces, two upper floors of
medical offices, and subterranean and ground level parking that can accommodate a total of 285 vehicles.



San Pedro Medical Plaza



The San Pedro Medical Plaza in San Pedro, California is an approximately 59,000 rentable square foot complex consisting of three MOBs. The buildings are
located across the street from the San Pedro Peninsula Hospital and are situated on 7.85 acres incorporating a 383 space surface parking lot.



1095 Irvine Boulevard



The 1095 Irvine Boulevard building in Tustin, California consists of approximately 10,000 rentable square feet and was redeveloped in 1995 as a primary
health care center for physicians who are part of the St. Joseph Hospital of Orange health care network. The property is leased to St. Joseph Hospital, Inc. under a net lease with a 15-year term, which began in August 1995, and provides for annual
cost of living rent escalations limited to 3%. The lease provides for monthly rent of $19,000 and expires on July 31, 2010.



Santa Clarita Valley Medical Center



The Santa Clarita Valley Medical Center in Valencia, California is an approximately 42,000 square foot complex consisting of four one-story MOBs and one
two-story MOB. The buildings are located on the Henry Mayo Newhall Memorial Hospital Campus, the only regional hospital in the area. The campus includes a 241-bed medical center and another MOB. An adjacent parking lot can accommodate up to 435
vehicles.



Santa Clarita Valley Medical Center, Bldg F



Building F at the Santa Clarita Valley Medical Center is
a two-story, approximately 44,000 square foot MOB built by the Company in 1999. The building is located on the Henry Mayo Newhall Memorial Hospital Campus and is adjacent to the other five MOBs owned by the Company on the Hospital Campus. Building F
is the premier medical office building in the Santa Clarita Valley area.



Santa Clarita Valley Foundation Building



The Foundation Building is a one-story, approximately 8,000 square foot MOB that is located on the Henry Mayo Newhall Memorial Hospital Campus and is currently 100% leased to the Henry Mayo Newhall Hospital
Foundation. On June 9, 2003, the Company purchased approximately 10 acres of land from the Henry Mayo Newhall Hospital for $3.9 million. As part of the purchase, the Company acquired the Foundation Building and approximately 4 acres of vacant land
along with the approximately 6 acres of land that the Company had been leasing for $264,000 from the Henry Mayo Newhall Memorial Hospital. The Santa Clarita Valley Medical Center MOBs are located on the 6 acres of the land that were previously
leased from the Henry Mayo Newhall Memorial Hospital.



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##### Table of Contents

ALF and SNF Properties



Southern California Properties



The Arbors at Rancho Penasquitos



The Arbors at Rancho Penasquitos is a 92-unit, approximately 52,000 square foot, three-story ALF located in Rancho Penasquitos, California. The building
was originally built in 1988 as a Ramada Hotel. In 1998, the Company, in joint venture with Parsons House, LLC, purchased the property and converted it into The Arbors at Rancho Penasquitos. The facility opened in March 1999 and now holds a
prestigious CARF accreditation given for high quality of care. The facility contains a 38-unit Alzheimers care wing that includes a private garden and activities room. The remaining 54 units are for assisted living residents. Each unit
contains approximately 360 square feet and includes a small kitchenette. The facility contains a kitchen, dining room, activity room and a lounge. The 2.07-acre property also has a parking lot that can accommodate up to 114 cars. The Arbors is
located in an excellent market area of San Diego County and sustained 100% occupancy during most of 2003.



Prestige Assisted Living at Yorba Linda



Prestige Assisted Living at Yorba Linda is a two story, 80-unit, approximately 50,000 square foot ALF located in Yorba Linda, California. Construction
began on the facility in October 1999 and was completed in the first quarter of 2002. The facility houses a 16-unit Alzheimers care wing with the remaining 64 units for assisted living residents.



The facility experienced a successful lease-up and as of January 31, 2004 was
over 90% occupied. The facility features a full service restaurant style dining room, community room, TV lounges, movie theater and beauty parlor. The property is conveniently located in an upscale area of Orange County.



Arizona Properties



Maryland Gardens



Maryland Gardens is a 98-bed SNF located in Phoenix. The facility
specialized in behavioral and Alzheimers care. The facility is situated on approximately 1.84 acres and consists of a 60-bed SNF and a 38-unit Alzheimers unit. The facility is leased to Senior Management Resources II, LLC, a Phoenix,
Arizona-based operator of SNFs. Through its special behavioral programs, Maryland Gardens has provided the Phoenix area with a unique service for which there is high demand. The behavioral SNF is typically 100% occupied with a waiting list.



Maryland Gardens II



Maryland Gardens II is a 20-unit, approximately 30,000 square foot
apartment complex acquired by the Company in May 1998. The building is located on a 1.0-acre lot adjacent to the Maryland Gardens SNF. The building, named the Winter Gardens Apartments, currently consists of residential tenants. The property also
includes a 1.0-acre vacant parcel of land and a duplex building.



Maryland Properties



St.
Thomas More Nursing and Rehabilitation Center is a 220-bed SNF located in Hyattsville, Maryland, a suburb of the Washington, D.C. metropolitan area. The facility lies on a 7 acre campus which includes a chapel built by the Arch Diocese of
Washington, D.C. in 1956. The facilitys primary focus is on providing aggressive rehabilitation services to assist residents in achieving their maximal level of functioning. The facility hosts a state of the art inpatient/outpatient
hemodialysis unit on site, which serves both short-term and long-term residents. This unique ability provides a continuity of care to those short-term residents when they return to their homes.



Through its caring staff and their commitment to quality, the facility
achieved Accreditation with Full Standards Compliance from the Joint Commission on Accreditation of Healthcare Organizations. The facility is managed by Neiswanger Management Services, LLC, a Maryland based operator.



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##### Table of Contents

Massachusetts Properties



Hampden Properties



G&L Hampden, LLC, a wholly owned subsidiary of the Company, acquired
three nursing home properties in Massachusetts on October 28, 1997 from Hampden Nursing Homes, Inc. (HNH), a nonprofit corporation. Lenox Healthcare, Inc. (Lenox) managed the three facilities from October 1998 through
December 1999. In November 1999, Lenox filed for bankruptcy protection. The Company immediately moved to replace Lenox as the manager of the nursing homes. In January 2000, the Company received the bankruptcy courts permission to replace Lenox
as the manager and a new management firm, a subsidiary of Roush & Associates (Roush), was immediately retained. Since acquiring the properties from HNH, HNH had held the licenses necessary to operate the facilities. In March 2000,
the Company successfully transferred the licenses to G&L Massachusetts, LLC, a subsidiary of the Operating Partnership.



Riverdale Gardens



Riverdale Gardens Nursing Home, located in West Springfield, Massachusetts, is a 168-bed nursing facility currently licensed for 84 skilled care and 84
intermediate care beds with 16 private and 76 double occupancy rooms. Constructed in various stages between 1957 and 1975, the property consists of a single story 54,451 square foot building on approximately 3.85 acres as well as a 3,366 square foot
single family residence on an adjacent 30,000 square foot lot.



Chestnut
Hill



Chestnut Hill Nursing Home, located in East
Longmeadow, Massachusetts, is a 123 bed nursing home consisting of 82 skilled nursing and 41 intermediate care beds with 15 private and 54 double occupancy rooms. The facility is a 49,198 square foot single story building constructed in 1984 on
approximately 11.9 acres of land.



Mary Lyon



Mary Lyon Nursing Home, located in Hampden, Massachusetts, occupies a 28,940
square foot building situated on 3.7 acres and was originally constructed in 1959 and renovated in 1986. The facility is licensed for 100 beds of which 40 are skilled nursing and 60 are intermediate care beds with ten private rooms, 39 double
occupancy rooms and three quadruple occupancy rooms.



Ring East
Nursing Home



Ring East Nursing Home, located in
Springfield, Massachusetts, occupies an approximately 58,000 square foot building, was constructed in 1987 and opened in 1988. The facility is licensed for 120 beds and residents include both short-stay post-acute patients as well as long-term care
residents.



Washington Property



Pacific Care Center



Pacific Care Center is a 112-bed SNF located in Hoquiam within three
miles of the only acute care hospital in the market area. A new manager was hired in August 2003 and the facility has recently experienced high occupancy and strong state inspection survey results.



Leases



MOB Properties



As of January 31, 2004, the MOB Properties were approximately 97.7% leased. New leases and extensions are normally granted for a minimum of three to five
years and provide for annual rent increases. Office tenants generally have gross leases whereby rents may be adjusted for a tenants proportionate share of any increases in the cost of



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##### Table of Contents

operating the building. However, the Company has recently been leasing office space with provisions for the tenants to
pay all utility costs directly. Most retail tenants have net leases and pay their share of all operating expenses including property taxes and insurance. The following is a lease expiration table setting forth the number, square feet and associated
annual rent for those leases expiring in future years.



MOB
PropertiesLease Expirations



|                         |  |                               |  |                                          |  |             |            |                        |       |  
|------------------------ |  | ----------------------------- |  | ---------------------------------------- |  | ----------- | ---------- | ---------------------- | ----- | -
|Year of Lease Expiration |  | Number of Leases Expiring (1) |  | Approximate Total Rented Square Feet (1) |  | Annual Rent |            | % of Total Annual Rent |      
|2004                     |  | 59                            |  | 106,016                                  |  | $           | 3,184,000  |                        | 13.2  | %
|2005                     |  | 75                            |  | 116,693                                  |  |             | 3,778,000  |                        | 15.7  | %
|2006                     |  | 78                            |  | 139,861                                  |  |             | 4,888,000  |                        | 20.2  | %
|2007                     |  | 54                            |  | 113,495                                  |  |             | 4,033,000  |                        | 16.7  | %
|2008                     |  | 57                            |  | 162,377                                  |  |             | 4,293,000  |                        | 17.8  | %
|2009                     |  | 19                            |  | 52,902                                   |  |             | 1,513,000  |                        | 6.3   | %
|2010                     |  | 13                            |  | 42,193                                   |  |             | 1,145,000  |                        | 4.7   | %
|2011                     |  | 5                             |  | 9,423                                    |  |             | 434,000    |                        | 1.8   | %
|2012                     |  | 6                             |  | 12,872                                   |  |             | 386,000    |                        | 1.6   | %
|2013                     |  | 4                             |  | 6,623                                    |  |             | 188,000    |                        | 0.8   | %
|2014 or later            |  | 3                             |  | 6,830                                    |  |             | 281,000    |                        | 1.2   | %
|                         |  |                               |  |                                          |  |             |            |                        |       |  
|Total                    |  | 373                           |  | 769,285                                  |  | $           | 24,123,000 |                        | 100.0 | %
|                         |  |                               |  |                                          |  |             |            |                        |       |  

---

|1) | Does not include month-to-month leases or vacant space. There are 40 month-to-month tenants who occupy approximately 44,000 square feet of space and pay approximately $104,000
per month in rent.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has generally
enjoyed strong lease renewals, achieving a weighted average renewal rate of approximately 79.7% on MOB leases that expired during 2003. Although there can be no assurance that this renewal level will be maintained, the Company believes this high
renewal rate is due in part to the tendency of medical practitioners to continue to practice in the same space over a number of years. Also, the Companys tenants frequently invest large sums of money in equipment and fixtures for their
offices. Furthermore, relocating a doctors office can be disruptive to the patients who are familiar with the doctors office location.



Senior Care Loans



From 1995 through 1999, the Company was in the business of originating loans secured by healthcare properties. Since 1999, the Company has made no secured
loans and has exited the business of originating loans. As of December 31, 2003, the Company had seven loans outstanding that total approximately $4.2 million before reserves of $3.5 million. Management believes that $3.5 million is appropriate in
relation to the status of the loans in the Companys portfolio as of March 30, 2004.



Notes Receivable from Stockholders



The Company has two unsecured promissory notes totaling $5.24 million to Daniel M. Gottlieb and Steven D. Lebowitz, the Companys chief executive officer and president, respectively, and the owners of 100% of the
Companys outstanding common stock. As of December 31, 2003, all accrued interest had been paid and the outstanding principal balance on the notes was $5.11 million.



Insurance



The Company carries comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to the MOB Properties and certain ALF
and SNF Properties. There are certain types of losses that may either be uninsurable or not economically insurable; moreover, there can be no assurance that policies maintained by the Company will be adequate in the event of a loss. The Company
carries earthquake and flood insurance for coverage of losses up to $35 million on the MOB Properties and certain ALF and SNF Properties located in California and Arizona, which amount represents approximately 25% of the net book value of these
properties. This



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##### Table of Contents

coverage is subject to a 10% deductible up to the amount of insured loss. The ALF and SNF Properties located in
Washington and Massachusetts do not carry earthquake or flood insurance. Twenty-eight of the 36 properties directly or indirectly owned by the Company are located in Southern California, which has a history of seismic activity, including the 1994
Northridge earthquake that damaged the Holy Cross Medical Plaza property. Two ALF and SNF Properties owned by the Company are located in Phoenix, Arizona, in an area with a history of flood activity. Where the Company does not directly insure
against casualty or liability, the Company requires the lessees or operators of its ALF and SNF Properties to maintain such insurance and name the Company and its subsidiaries as additional insured with full rights of a direct beneficiary in the
event of loss. Should an uninsured loss occur, the Company could lose its investment in, and anticipated earnings and cash flow from, a property.



|ITEM 3. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



There is no material pending litigation to which the Company or its consolidated or unconsolidated subsidiaries is a defendant or to which any of their
properties is subject other than routine litigation arising in the ordinary course of business, most, if not all, of which is expected to be covered by insurance, except as discussed below.



There are a number of common 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, with Lukoff designated as the lead action. No trial date has been set. The Morse action has been stayed pending the
conclusion of the California class actions.



In addition, a
group of four former common stockholders of the Company filed an individual suit against the Company and its directors arising from the same conduct alleged in the putative class actions. This suit, Lyle Weisman, et al. v. G & L Realty Corp., et
al., case number BC 271401, filed in the Superior Court of California, County of Los Angeles, on April 4, 2002, asserts claims for breach of fiduciary duty and fraud against the director defendants The third amended complaint also asserts a claim
for unjust enrichment against Messrs. Gottlieb and Lebowitz and a claim for unfair competition under Business and Professions Code sections 17200 et seq. against Messrs. Gottlieb and Lebowitz and the Company. The Weisman plaintiffs have also
attempted to plead claims for alleged intentional interference with prospective business advantage based on interference with the Weisman plaintiffs purported efforts to acquire the Company. However, the Court has dismissed the Weisman
plaintiffs interference claims on the basis of the pleadings without 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, among other things, intentional interference with contract, intentional interference
with prospective economic advantage, and fraud. The Weisman suit has been consolidated with the Lukoff class actions for purposes of discovery. No trial date has been set in this action.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



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##### Table of Contents

PART II



|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- |  | ---------------------------------------------------------------------



Until October 29, 2001, the Companys Common Stock was listed on the New York Stock Exchange under the symbol GLR. On
October 29, 2001, the Company completed a merger with G & L Acquisition, LLC, a Maryland limited liability company, substantially on the terms provided for in the Agreement of Plan and Merger, dated as of May 10, 2001, as amended, by and between
the Company and G & L Acquisition, LLC (the Merger). G & L Acquisition, LLC is owned by Daniel M. Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President, respectively, of the Company. Upon completion of the
Merger, each outstanding share of the Companys Common Stock, other than a portion of the shares held by Messrs. Gottlieb and Lebowitz, was converted into the right to receive $13.00 in cash, without interest. After completion of the Merger,
the Companys Common Stock was delisted from the New York Stock Exchange. There is no established public trading market for the Companys common stock. As of March 30, 2004, the Company had two holders of its Common Stock.



During 2003 and 2002, the Company paid common stock dividends of $0.8 million
in the second quarter of 2003, $4.5 million in the fourth quarter of 2003 and $0.5 million in the fourth quarter of 2002.



The Company also paid monthly dividends to holders of the Companys Series A (GLRPRA) and Series B (GLRPRB) Preferred Stock on the fifteenth day of
each month. Dividends are paid monthly at the rate of $2.56 and $2.45 per annum on shares of the Companys Series A and Series B Preferred Stock, respectively. Distributions on the Companys Series A and Series B Preferred Stock are senior
to all classes of the Companys Common Stock. Subsequent to the Merger, the Companys Series A and Series B Preferred Stock is still outstanding and traded on the New York Stock Exchange.



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##### Table of Contents

|ITEM 6. |  | CONSOLIDATED SELECTED FINANCIAL DATA
|------- |  | ------------------------------------



The following table sets forth consolidated selected financial and operating information for the Company for each of the years ended December 31, 2003,
2002, 2001, 2000 and 1999. The following information should be read in conjunction with all of the financial statements and notes thereto included in this Form 10-K. This data also should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. The consolidated selected financial and operating data as of December 31, 2003, 2002, 2001, 2000 and 1999 and for each of the years
ended December 31, 2003, 2002, 2001, 2000 and 1999 have been derived from audited financial statements.



|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                                            |  | Year ended December 31,                  |        
|                                                                                                                                                            |  | 2003                                     |         |   | 2002 |   |        | 2001 |  |   | 2000   |   |  | 1999 |       
|                                                                                                                                                            |  | (In thousands, except per share amounts) |        
|Operating Data:                                                                                                                                             |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Revenues:                                                                                                                                                   |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Rental                                                                                                                                                      |  | $                                        | 23,017  |   |      | $ | 23,145 |      |  | $ | 21,126 |   |  | $    | 19,607 |   |  | $ | 23,134 |  
|Patient revenues                                                                                                                                            |  |                                          | 26,129  |   |      |   | 24,261 |      |  |   | 21,057 |   |  |      | 17,820 |   |  |   |       |  
|Tenant reimbursements                                                                                                                                       |  |                                          | 3,055   |   |      |   | 2,497  |      |  |   | 1,606  |   |  |      | 1,189  |   |  |   | 1,009  |  
|Parking                                                                                                                                                     |  |                                          | 1,644   |   |      |   | 1,472  |      |  |   | 1,439  |   |  |      | 1,199  |   |  |   | 1,112  |  
|Interest and loan fees                                                                                                                                      |  |                                          | 787     |   |      |   | 2,459  |      |  |   | 2,801  |   |  |      | 2,532  |   |  |   | 2,797  |  
|Other income                                                                                                                                                |  |                                          | 2,562   |   |      |   | 1,412  |      |  |   | 1,790  |   |  |      | 526    |   |  |   | 378    |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total revenues                                                                                                                                              |  |                                          | 57,194  |   |      |   | 55,246 |      |  |   | 49,819 |   |  |      | 42,873 |   |  |   | 28,430 |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Expenses:                                                                                                                                                   |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Property operations                                                                                                                                         |  |                                          | 7,709   |   |      |   | 7,314  |      |  |   | 7,360  |   |  |      | 6,879  |   |  |   | 6,684  |  
|Skilled nursing operations                                                                                                                                  |  |                                          | 23,901  |   |      |   | 21,421 |      |  |   | 19,004 |   |  |      | 16,548 |   |  |   |       |  
|Depreciation and amortization                                                                                                                               |  |                                          | 4,876   |   |      |   | 4,907  |      |  |   | 4,726  |   |  |      | 4,780  |   |  |   | 4,725  |  
|Interest                                                                                                                                                    |  |                                          | 25,122  |   |      |   | 13,588 |      |  |   | 10,235 |   |  |      | 10,453 |   |  |   | 10,051 |  
|Loss on sale of bonds receivable                                                                                                                            |  |                                          | 120     |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|General and administrative                                                                                                                                  |  |                                          | 4,551   |   |      |   | 3,280  |      |  |   | 3,953  |   |  |      | 2,892  |   |  |   | 3,196  |  
|Provision for doubtful accounts, notes and bonds receivable                                                                                                 |  |                                          | 975     |   |      |   | 1,542  |      |  |   | 1,004  |   |  |      | 2,288  |   |  |   | 2,210  |  
|Impairment of long-lived assets                                                                                                                             |  |                                          |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   | 6,400  |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total expenses                                                                                                                                              |  |                                          | 67,254  |   |      |   | 52,052 |      |  |   | 46,282 |   |  |      | 43,840 |   |  |   | 33,266 |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|(Loss) income from operations before minority interests, equity in earnings (loss) of unconsolidated affiliates, (loss) income from
discontinued operations |  |                                          | (10,060 | ) |      |   | 3,194  |      |  |   | 3,537  |   |  |      | (967   | ) |  |   | (4,836 | )
|Equity in earnings (loss) of unconsolidated affiliates                                                                                                      |  |                                          | 3,743   |   |      |   | (140   | )    |  |   | 205    |   |  |      | (417   | ) |  |   | (269   | )
|Minority interest in consolidated affiliates                                                                                                                |  |                                          | (150    | ) |      |   | (285   | )    |  |   | (302   | ) |  |      | (182   | ) |  |   | (175   | )
|Corporate income tax expense                                                                                                                                |  |                                          | (136    | ) |      |   | (295   | )    |  |   | (85    | ) |  |      |       |   |  |   |       |  
|Minority interest in Operating Partnership                                                                                                                  |  |                                          |        |   |      |   |       |      |  |   |       |   |  |      | 460    |   |  |   | 2,202  |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|(Loss) income from operations before discontinued operations                                                                                                |  |                                          | (6,603  | ) |      |   | 2,474  |      |  |   | 3,355  |   |  |      | (1,106 | ) |  |   | (3,078 | )
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net (loss) income from discontinued operations                                                                                                              |  |                                          | (224    | ) |      |   | (305   | )    |  |   | 2,775  |   |  |      | 992    |   |  |   | 963    |  
|Gain from sale of discontinued operations                                                                                                                   |  |                                          | 7,347   |   |      |   | 2,320  |      |  |   |       |   |  |      | 1,263  |   |  |   |       |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total income from discontinued operations                                                                                                                   |  |                                          | 7,123   |   |      |   | 2,015  |      |  |   | 2,775  |   |  |      | 2,255  |   |  |   | 963    |  
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net income (loss)                                                                                                                                           |  |                                          | 520     |   |      |   | 4,489  |      |  |   | 6,130  |   |  |      | 1,149  |   |  |   | (2,115 | )
|Dividends on preferred stock                                                                                                                                |  |                                          | (7,162  | ) |      |   | (7,162 | )    |  |   | (7,162 | ) |  |      | (7,164 | ) |  |   | (7,212 | )
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net loss to common stockholders                                                                                                                             |  | $                                        | (6,642  | ) |      | $ | (2,673 | )    |  | $ | (1,032 | ) |  | $    | (6,015 | ) |  | $ | (9,327 | )
|                                                                                                                                                            |  |                                          |         |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  



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|                                                    |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | At or for the Year ended December 31,    |        
|                                                    |  | 2003                                     |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                                    |  | (In thousands, except per share amounts) |        
|Cash Flow Data:                                     |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net cash (used in) provided by operating activities |  | $                                        | (936    | ) |      | $ | 3,871   |      |  | $ | 15,482  |   |  | $    | 7,332   |   |  | $ | 8,708   |  
|Net cash provided by (used in) investing activities |  |                                          | 22,549  |   |      |   | 11,612  |      |  |   | (2,809  | ) |  |      | (373    | ) |  |   | (12,330 | )
|Net cash (used in) provided by financing activities |  |                                          | (12,029 | ) |      |   | (15,156 | )    |  |   | (13,425 | ) |  |      | (11,713 | ) |  |   | 9,788   |  
|                                                    |  |                                          |         |   |     
|Balance Sheet Data:                                 |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Land, buildings and improvements, net               |  | $                                        | 125,958 |   |      | $ | 141,139 |      |  | $ | 136,467 |   |  | $    | 138,951 |   |  | $ | 161,539 |  
|Assets held for sale                                |  |                                          | 30,097  |   |      |   | 31,192  |      |  |   | 30,915  |   |  |      | 31,428  |   |  |   | 19,212  |  
|Mortgage loans and bonds receivable, net            |  |                                          | 764     |   |      |   | 1,829   |      |  |   | 11,976  |   |  |      | 11,244  |   |  |   | 16,026  |  
|Total investments                                   |  |                                          | 156,819 |   |      |   | 174,160 |      |  |   | 179,358 |   |  |      | 181,623 |   |  |   | 196,777 |  
|Total assets                                        |  |                                          | 188,217 |   |      |   | 198,008 |      |  |   | 205,024 |   |  |      | 205,466 |   |  |   | 232,396 |  
|Total debt                                          |  |                                          | 196,327 |   |      |   | 194,092 |      |  |   | 192,698 |   |  |      | 158,942 |   |  |   | 177,371 |  
|Total stockholders equity                          |  |                                          | (14,293 | ) |      |   | (2,272  | )    |  |   | 901     |   |  |      | 39,891  |   |  |   | 51,385  |  



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|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



The following discussion should be read in conjunction with the Consolidated Selected Financial Data and the Companys
Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.



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 Annual Report on Form 10-K.



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.



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 2003,
2002 and 2001.



Results of Operations



Comparison of the Year Ended December 31, 2003 Versus the Year Ended December 31, 2002



Total revenues increased by $2.0 million, or 4%, from
$55.2 million for the year ended December 31, 2002, to $57.2 million for the same period in 2003. The increase was due to an increase in patient revenues of $1.8 million and an increase in other income of $1.2 million. These increases were offset by
a $1.7 million decrease in interest and loan fee income.



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Patient revenues relating to the skilled nursing facilities located in Hampden, Massachusetts, which are
operated by the Company, increased by $1.8 million, or 8%, from $24.3 million for the year ended December 31, 2002, to $26.1 million for the same period in 2003. This increase was mainly due to increased occupancy and a higher percentage of Medicare
patients for which the government pays a higher reimbursement rate. Although patient revenues increased 8% over 2002, higher operating expenses reduced the total income from operations produced by the Companys skilled nursing facilities
located in Hampden, Massachusetts in the year 2003 by $0.7 million.



Rents, tenant reimbursements and parking revenues increased by $0.6 million, or 2%, from a combined total of $27.1 million for the year ended December 31, 2002, to $27.7 million in 2003. Increased occupancy and rental rates along with
tenants reimbursing the Company for a greater share of building operating expenses per the terms of their lease agreements at the Companys MOB properties accounted for a $1.1 million increase in rental revenue, tenant reimbursement and parking
revenues. This increase was offset by a decrease in rental revenue of $0.5 million due to a lease amendment at one of the Companys SNFs. Due to continuing operating losses at the Companys SNF located in Hoquiam, Washington, the Company
is not receiving any rental revenue from this facility as it had in 2002. In August 2003, the Company hired a new operator to manage this SNF and the facility has begun to stabilize. The Company expects this SNF to start producing a profit in 2004.



Interest and loan fee income decreased $1.7 million from $2.5
million for the year ended December 31, 2002 to $0.8 million 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.



Other income increased $1.2 million, or
79%, from $1.4 million for the year ended December 31, 2002 to $2.6 million for the same period in 2003. This increase is due to the collection of $1.0 million related to a $4.6 million loan made by the Company in 1997 to Aspen Paso Robles, Inc.
(Aspen) for the purchase of three SNFs located in Northern California. The loan has been in default since December 1999 and has been fully reserved by the Company.



Interest expense increased $11.5 million, or 85%, from $13.6 million for the year ended December 31, 2002, to $25.1 million
for the same period in 2003. Interest expense increased by $13.2 million from 2002 to 2003 due to prepayment penalties and the write-off of deferred loan fees relating to the early repayment of five individual loans totaling $101.3 million. Interest
expense also increased an additional $0.2 million due to a new $4.3 million loan secured by a SNF located in Phoenix, Arizona that was obtained in December 2002. These increases were offset by decreases in interest expense totaling $1.9 million. A
decrease in interest expense on the Companys variable rate mortgages due to lower interest rates accounted for $1.3 million of the total decrease. The remaining $0.6 million decrease was due to the decline in the fair market value of the
Companys LIBOR interest rate cap. The Company recognized a $0.3 million loss related to the decline in the fair market value of its LIBOR interest rate cap during 2003 compared to a $0.9 million loss in 2002. The value of the LIBOR interest
rate cap fluctuates based upon current prevailing market interest rates. For the years ended December 31, 2001 and 2002, the Company recognized a $0.5 million gain and a $0.9 million loss, respectively, on the fair market value of its LIBOR interest
rate cap, thus, the net effect on earnings since the Companys purchase of this financial instrument has been a $0.7 million loss. In October 2003, the Company sold the LIBOR interest rate cap for $0.2 million



General and administrative costs increased $1.3 million, or 39%, from $3.3
million for the year ended December 31, 2002, to $4.6 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
$0.6 million, or 60%, from $1.6 million for the year ended December 31, 2002, to $1.0 million for the same period in 2003. This decrease is the result of a decrease in reserves associated with the Companys SNF located in Hoquiam, Washington.



Equity in earnings of unconsolidated affiliates increased $3.9
million for the year ended December 31, 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



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$1.3 million as a result of this sale. In addition, another joint venture, in which the Company also held a 50% interest,
sold an ALF located in Omaha, Nebraska. The Company recognized a gain of approximately $2.6 million as a result of the sale.



Gains from sale of discontinued operations increased $5.0 million, or 217%, from $2.3 million for the year ended December 31, 2002, to $7.3 million for
the same period in 2003. The Company recognized net gains from discontinued operations in the amount of $7.3 million during 2003 due to the sale of two of its MOB properties and one of its ALFs. The sale, in October 2003, of a one-story, 9,100
square foot retail facility located in Aliso Viejo, California accounted for a gain of $0.8 million, while the sale, in December 2003, of a two-story, 26,000 square foot MOB located in Burbank, California accounted for a gain of $1.4 million. In
addition, in December 2003, the Company sold its membership interest in a joint venture that owned a 92-unit ALF located in Santa Monica, California for $6 million and recognized a net gain on sale of $5.1 million. The Company recognized a net gain
from discontinued operations in the amount of $2.3 million for 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 due to the sale, in May 2002, of a SNF located in Paso Robles, California.



Comparison of the Year Ended December 31, 2002 Versus the Year Ended December 31, 2001



Total revenues increased by $5.4 million, or 11%, from $49.8 million for the year ended December 31, 2001, to $55.2 million
for the same period in 2002. The increase was due to an increase in rental revenues and tenant reimbursements of $2.9 million and an increase in patient revenues of $3.2 million. These increases were offset by a $0.3 million decrease in interest and
loan fee income as well as a $0.4 million decrease in other income.



Patient revenues relating to the skilled nursing facilities located in Hampden, Massachusetts, which are operated by the Company, increased by $3.2 million, or 15%, from $21.1 million for the year ended December 31, 2001, to $24.3 million
for the same period in 2002. This increase was due to increased occupancy and higher patient reimbursement rates.



Rents, tenant reimbursements and parking revenues increased by $2.9 million, or 12%, from a combined total of $24.2 million for the year ended December
31, 2001, to $27.1 million in 2002. The January 2002 acquisition of a SNF in Hyattsville, Maryland accounted for $1.5 million of this increase while increased occupancy and rental rates per the terms of its lease agreements at the Companys MOB
properties accounted for an additional $1.4 million increase in rental revenue.



Interest and loan fee income decreased $0.3 million from $2.8 million for the year ended December 31, 2001 to $2.5 million in 2002. This decrease was due to a $0.5 million decrease in the fair market value of the
LIBOR interest rate cap associated with the $35 million loan with GMAC. This decrease was offset by a $0.2 million increase in interest and loan fee income due to fees associated with the early repayment of the Companys two notes receivable
related to a SNF located in Hyattsville, Maryland.



Interest
expense increased $3.4 million, or 33%, from $10.2 million for the year ended December 31, 2001 to $13.6 million in 2002. Most of this increase, $3.0 million, was due to the interest expense associated with the Companys $35 million loan with
GMAC that was obtained in October 2001 in order to repurchase the Companys outstanding common stock. An additional $1.0 million of the increase was due to the decline in the fair market value of the LIBOR interest rate cap associated with the
$35 million loan. These increases were offset by a $0.6 million decrease in interest expense on the Companys variable rate mortgages due to lower interest rates. While the Company recognized a $1.0 million loss related 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 year ended December 31, 2001, the Company recognized a $0.5 million gain 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 $0.5 million loss.



Provisions for doubtful accounts, notes and bonds receivable increased by $0.6 million, or 60%, from $1.0 million for the
year ended December 31, 2001, to $1.6 million for the same period in 2002. This increase is the result of the Companys concern about the collectibility of its rents receivables related to its SNF located in Hoquiam, Washington as well as its
ALF located in Tarzana, California.



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Income from assets held for sale decreased $3.3 million from a gain of $2.3 million for the year ended
December 31, 2001 to a loss of $1.0 million for the same period in 2002. The main reason for this decrease was a $2.6 million decrease in lease termination income. The Company recognized lease termination income in the amount of $2.6 million during
2001 related to the settlement of a lawsuit for delinquent rent, future rent and other amounts owed under a lease at the Companys MOB located in Irwindale, California. The Company sued the tenant, which had been in default on their rent since
December 1999, to recover the delinquent rent payments as well as all future rent through the end of the lease which expired on November 30, 2004. In January 2001, the Company received a settlement in the amount of $4.1 million. At the time of the
settlement the total delinquent rent was approximately $1.5 million.



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 due to the sale, in May 2002, of a SNF located in Paso Robles, California.



Liquidity and Capital Resources



As of December 31, 2003, the Company had $12 million of cash on hand. As of
March 30, 2004, cash on hand had increased to approximately $16 million. The Company obtains its liquidity from multiple internal and external sources. Internally, funds are derived from the operation of its MOBs, SNFs and ALFs. The MOB Properties
produced net income of approximately $3.2 million before minority interests for the year ended December 31, 2003. The $3.2 million includes $13.2 million of prepayment penalties and deferred loan fee write offs from the Companys 2003
refinancings along with $2.3 million of gains from asset sales and a $1.2 million gain on sale of assets in unconsolidated affiliates. The MOB Properties contain approximately 832,000 rentable square feet and, as of January 31, 2004, were
approximately 97.7% leased to over 400 tenants with lease terms typically ranging from three to ten years.



The ALFs produced approximately $5.5 million of net income for the year ended December 31, 2003 including a gain on the sale of $5.1 million of the
Companys membership interest in a joint venture that owned an ALF located in Santa Monica, California and a $2.6 million gain on sale of assets in unconsolidated affiliates. The ALFs are leased to operators who manage the facilities for the
Company. All of the leases are for five years or less with non-credit tenants.



The SNFs produced a net loss of approximately $1.2 million for the year ended December 31, 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 would likely be adversely affected.



The Companys principal external sources of capital consist of various
secured loans and selective asset sales. As of December 31, 2003, the Company had secured loans outstanding of approximately $196.3 million. The Company has also been selling some of its assets in order to provide additional liquidity. During 2003,
the Company used the net proceeds from four new 10-year loans totaling $47.0 million and three new 7-year loans totaling $59.5 million to repay the outstanding balance of $31.7 million on the Companys $35.0 million loan obtained in October
2001 in order to repurchase the Companys outstanding common stock. These new loans are individually secured by five of the Companys MOB properties located in Beverly Hills, California, an MOB located in Sherman Oaks, California and an
MOB located in La Jolla, California. The Companys 2003 refinancings and asset sales are discussed below.



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On February 23, 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.



On February 28, 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.



Also on February 28, 2003, the Company refinanced an MOB located in Beverly Hills, California for $8.2 million. The loan proceeds were used to repay the existing loan of $7.2 million along with other costs associated with the loan. The new
loan bears interest at a fixed rate of 5.55% per annum and is due on February 1, 2013.



On May 22, 2003, the Company refinanced a loan secured by an MOB located in Valencia, California with an $8.6 million loan. The loan proceeds were used to repay the existing $4.6 million as well as other financing
costs. The new loan has a ten year term and bears interest at a fixed rate of 5.48% per annum.



On June 3, 2003, the Company refinanced a loan secured by four of its MOBs located in Beverly Hills, California with four new loans totaling $47.0 million. The proceeds were used to repay the existing $26.2 million
loan as well as $14.9 million against the outstanding balance of the Companys $35 million loan obtained from GMAC in October 2001. The new loans have ten year terms and bear interest at a fixed rate of 5.68% per annum.



On June 9, 2003, the Company purchased a parcel of land in Valencia,
California on which six of its MOBs are located and an adjacent parcel of land on which an 8,000 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 leasing this land from the Henry Mayo Newhall Memorial Hospital for $22,000 per month.



On September 30, 2003, the Company refinanced a loan secured by MOBs located in Beverly Hills, Sherman Oaks and La Jolla, California as well as a research
and development facility located in Irwindale, California with three new loans totaling $59.5 million. The loan proceeds were used to repay the remaining balance on the old loan of $31.5 million and to repay the outstanding balance of $16.8 million
on the Companys $35 million loan with GMAC. The new loans bear interest at a fixed rate of 5.34% per annum and are due on October 1, 2010. The remaining net proceeds from these transactions were used to purchase a parcel of land in Valencia,
California and for working capital.



On October 15, 2003, the
Company sold its one-story, 9,100 square foot retail facility located in Aliso Viejo, California for $2.86 million. The Company received net proceeds of $0.9 million from the sale and recognized a net gain of $0.8 million. The existing mortgage
balance of $1.34 million was assumed by the buyer.



On December
2, 2003, the Company sold its membership interest in a joint venture that owned a 92-unit ALF located in Santa Monica, California for $6.0 million and recognized a net gain on sale of $5.1 million. The existing mortgage balance of $11.1 million was
assumed by the buyer.



On December 31, 2003, the Company sold
its two-story, 26,000 square foot MOB located in Burbank, California for $6.6 million. The Company received net proceeds of $3.2 million from the sale and recognized a net gain of $1.4 million. The existing mortgage balance of $2.9 million was
assumed by the buyer.



In the first quarter of 2004, the
Company obtained a $3 million secured line of credit from US Bank. The line of credit is secured by a first deed of trust on land owned by the Company in Santa Clarita. As of March 30, 2004, the Company had not borrowed any money under the line of
credit.



On January 26, 2004, the Company sold its membership
interest in a joint venture that owned an 80-unit ALF located in Tarzana, California for $1.7 million in cash and recognized a net gain on sale of $0.4 million. The existing mortgage balance of $8.2 million along with an unsecured note payable of
$0.5 million were assumed by the buyer.



On March 18, 2004, the
Company sold its two-story, 48,000 square foot research and development building located in Irwindale, California for $8.85 million and received net proceeds of $8.5 million. The Company recognized a gain on sale of $0.9 million.



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All of the net proceeds from the 2003 debt refinancings and asset sales that have not been used as
described above are being held by the Company for new acquisitions, future common stock dividends and for general corporate purposes.



The Company is also in the process of entering into a joint venture with respect to its 220-bed SNF in Maryland. The Company intends to contribute its
100% interest in the property to the joint venture for a 75% interest in the joint venture and the joint venture partner will contribute $1 million in cash for its 25% interest. The Company expects the joint venture to close in the second quarter of
2004.



As of March 30, 2004, the Company was under contract to
sell a total of three properties. The properties include a three-story, 40,000 square foot office and retail complex located in Coronado, California; a 59-bed nursing and rehabilitation center in Chico, California and a 10,000 square foot MOB
located in Tustin, California. The Company plans to use the net proceeds from these sales for new acquisitions, future common stock dividends 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 2003 to holders of record on the first day of each month. In addition, the Company distributed $5.3 million in dividends to holders of the Companys Common Stock during 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. Through its debt refinancings in 2003, the Company reduced its average interest rate on its long-term, fixed rate debt from 7.52% as of
December 31, 2002 to 5.98% as of December 31, 2003. The Company also expects to maintain stockholder distributions in accordance with REIT requirements, although no assurances can be given that the current level of distributions will be maintained.
Long-term liquidity requirements such as refinancing mortgages, financing acquisitions and financing capital improvements will be accomplished through long-term borrowings, the sale of assets and joint venture arrangements.



Sources and Uses of Funds



The Companys net cash from operating activities decreased $4.8
million, or 123%, from net cash provided of $3.9 million for the year ended December 31, 2002 to net cash used of $0.9 million for the same period in 2003. The decrease is due primarily to the $11.2 million of prepayment penalties that the Company
incurred with respect to its mortgage refinancings in 2003. The prepayment penalties are included in interest expense and deducted from operating cash flow in 2003.



Net cash from investing activities increased $10.9 million, or 94%, from $11.6 million for the year ended December 31, 2002
to $22.5 million for the same period in 2003. The increase was primarily due to an increase in proceeds from the sale of real estate assets of $20.9 million from $5.1 million in 2002 to $26.0 million in 2003. During 2003, the Company sold a 9,100
square foot retail center, a 92-unit ALF and a 26,000 square foot MOB compared with 2002 when the Company sold a 183-bed hospital and a vacant SNF. This increase was partially offset by a $9.3 million decrease in principal payments received from
notes and bonds receivable and a $4.0 million increase in purchases of real estate assets.



Net cash flows used in financing activities decreased $3.2 million, or 20% from $15.2 million for the twelve months ended December 31, 2002, to $12.0 million for the same period in 2003. The decrease was due primarily
to an increase in net proceeds from the issuance and repayment of notes payable of $10.7 million offset by a $5.0 million increase in distributions to stockholders and limited partners in consolidated joint ventures, a $1.3 million increase in the
payment of loan fees and a $1.3 million decrease in the decrease in restricted cash. During 2003, the Company received proceeds from notes payable of $123.9 million and repaid $121.7 million of notes payable for net cash provided by notes payable of
$2.2 million. During 2002, the Company received proceeds from notes payable of $14.5 million and repaid $23.0 million of notes payable for net cash deficit of $8.5 million. In 2002, a portion of the Companys cash provided from investing
activities was used to repay notes payable.



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Off- Balance Sheet Arrangements



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. However, NVHF has defaulted on the December 2003 semi-annual interest payment to the holders of the subordinated B-bonds and the Company anticipates the letter
of credit will be called upon by NVHF in order to make future interest payments on the secured debt. It appears probable that the Company will be required to fund its guaranty under the letter of credit. The Companys maximum liability under
the guarantee is $250,000 and the Company has accrued this amount as a liability on its balance sheet as of December 31, 2003.



The Company is a guarantor on a $6.3 million mortgage loan secured by an ALF that is owned by a joint venture in which the Company owns a 50% interest. A
corporate guaranty on a short-term mortgage loan is a usual and customary requirement by lenders in the industry. The Companys joint venture partner is also a guarantor on the loan. The individual owners of the Companys joint venture
partner have also personally guaranteed the loan. The Companys maximum liability under the guarantee is $6.3 million although the Company does not anticipate having to pay anything under this guarantee. The Company has recorded no liability on
its balance sheet related to this guarantee as of December 31, 2003.



As of December 31, 2003, the Company had investments in five unconsolidated joint ventures totaling $5.1 million. All of the unconsolidated joint ventures were formed for the purpose of acquiring and owning real estate assets. Per the terms
of the joint venture agreements, the Company could be required to advance additional funds to these joint ventures if the operating activities of the joint ventures are insufficient to satisfy the obligations of the joint ventures. Any additional
funds advanced to the joint ventures are treated as additional equity contributions and are recorded as an investment in unconsolidated affiliates on the Companys balance sheet.



Contractual Obligations



As of December 31, 2003, the Company had the following contractual obligations outstanding:



|                             |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|---------------------------- |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                             |  | 2004           |        | 2005 |   | 2006   |  | 2007 |        | 2008 |   | Thereafter |  | Total
|                             |  | (in thousands)
|Obligations:                 |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|                             |  |                |        |      |   |        | 
|Fixed rate mortgage debt:    |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Interest                     |  | $              | 10,616 |      | $ | 10,431 |  | $    | 10,258 |      | $ | 10,075     |  | $     | 9,440  |  | $ | 39,815  |  | $ | 90,635 
|Principal                    |  |                | 2,545  |      |   | 2,731  |  |      | 2,904  |      |   | 3,087      |  |       | 18,922 |  |   | 146,368 |  |   | 176,557
|                             |  |                |        |      |   |        | 
|Unsecured fixed rate debt:   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Interest                     |  |                | 36     |      |   | 34     |  |      | 32     |      |   | 30         |  |       | 28     |  |   | 128     |  |   | 288    
|Principal                    |  |                | 20     |      |   | 21     |  |      | 23     |      |   | 25         |  |       | 27     |  |   | 340     |  |   | 456    
|                             |  |                |        |      |   |        | 
|Variable rate mortgage debt: |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Principal                    |  |                | 12,910 |      |   | 4,218  |  |      |        |      |   |            |  |       |        |  |   |         |  |   | 17,128 
|                             |  |                |        |      |   |        | 
|Line of credit:              |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Principal                    |  |                |        |      |   | 2,186  |  |      |        |      |   |            |  |       |        |  |   |         |  |   | 2,186  
|                             |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|                             |  | $              | 26,127 |      | $ | 19,621 |  | $    | 13,217 |      | $ | 13,217     |  | $     | 28,417 |  | $ | 186,651 |  | $ | 287,250
|                             |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



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Debt Structure



As of December 31, 2003, the Company had twenty-one loans totaling $196.3 million. The terms of these loans are described below.



On April 22, 1998, the Company borrowed $9.4 million from Tokai Bank of
California (Tokai) at a fixed rate of 7.05%. On June 1, 1998, the Company began making monthly principal and interest payments on the loans of approximately $68,000 (25-year amortization). These notes, which will have a balance at
maturity of $7.5 million, are due on April 1, 2008. The notes consist of two individual first deeds of trust and are not cross-collateralized. The Holy Cross Medical Plaza and the St. Josephs Tustin Medical Plaza have been pledged as security
for these loans. As of December 31, 2003 the outstanding balance on this loan was $8.5 million.



On August 6, 1998, the Company acquired a 110-bed skilled nursing facility in Hoquiam, Washington for $3.3 million. The Company borrowed $2.5 million of
the purchase price from GMAC at a fixed rate of 7.49%. On October 1, 1998, the Company began making monthly principal and interest payments of approximately $18,000 (25-year amortization). This note, which will have a balance at maturity of $2.0
million, is due on September 1, 2008. The Pacific Care Center has been pledged as security for this note. As of December 31, 2003, the unpaid balance on this note was $2.3 million.



On December 31, 1998, the Company acquired a 40,000 square foot office and retail complex in Coronado, California for $9.5
million. Of this amount, the Company borrowed $7.5 million from GMAC at a fixed rate of 6.90%. On February 10, 1999, the Company began making monthly principal and interest payments of approximately $50,000 (25-year amortization). This note, which
will have a balance at maturity of $6.4 million, is due on December 11, 2008. The Coronado Plaza has been pledged as security for this note. The unpaid balance on this note was $7.1 million as of December 31, 2003.



On July 2, 1999, the Company obtained a $10 million long-term loan secured by
its six building portfolio of MOBs located at the Henry Mayo Newhall Hospital campus in Valencia, California. The Company used $5.0 million of the total proceeds to repay a short-term loan secured by these buildings. The loan, which is due on July
1, 2009, bears an interest rate of 6.85% and had an unpaid balance of $9.0 million as of December 31, 2003.



On September 30, 1999, the Company obtained a $13.92 million loan from GMAC Commercial Mortgage Corp. (GMAC) secured by the Hampden Properties
and repaid the existing $6.0 million Nomura loan. The loan originally bore interest at LIBOR plus 2.75% and required monthly principal and interest payments of approximately $122,000. In March 2003, the loan, which is secured by three SNFs located
in Massachusetts, was extended until January 1, 2004. Pursuant to the terms of the extension, the interest rate was increased to LIBOR plus 4.0% per annum. In February 2004, the loan was extended until July 1, 2004 with the option to extend for an
additional six months to January 1, 2005. All other terms remained the same. As of December 31, 2003 the outstanding balance on this loan was $12.9 million. On March 10, 2004, the Company made a principal payment of $3.6 million to GMAC on this loan
in order to obtain the release of collateral of two of the three properties which secure the loan.



On July 14, 2000, the Company obtained a $2.0 million line of credit secured by the accounts receivable at the Companys three SNFs located in
Massachusetts. The line of credit is guaranteed by the Company. In May 2002, the line of credit was increased to $3.5 million. The line of credit bears interest at prime plus 2.0% and is due on May 1, 2005. The unpaid balance on this line of credit
was $2.2 million as of December 31, 2003.



On August 17, 2001,
the Company obtained a loan in the amount of $7.2 million from Deutsche Bank AG secured by two of its properties located in Tustin, California. The proceeds were used to repay an existing $5.1 million first deed of trust. The loan bears interest at
7.51% and is due in August 2011. As of December 31, 2003, the unpaid balance on this note was $7.1 million.



On January 9, 2002, the Company purchased a SNF located in Hyattsville, Maryland for $14.9 million which included the assumption of a new $11.9 million
loan bearing interest at 7.05% per annum. The loan, which is secured by the SNF, requires monthly principal and interest payments of approximately $85,000 (25-year amortization) and is due on January 1, 2027. As of December 31, 2003, the unpaid
balance on the existing loan was $11.6 million.



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On May 17, 2002, the Company refinanced its ALF located in Tarzana, California with a new $8.3 million
HUD loan. The net proceeds were used to repay the existing first mortgage of $5.5 million along with a second mortgage and unsecured note totaling $1.7 million. The Company incurred a prepayment penalty of approximately $0.7 million in connection
with the early repayment of the first mortgage. The new loan, which required monthly principal and interest payments of approximately $53,000 (35-year amortization), bore interest at 6.95% per annum and was due on May 17, 2037. As of December 31,
2003, the unpaid balance on this loan was $8.2 million. In connection with this loan, the Company also obtained a $0.5 million unsecured loan. As of December 31, 2003, the unpaid balance on this loan was $0.5 million. In January 2004, the Company
sold its membership interest in the joint venture that owns the ALF for $1.7 million. The combined outstanding loan balances of $8.7 million were assumed by the buyer.



On December 5, 2002, the Company obtained a loan in the amount of $4.3 million from GMAC secured by its 98-bed SNF located
in Phoenix, Arizona. The loan, which requires monthly principal and interest payments of approximately $27,000, bears interest at LIBOR plus 4.5% and is due on July 1, 2005. As of December 31, 2003, the unpaid balance on this note was $4.2 million.



On February 28, 2003, the Company refinanced its 435 N.
Roxbury Drive MOB with a new $8.2 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The Company used the loan proceeds to repay the remaining balance on the old loan of $7.2 million along with a prepayment penalty of $144,000. The
new loan bears interest at a fixed rate of 5.55% and is due on February 1, 2013. The new loan requires monthly principal and interest payments of $47,000 (30-year amortization). As of December 31, 2003 the outstanding balance on this loan was $8.1
million.



On May 22, 2003, the Company refinanced its 49,000
square foot MOB located in Valencia, California with a new $8.6 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The Company used the loan proceeds to repay the remaining balance on the old loan of $4.6 million along with a
prepayment penalty of $231,000. The new loan bears interest at a fixed rate of 5.48% per annum and is due on June 1, 2013. The Company used a portion of the net refinancing proceeds to purchase a parcel of land in Valencia, California. As of
December 31, 2003, the unpaid balance on this new loan was $8.6 million.



On June 3, 2003, the Company refinanced a mortgage loan that was secured by three of its MOBs and an adjacent parking garage located in Beverly Hills with four individual loans totaling $47.0 million with 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 loans bear interest at a fixed rate of 5.69% per annum and are due on July 1, 2013. The Company used
the remaining loan 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 combined outstanding balance on the four loans was
approximately $46.8 million as of December 31, 2003.



On
September 30, 2003, the Company refinanced a mortgage loan that was secured by three of its MOBs and its research and development facility with three separate loans totaling $59.5 million with Morgan Stanley Mortgage Capital, Inc. The new loans are
secured by the Sherman Oaks Medical Plaza, the Regents Medical Center and the 436 North Bedford Drive MOB. The Company used the proceeds to repay the remaining balance on the old loan of $31.5 million along with a prepayment penalty of $6.1 million.
The new loans bear interest at a fixed rate of 5.34% per annum and are due on October 1, 2010. The Company used the remaining loan proceeds to repay the outstanding balance of $16.8 million on its $35 million loan obtained from GMAC in October 2001
and incurred an additional prepayment penalty of $0.3 million. As of December 31, 2003, the combined outstanding balance on the three loans was approximately $59.4 million.



Financing Policies



To the extent that the Board of Directors of the Company decides to seek additional funding, the Company may raise such capital using various means,
including retention of internally generated funds (subject to the distribution requirements in the Code with respect to REITs), existing working capital and possibly the issuance of additional debt (secured or unsecured), the participation in joint
venture arrangements or any combination of the above. It is anticipated that borrowings will continue to be made through the Operating Partnership and Senior Care Partnership



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or other entities, although the Company may also incur indebtedness that may be re-borrowed by the Operating Partnership
or the Senior Care Partnership on the same terms and conditions as are applicable to the Companys borrowing of such funds. Except as required pursuant to existing financing agreements, the Company has not established any limit on the number or
amount of mortgages or unsecured debt that may be placed on any single property or on its portfolio as a whole.



The Board of Directors of the Company also has the authority to cause the Operating Partnership or the Senior Care Partnership to issue additional Units
in any manner (and subject to certain limitations in the Partnership Agreement on such terms and for such consideration) as it deems appropriate and may also decide to seek financing for the purposes of managing the Companys balance sheet by
adjusting the Companys existing capitalization. The refinancing of the Companys balance sheet may entail the issuance and/or retirement of debt, equity or hybrid securities.



Inflation



The majority of the Companys leases are long-term leases designed to mitigate the adverse effect of inflation. Approximately 40% of the
Companys leases contain provisions that call for annual rent increases equal to the increase in the Consumer Price Index and the majority of the remaining leases allow for specific annual rent increases. Furthermore, many of the Companys
leases require tenants to pay a pro rata share of building operating expenses, including real estate taxes, insurance and common area maintenance. The effect of such provisions is to reduce the Companys exposure to increases in costs and
operating expenses resulting from inflation.



New Accounting Pronouncements



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



On January 1, 2003, the Company adopted the provisions of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task 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 December 2003, the FASB issued FASB Interpretation No. 46-R, Consolidation of Variable Interest Entities-an
Interpretation of ARB No. 51 (FIN 46-R). FIN 46-R 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



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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 March 15, 2004. The Company has completed an evaluation of all of its investments and
other interests in entities that may be deemed VIEs under the provisions of FIN 46-R. These investments include real estate joint ventures with assets totaling $32 million as of December 31, 2003. The Company believes that its real estate joint
ventures do not fall under the provisions of FIN 46-R and will not be consolidated, however, it is still evaluating the provisions of FIN 46-R and cannot make a definitive conclusion until it completes the evaluation.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and 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 activities 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. The adoption of this statement did
not 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 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.



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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 the Selected Financial Data and Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K and the additional data
presented below. The table on the following page presents an analysis of FFO and additional data for each of the four quarters and the year ended December 31, 2003 for the Operating Partnership:



G&L REALTY CORP.

FUNDS FROM OPERATIONS

FOR THE FOUR
QUARTERS AND YEAR ENDED DECEMBER 31, 2003



|                                                                  |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | --- |  | - | ------ | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                  |  | 2003 Fiscal Quarter                   |        |   | Year |  
|                                                                  |  | 1st                                   |        |   | 2nd  |   |        | 3rd |  |   | 4th    |   |  | 2003 |        
|                                                                  |  | (In thousands, except per share data) |       
|Funds from Operations (1):                                        |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                 |  | $                                     | 3,810  |   |      | $ | (4,684 | )   |  | $ | (6,924 | ) |  | $    | 8,318   |   |  | $ | 520     |  
|Depreciation of real estate assets                                |  |                                       | 1,310  |   |      |   | 976    |     |  |   | 1,394  |   |  |      | 965     |   |  |   | 4,645   |  
|Amortization of deferred lease costs                              |  |                                       | 61     |   |      |   | 55     |     |  |   | 51     |   |  |      | 51      |   |  |   | 218     |  
|Gain on sale of assets                                            |  |                                       |       |   |      |   |       |     |  |   |       |   |  |      | (7,347  | ) |  |   | (7,347  | )
|Depreciation of real estate assets from unconsolidated affiliates |  |                                       | 171    |   |      |   | 119    |     |  |   | 91     |   |  |      | 113     |   |  |   | 494     |  
|Adjustment for minority interest in consolidated affiliates       |  |                                       | (38    | ) |      |   | (38    | )   |  |   | (38    | ) |  |      | (36     | ) |  |   | (150    | )
|Dividends paid on preferred stock                                 |  |                                       | (1,790 | ) |      |   | (1,791 | )   |  |   | (1,790 | ) |  |      | (1,791  | ) |  |   | (7,162  | )
|                                                                  |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Operating Partnership funds from operations                       |  |                                       | 3,524  |   |      |   | (5,363 | )   |  |   | (7,216 | ) |  |      | 273     |   |  |   | (8,782  | )
|Minority interest in Operating Partnership                        |  |                                       | (188   | ) |      |   | 285    |     |  |   | 384    |   |  |      | (15     | ) |  |   | 467     |  
|                                                                  |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Funds from operations                                             |  | $                                     | 3,336  |   |      | $ | (5,078 | )   |  | $ | (6,832 | ) |  | $    | 258     |   |  | $ | (8,315  | )
|                                                                  |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Dividends declared                                                |  | $                                     |       |   |      | $ | 1.07   |     |  | $ |       |   |  | $    | 6.00    |   |  | $ | 7.07    |  
|Dividends paid on Common Stock                                    |  |                                       |       |   |      |   | 800    |     |  |   |       |   |  |      | 4,500   |   |  |   | 5,300   |  
|                                                                  |  |                                       |        |   |     
|Additional Data                                                   |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Cash Flows:                                                       |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Operating activities                                              |  |                                       | 1,229  |   |      |   | (2,015 | )   |  |   | (3,895 | ) |  |      | 3,745   |   |  |   | (936    | )
|Investing activities                                              |  |                                       | 2,548  |   |      |   | (4,809 | )   |  |   | (113   | ) |  |      | 24,923  |   |  |   | 22,549  |  
|Financing activities                                              |  |                                       | (4,033 | ) |      |   | 7,064  |     |  |   | 6,167  |   |  |      | (21,227 | ) |  |   | (12,029 | )
|                                                                  |  |                                       |        |   |     
|Capital Expenditures:                                             |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Building improvements                                             |  |                                       | 292    |   |      |   | 106    |     |  |   | 118    |   |  |      | 83      |   |  |   | 599     |  
|Tenant improvements                                               |  |                                       | 258    |   |      |   | 332    |     |  |   | 189    |   |  |      | 95      |   |  |   | 874     |  
|Furniture, fixtures & equipment                                   |  |                                       | 66     |   |      |   | 50     |     |  |   | 27     |   |  |      | 236     |   |  |   | 379     |  
|Leasing commissions                                               |  |                                       | 11     |   |      |   | 38     |     |  |   | 44     |   |  |      | 41      |   |  |   | 134     |  
|                                                                  |  |                                       |        |   |     
|Depreciation and Amortization:                                    |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Depreciation of real estate assets                                |  |                                       | 1,310  |   |      |   | 976    |     |  |   | 1,394  |   |  |      | 965     |   |  |   | 4,645   |  
|Depreciation of non-real estate assets                            |  |                                       | 163    |   |      |   | 159    |     |  |   | 156    |   |  |      | 259     |   |  |   | 737     |  
|Amortization of deferred lease costs                              |  |                                       | 61     |   |      |   | 55     |     |  |   | 51     |   |  |      | 51      |   |  |   | 218     |  
|Amortization of deferred licensing costs                          |  |                                       | 13     |   |      |   | 13     |     |  |   | 14     |   |  |      | 13      |   |  |   | 53      |  
|Amortization of capitalized financing costs                       |  |                                       | 221    |   |      |   | 164    |     |  |   | 178    |   |  |      | 75      |   |  |   | 638     |  
|                                                                  |  |                                       |        |   |     
|Rents:                                                            |  |                                       |        |   |      |   |        |     |  |   |        |   |  |      |         |   |  |   |         |  
|Straight-line rent                                                |  |                                       | 6,690  |   |      |   | 6,618  |     |  |   | 6,843  |   |  |      | 6,744   |   |  |   | 26,895  |  
|Billed rent                                                       |  |                                       | 6,743  |   |      |   | 6,575  |     |  |   | 6,875  |   |  |      | 6,775   |   |  |   | 26,968  |  

---

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



29



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##### Table of Contents

|ITEM 7A. |  | 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 December
31, 2003, approximately 10% of the Companys notes payable bear interest at a rate indexed to the one-month LIBOR rate or Prime Rate. The tables below provide information as of December 31, 2003 and 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
December 31, 2003 and 2002.



|                      |      |                        |        |      |       |   |       |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |        
|--------------------- | ---- | ---------------------- | ------ | ---- | ----- | - | ----- | ----------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |      | PRINCIPAL MATURING IN: |        |      | Total |   |       | Fair Market Value December 31, 2003
|                      | 2004 |                        |        | 2005 |       |   | 2006  |                                     |  | 2007 |       |   | 2008 |   |       | Thereafter |  |   |       
|                      |      | (in thousands)        
|Liabilities:          |      |                        |        |      |       |   |       |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |        
|Mortgage debt:        |      |                        |        |      |       |   |       |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |        
|Fixed rate            |      | $                      | 2,565  |      |       | $ | 2,752 |                                     |  | $    | 2,927 |   |      | $ | 3,112 |            |  | $ | 18,949 |   |  | $ | 146,708 |   |  | $ | 177,013 |   |  | $ | 202,829
|Average interest rate |      |                        | 5.98   | %    |       |   | 5.98  | %                                   |  |      | 5.98  | % |      |   | 5.98  | %          |  |   | 5.92   | % |  |   | 5.81    | % |  |   | 5.94    | % |  |   |        
|                      |      |                        |        |      |       |   |       |                                    
|Variable rate         |      |                        | 12,910 |      |       |   | 4,218 |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   | 17,128  |   |  |   | 17,128 
|Average interest rate |      |                        | 6.22   | %    |       |   | 5.37  | %                                   |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   | 6.17    | % |  |   |        
|                      |      |                        |        |      |       |   |       |                                    
|Line of credit:       |      |                        |        |      |       |   |       |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |        
|Variable rate         |      |                        |        |      |       |   | 2,186 |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   | 2,186   |   |  |   | 2,186  
|Average interest rate |      |                        |        |      |       |   | 6.00  | %                                   |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   | 6.00    | % |  |   |        
|                      |      |                        |        |      |       |   |       |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |        
|                      |      | $                      | 15,475 |      |       | $ | 9,156 |                                     |  | $    | 2,927 |   |      | $ | 3,112 |            |  | $ | 18,949 |   |  | $ | 146,708 |   |  | $ | 196,327 |   |  | $ | 222,143
|                      |      |                        |        |      |       |   |       |                                     |  |      |       |   |      |   |       |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |        



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, 2003, a 1% increase in the LIBOR rate would
decrease future earnings by $193,000 and future cash flow would decrease by $64,000. A 1% decrease in the LIBOR rate would increase future earnings by $193,000 and future cash flow would increase by $64,000. A 1% change in the LIBOR rate would not
have a material impact on the fair value of the Companys debt.



|                      |      |                        |       |      |       |   |        |                                     |  |      |        |   |      |   |        |            |  |   |       |   |  |   |        |   |  |   |         |   |  |   |        
|--------------------- | ---- | ---------------------- | ----- | ---- | ----- | - | ------ | ----------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---------- |  | - | ----- | - |  | - | ------ | - |  | - | ------- | - |  | - | -------
|                      |      | PRINCIPAL MATURING IN: |       |      | Total |   |        | Fair Market Value December 31, 2002
|                      | 2003 |                        |       | 2004 |       |   | 2005   |                                     |  | 2006 |        |   | 2007 |   |        | Thereafter |  |   |      
|                      |      | (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.



30



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##### Table of Contents

|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
|------- |  | ------------------------------------------



See Index to Consolidated Financial Statements and Schedules on Page 38.



|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



Not applicable.



|ITEM 9A. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------



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



PART III



|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- |  | --------------------------------------------------



The following table sets forth certain information with respect to the Companys directors as of March 30, 2004, based on information furnished to us
by each director.



|                   |  |     |  |                                                                |  |               
|------------------ |  | --- |  | -------------------------------------------------------------- |  | --------------
|Name               |  | Age |  | Position                                                       |  | Director Since
|Daniel M. Gottlieb |  | 63  |  | Chief Executive Officer, Co-Chairman of the Board and Director |  | 1993          
|Steven D. Lebowitz |  | 63  |  | President, Co-Chairman of the Board and Director               |  | 1993          
|Richard L. Lesher  |  | 70  |  | Director                                                       |  | 1993          
|Charles P. Reilly  |  | 61  |  | Director                                                       |  | 1993          
|S. Craig Tompkins  |  | 53  |  | Director                                                       |  | 1993          



The following is a
biographical summary of the experience of our directors.



Mr.
Gottlieb is our Chief Executive Officer and Co-Chairman of our board and has held these positions since we commenced operations in 1993. Mr. Gottlieb co-founded G & L Development in 1976 and has been a general partner of G & L Development
and active in commercial real estate management and development since that time. Mr. Gottlieb received his B.A. with honors from the University of Southern California and earned a J.D. from Boalt Hall School of Law at the University of California at
Berkeley. Prior to forming G & L Development, Mr. Gottlieb first served as a Los Angeles County Deputy District Attorney and later entered private practice specializing in real estate law and business management. Mr. Gottlieb has also served on
the board of directors of the United States Chamber of Commerce, Washington, D.C. since February 1996. Daniel Gottlieb is the father of Richard Gottlieb, the Companys Director of Development.



Mr. Lebowitz is our President and Co-Chairman of our board and has held these
positions since we commenced operations in 1993. Mr. Lebowitz is the co-founder and a general partner of G & L Development and has been active



31



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##### Table of Contents

in the development, management and ownership of a wide range of real estate properties since 1968. Mr. Lebowitz received
a B.S. in Accounting from the University of Southern California, where he also received his MBA with highest honors in 1965. From 1962 to 1964, Mr. Lebowitz worked for Deloitte & Touche, LLP and was licensed as a Certified Public Accountant in
1964. From 1965 to 1968, Mr. Lebowitz worked with the U.S. Department of Commerce and the Brookings Institution in Washington D.C. Mr. Lebowitz served on the board of directors of the United States Chamber of Commerce, Washington, D.C. from 1989 to
1994. Mr. Lebowitz is currently a member of the Board of Counselors of the USC Ethel Percy Andrus Gerontology Center. Steven Lebowitz is the father of Andrew Lebowitz, the Companys Director of Senior Housing.



Dr. Lesher has served as our director since we commenced operations in 1993.
Dr. Lesher is currently retired. Dr. Lesher was President of the United States Chamber of Commerce, Washington D.C. from 1975 to 1997, and was a member of its board of directors. He served on numerous committees of the board, including the executive
and budget committees. In addition, Dr. Lesher is a member of the board of directors of International Marketing, Inc. (Chambersburg, PA), an automotive aftermarket firm and e-LYNXX Corporation (Chambersburg, PA), a print procurement software firm
along with several not-for-profit corporations. Dr. Lesher received a B.B.A. from the University of Pittsburgh in 1958, a M.S. from Pennsylvania State University in 1960 and a D.B.A. from Indiana University in 1963 and holds four Honorary
Doctorates.



Mr. Reilly has served as our director since we
commenced operations in 1993. Mr. Reilly is the managing member of Shamrock Investments, LLC, 172 Chevy Chase Drive, Beverly Hills, CA 90210, an investment and merchant banking firm that specializes in the health care industry. Prior to forming
Shamrock Investments in 1987, Mr. Reilly served as Senior Executive Vice President and Chief Development Officer for American Medical International, Inc. In this position, Mr. Reilly was responsible for growth through the acquisition and development
of new health care facilities and related business in the United States and abroad. Mr. Reilly was a member of American Medical Internationals board of directors and served on its finance, management, and executive committees. Mr. Reilly is
the former Chairman of the board of directors of Dynamic Health, Inc., an owner/operator of acute care hospitals, the former Chairman of the board of directors of Paragon Ambulatory Surgery Centers, Inc., an owner/operator of freestanding ambulatory
surgery centers, and the former Chairman of the board of directors of PHP Healthcare Corp., a managed care provider. Mr. Reilly holds a law degree from the University of Pennsylvania and a bachelors degree in accounting and finance from
Pennsylvania State University. He has served as a director, trustee, and governing council member of the Federation of American Healthcare Systems, the National Committee for Quality Health Care and the American Hospital Association and is a past
President of the Beverly Hills Chamber of Commerce.



Mr.
Tompkins has served as our director since we commenced operations in 1993. Mr. Tompkins also serves as the Chairman of our Companys Audit and Strategic Planning Committees. Mr. Tompkins is the Director of Business Affairs for Reading
International, Inc. (AMEX symbol RDI.A), a publicly traded company principally engaged in the development and operation of cinemas and live theaters in the United States, Australia, New Zealand and Puerto Rico, and in real estate development in
Australia and New Zealand. He is also a director of Marshall & Stevens, a privately owned appraisal and valuation firm, and an advisor to GWA Capital Partners, a hedge fund advisor specializing in special situation companies. Reading
International is the product of the consolidation at the end of 2001 of three public companies: Craig Corporation, Reading Entertainment and Citadel Holding Corporation. Prior to the consolidation, and for more than the past five years, Mr. Tompkins
had been the President and a Director of Craig Corporation, the Vice Chairman and Corporate Secretary of Reading Entertainment, and the Vice Chairman and Corporate Secretary of Citadel Holding Corporation. Prior to the consolidation, Craigs
shares traded on the New York Stock Exchange, Readings shares traded on the American Stock Exchange, and Citadels shares traded on the NASDAQ Stock Market. During the period April 2000 to December 31, 2001, Mr. Tompkins was also as a
Director of Fidelity Federal Bank, FSB, where he served on the Banks audit and compensation committees. Mr. Tompkins also served on the special board committee which oversaw the sale of the Bank, which closed on December 31, 2001. Prior to
joining Craig and Reading in 1993, Mr. Tompkins was a partner specializing in corporate and real estate law in the law firm of Gibson, Dunn & Crutcher. Mr. Tompkins holds a bachelors degree from Claremont McKenna College and a J.D. from
Harvard Law School.



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##### Table of Contents

The following table sets forth the names, ages and positions of each of our executive officers.



|                    |  |     |  |                                                         |  |             
|------------------- |  | --- |  | ------------------------------------------------------- |  | ------------
|Name                |  | Age |  | Position                                                |  | OfficerSince
|Daniel M. Gottlieb  |  | 63  |  | Chief Executive Officer, Co-Chairman of the Board       |  | 1993        
|Steven D. Lebowitz  |  | 63  |  | President, Co-Chairman of the Board                     |  | 1993        
|John H. Rauch       |  | 73  |  | Senior Vice President, Operations                       |  | 1996        
|David E. Hamer      |  | 30  |  | Vice President, Chief Accounting Officer, and Secretary |  | 1998        
|Richard J. Gottlieb |  | 33  |  | Director of Development                                 |  | 2002        
|Andrew S. Lebowitz  |  | 27  |  | Director of Senior Housing                              |  | 2003        



The following is a
biographical summary of the experience of our executive officers. For the biographical summary of the experience of Messrs. D. Gottlieb and S. Lebowitz, see the biographical summary of the experience of our directors.



Mr. Rauch has been our Senior Vice President, Operations since 1996. Mr.
Rauch is responsible for the asset management of all our medical office buildings. From 1975 to 1996 he was founder and President of Camden Consultants, Inc., an economic consulting firm providing clients with real estate and corporate planning
information. Mr. Rauch had been a consultant to our company from 1985 to 1996. Mr. Rauch received his law degree from the University of Southern California with honors in 1961 and his bachelors degree in economics from the University of
California, Los Angeles in 1954.



Mr. Hamer has been our
Controller and Chief Accounting Officer since 1998. The board of directors elected Mr. Hamer as a Vice President in March 2000 and as Secretary in May 2001. Mr. Hamer worked for Deloitte & Touche, LLP, 350 South Grand Avenue, Suite 200, Los
Angeles, California, 90071, from 1995 to 1998 specializing in real estate. He graduated from the University of California, Los Angeles in 1995 with a Bachelor of Arts degree in political science and a specialization in business administration. Mr.
Hamer is a registered Certified Public Accountant.



Mr.
Gottlieb has been our Director of Development since September 2002. Mr. Gottlieb worked for Banc of America Securities LLC, 100 N. Tryon Street, Charlotte, North Carolina, 28255, from 2000 to 2002 specializing in the underwriting of investment grade
REIT bonds. He received an MBA degree from Indiana University specializing in finance in 2000, and a Bachelor of Arts degree in economics from the University of California, Santa Barbara in 1993. Richard Gottlieb is the son of Daniel Gottlieb, the
Companys Chief Executive Officer and Co-Chairman.



Mr.
Lebowitz has been our Director of Senior Housing since March 2003. Mr. Lebowitz successfully completed the California Nursing Home Administrator In Training program in 2000 and worked as the Director of Operations for a 227 bed Skilled Nursing
Facility in Santa Monica, CA from 1999 to 2001. He then worked as an underwriter for the Health Care Financing Group of General Motors Acceptance Corporation Commercial Mortgage, 1055 Colorado Blvd, Suite 320, Pasadena, California, 91106, from
2001-2002. Mr. Lebowitz received his MBA degree from the University of Southern California specializing in Real Estate and Health Care Services in 2003, and a Bachelor of Science degree in Finance from the University of Arizona in 1998. Andrew
Lebowitz is the son of Steven Lebowitz, the Companys President and Co-Chairman.



Section 16(a) Beneficial Ownership Reporting Compliance.Based solely upon a review of Securities and Exchange Commission Forms 3, 4 and 5 furnished to the Company and certain written representations, the
Company believes that all reports required by Section 16(a) of the Securities and Exchange Act of 1934 with respect to the Companys fiscal year ended December 31, 2003 have been filed by its officers, directors and 10% beneficial owners.



33



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##### Table of Contents

Audit Committee and Audit Committee Financial Expert



The Audit Committee of our Board of Directors is composed of three members
who are independent under the New York Stock Exchange listing standards and the regulations adopted by the Securities and Exchange Commission (SEC) pursuant to the Sarbanes-Oxley Act of 2002. The current members of the Audit Committee
are Richard Lesher, Charles Reilly and Craig Tompkins. The Board has determined that Craig Tompkins, Charles Reilly and Richard Lesher each qualified as an audit committee financial expert as defined in SEC regulations adopted under the
Sarbanes-Oxley Act.



Code of Ethics



The Company has not adopted a code of ethics that applies to the
Companys principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Company is in the process of developing a code of ethics for its executive officers and
plans to adopt such code in 2004.



|ITEM 11. |  | EXECUTIVE COMPENSATION
|-------- |  | ----------------------



The following table sets forth certain information with respect to our executive officers during the year ended December 31, 2003. We did not grant any
restricted stock awards, options or stock appreciation rights or make any long-term incentive plan payouts during the three years ended December 31, 2003.



|                                                                               |  |                               |  |                     |                       |                              |   |                       |  |     |  |    
|------------------------------------------------------------------------------ |  | ----------------------------- |  | ------------------- | --------------------- | ---------------------------- | - | --------------------- |  | --- |  | ---
|Name and Principal Position                                                    |  | Fiscal Year Ended December 31 |  | Annual Compensation |                       | All Other Compensation      
|                                                                               |  | Salary($)                     |  | Bonus($)            |                       | Other Annual Compensation($) |  
|Daniel M. GottliebChief Executive Officer,Co-Chairman of the Boardand Director |  | 200320022001                  |  | $                   | 390,000390,000267,750 |                              | $ | 100,000100,000100,000 |  |  |  | 
|                                                                               |  |                               |  |                     |                      
|Steven D. LebowitzPresident, Co-Chairmanof the Board and Director              |  | 200320022001                  |  | $                   | 390,000390,000267,750 |                              | $ | 100,000100,000100,000 |  |  |  | 
|                                                                               |  |                               |  |                     |                      
|John H. RauchSenior Vice President                                             |  | 200320022001                  |  | $                   | 128,000120,750115,000 |                              | $ | 40,00035,00030,000    |  |  |  | 
|                                                                               |  |                               |  |                     |                      
|David E. HamerVice President, ChiefAccounting Officer andSecretary             |  | 200320022001                  |  | $                   | 135,000130,000125,000 |                              | $ | 27,50025,00040,000    |  |  |  | 
|                                                                               |  |                               |  |                     |                      
|Richard J. GottliebDirector of Development                                     |  | 200320022001                  |  | $                   | 100,000100,000       |                              | $ | 17,5001,000          |  |  |  | 
|                                                                               |  |                               |  |                     |                      
|Andrew S. LebowitzDirector of Senior Housing                                   |  | 200320022001                  |  | $                   | 85,000              |                              | $ | 15,000              |  |  |  | 



Employment Agreements and
Arrangements



In December 1993, each of Daniel M. Gottlieb
and Steven D. Lebowitz entered into separate but identical employment agreements with us and the operating partnership for a term of three years. The agreements provide for



34



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##### Table of Contents

automatic renewal for succeeding terms of one year unless we or Messrs. Gottlieb or Lebowitz give notice at least three
months prior to expiration of any term. The employment agreements provide for automatic annual increases in base compensation equal to 5% per annum; however, the board of directors may review the annual base compensation every twelve months in light
of various factors, and following each such review, the annual base compensation may be increased above the 5% automatic increase. The board of directors approved the salary increase for Messrs. Gottlieb and Lebowitz in 2002 and 2001. Messrs.
Gottlieb and Lebowitz received no salary increase in 2003.



In
addition, each of Messrs. Gottlieb and Lebowitz are entitled to receive an annual bonus as determined by the board of directors in an amount not to exceed a maximum of 100% of annual base compensation. Furthermore, each agreement provides that
Messrs. Gottlieb and Lebowitz are entitled: (1) to participate in all of our medical, dental, life insurance, retirement, profit sharing, stock incentive, disability and bonus plans which may be made available to our executives (only medical plans
presently exist) and (2) to severance payments, under certain circumstances, equal to two times their then-current annual compensation. The board of directors approved a bonus of $100,000 in 2003, 2002 and 2001 for each of Messrs. Gottlieb and
Lebowitz. The board of directors has also approved an auto allowance for both Messrs. Gottlieb and Lebowitz in the amount of $18,000 per year.



The agreements require Messrs. Gottlieb and Lebowitz to devote substantially all of their working time and best efforts to performance of their duties for
us and, during the term of their employment, prohibits them, with certain exceptions, from directly or indirectly owning or operating or otherwise investing or participating in any other business that is in competition with our business without the
prior approval of a majority of the independent members of our board of directors.



Option Grants for 2003



The Company granted no
options in 2003.



Aggregated Option Exercises in 2003 and Options Values at
December 31, 2003



There are currently no outstanding
options.



Compensation of Directors



We pay an annual fee of $12,000 plus a fee of $1,000 for attending regular
meetings and $500 for attending committee meetings to our directors who are not our employees. Our employees who are also directors are not paid any director fees. Messrs. Gottlieb and Lebowitz are the only directors who are also our employees. The
reasonable expenses incurred by each director in connection with the performance of the directors duties are also reimbursed by us. The Company also approved payment to the directors for their work on the special committee of the board of
directors during 2001. Mr. Tompkins also serves as chairman of the Boards Strategic Planning Committee for which he receives a fee of $50,000 annually.



Compensation Committee Interlocks and Insider Participation in Compensation Decisions



The Company currently has no compensation committee. The Companys board of directors determines the annual
compensation for Messrs. Gottlieb and Lebowitz. While Messrs. Gottlieb and Lebowitz are co-chairmen of the board of directors, they do not participate in discussions concerning their compensation and abstain from voting on any such proposals. Annual
compensation for the Companys other executive officers is determined by Messrs. Gottlieb and Lebowitz.



35



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##### Table of Contents

|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- |  | --------------------------------------------------------------



The following table sets forth information as of March 30, 2004 regarding the beneficial ownership of common stock and operating partnership units by (1)
each person or company known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, (2) each of our directors, (3) each of our executive officers and (4) our directors and executive officers as a group. As of
March 30, 2004 we had 710,199 shares of common stock outstanding. In addition there were 39,932 operating partnership units outstanding which were not owned by us. Each person named in the table has sole voting and investment power with respect to
all shares shown as beneficially owned by such person except as provided under applicable state marital property laws or as set forth in the notes following the table.



|                                                              |  |                                  |  |                                                     |   |  |                    |  |                                                 |   |  |                                    |   |  |                                    
|------------------------------------------------------------- |  | -------------------------------- |  | --------------------------------------------------- | - |  | ------------------ |  | ----------------------------------------------- | - |  | ---------------------------------- | - |  | -----------------------------------
|Name and address Of Beneficial
Owner                          |  | Number of Shares of Common Stock |  | Percentage of Shares of Common Stock Outstanding(1) |   |  | Number of Units(2) |  | Percentage Interest In Operating Partnership(3) |   |  | Percentage Ownership in Company(4) |   |  | Number of Shares of Preferred Stock
|Daniel M. Gottlieb439 N. Bedford DriveBeverly Hills, CA 90210 |  | 383,582                          |  | 54.0                                                | % |  | 14,400             |  | 1.9                                             | % |  | 53.1                               | % |  | 105,167                            
|                                                              |  |                                  |  |                                                     |   | 
|Steven D. Lebowitz439 N. Bedford DriveBeverly Hills, CA 90210 |  | 326,617                          |  | 46.0                                                |   |  | 12,404             |  | 1.7                                             |   |  | 45.2                               |   |  | 88,820                             
|                                                              |  |                                  |  |                                                     |   | 
|Directors and Executive Officersas a group (2 persons)        |  | 710,199                          |  | 100.0                                               | % |  | 26,804             |  | 3.6                                             | % |  | 98.3                               | % |  | 193,087                            

---

|(1) | For the purposes of determining the percentage of outstanding common stock held by each person or group set forth in the table, the number of shares indicated as beneficially owned
by such person or group is divided by the sum of the number of outstanding shares of common stock as of March 30, 2004. Assumes that none of the outstanding operating partnership units are converted into shares of common stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Units in the operating partnership (other than those held by us) are convertible at the option of the holder for shares of common stock or cash, at our election, at the date one
year from the date of issuance. All operating partnership units are currently convertible. The conversion ratio is one operating partnership unit for one share of common stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based on a total of 750,131 operating partnership units outstanding (excluding preferred units all of which are held by us), including the 710,199 operating partnership units held
by our company as of March 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Assumes that all operating partnership units held by the person or group and all options exercisable within 60 days of March 30, 2004 held by the person or group are converted for
shares of common stock and that none of the operating partnership units held by other persons are converted into shares of common stock, notwithstanding the percentage limitations under our charter that limits the number of shares that may be
acquired by such person.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- |  | ----------------------------------------------



We have adopted a policy pursuant to which material transactions between us and our executive officers, directors and principal stockholders (i.e.,
stockholders owning beneficially 5% or more of our outstanding voting securities) are submitted to the board of directors for approval by a disinterested majority of the directors voting with respect to the transaction. For this purpose, a
transaction is deemed material if such transaction, alone or together with a series of similar transactions during the same fiscal year, involves an amount which exceeds $60,000.



36



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##### Table of Contents

In October 2001, the Operating Partnership loaned $5.2 million to Daniel M. Gottlieb and Steven D. Lebowitz, Chief
Executive Officer and President, respectively, of the Company, to fund a $3.5 million tender offer for the Companys Series A and Series B Preferred Stock and to repay $1.7 million of personal debt. Each of the $2.6 million loans to Messrs.
Gottlieb and Lebowitz are for a term of ten years, bear interest at LIBOR plus 7.5% and require monthly interest only payments. Messrs. Gottlieb and Lebowitz have the option to accrue any and all interest payments, which shall then be added to the
principal balance of the notes. As of December 31, 2003, the outstanding principal on these notes was $5.11 million and all accrued interest had been paid in full by Messrs. Gottlieb and Lebowitz. For purposes of presentation in the consolidated
financial statements, the $5.11 million balance has been reflected as a deduction to stockholders equity.



|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- |  | --------------------------------------



Audit Fees



The aggregate fees for professional services rendered by Deloitte & Touche for the audit of the Companys annual financial statements and for
review of the financial statements included in the Companys Quarterly Reports on Form 10-Q for 2003 were $205,200 and for 2002 were $196,660.



Audit-Related Fees



The aggregate fees for assurance and related services by Deloitte & Touche that are reasonably related to the performance of the audit or review of
the Companys financial statements and are not reported under Audit Fees above for 2003 were $9,250 and for 2002 were $8,750. The audit-related fees in both 2003 and 2002 related to the review of the financial statements of one of
the Companys subsidiaries.



Tax Fees



The aggregate fees for professional services rendered by Deloitte &
Touche for tax compliance, tax advice and tax planning for 2003 were $159,496 and for 2002 were $164,315. Most of the fees relate to preparation of the Companys tax returns. During 2003, the Company engaged Deloitte & Touche to perform a
cost segregation study on one of its properties in order to realize greater tax benefits on its depreciation of the property.



All Other Fees



The aggregate fees billed for products and services provided by Deloitte & Touche, other than the services covered in Audit Fees,
Audit-Related Fees, and Tax Fees above, for 2003 were $0 and for 2002 were $16,096. The other services provided to the Company by Deloitte & Touche during 2002 were related to the review and appeal of property taxes on
three of the Companys medical office buildings.



The
audit committee pre-approves all audit, audit-related and tax services performed by Deloitte & Touche for the Company. All other services provided by Deloitte & Touche are brought to the attention of the audit committee to determine if such
services need to be pre-approved. All of the services provided by Deloitte & Touche that are described above under Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees were pre-approved by the
Audit Committee during 2003 and 2002 except for the cost segregation study discussed above. The pre-approval requirement for this service was waived because (1) the cost of this service constituted less than 5% of the total amount of revenues paid
by the Company to Deloitte & Touche during 2003; (2) the Company did not recognize this service to be a non-audit service at the time the service was obtained; and (3) this service was promptly brought to the attention of the Audit Committee and
approved by it before the completion of the audit for 2003.



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##### Table of Contents

PART IV



|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|-------- |  | ----------------------------------------------------------------



(a) Index to Consolidated Financial Statements and Schedules:



|   |  |                                                                                                                                                                                                                                                                      |  |                         
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|   |  |                                                                                                                                                                                                                                                                      |  | Page Reference Form 10-K
|1. |  | Consolidated Financial Statements:                                                                                                                                                                                                                                   |  |                         
|   |  | Independent Auditors Report                                                                                                                                                                                                                                         |  | F-1                     
|   |  | Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                                                                                                                                                         |  | F-2                     
|   |  | Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001                                                                                                                                                                           |  | F-3                     
|   |  | Consolidated Statement of Stockholders Equity For the Years Ended December 31, 2003, 2002 and 2001                                                                                                                                                                  |  | F-4                     
|   |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001                                                                                                                                                                           |  | F-5 to 6                
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                           |  | F-7 to 33               
|   |  |                                                                                                                                                                                                                                                                     
|2. |  | Consolidated Financial Statement Schedules:                                                                                                                                                                                                                          |  |                         
|   |  |                                                                                                                                                                                                                                                                     
|   |  | All schedules have been omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the required information is included
elsewhere in the Consolidated Financial Statements or the Notes thereto. |  |                         



(b) Reports on Form 8-K



None.



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##### Table of Contents

(c) Exhibits



|            |  |      |  |                                                                                                                                                                                                                               
|----------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Note |  | Description                                                                                                                                                                                                                   
|2.1         |  | (6)  |  | The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L realty Corp.                                                                                                                                            
|            |  |     
|2.2         |  | (7)  |  | 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         |  | (8)  |  | 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         |  | (10) |  | 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      |  | (9)  |  | Amendment to Agreement of Limited Partnership of G&L Realty Partnership, L.P. dated as of July 31, 2001.                                                                                                                      
|            |  |     
|10.5        |  | (1)  |  | Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.                                                                                                                                      
|            |  |     
|10.9.2      |  | (1)  |  | Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.) between the Selling Partner (as defined therein) and G&L Development, dated as of October
29, 1993.                          
|            |  |     
|10.11       |  | (1)  |  | Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29,
1993.                                   
|            |  |     
|10.58       |  | (3)  |  | Limited Liability Company Agreement of G&L Hampden, LLC.                                                                                                                                                                      
|            |  |     
|10.77       |  | (4)  |  | 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       |  | (4)  |  | 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       |  | (4)  |  | Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively Guarantor) in favor of G&L Coronado, LLC (Landlord).                                                                                    
|            |  |     
|10.81       |  | (5)  |  | Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and GMAC Commercial Mortgage Corporation, as Lender.                                                                                    
|            |  |     
|10.82       |  | (9)  |  | 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       |  | (9)  |  | 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 Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                       
|            |  |     
|32.2        |  |      |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                       



39



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##### Table of Contents

---

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

|4) | 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.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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



40



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##### Table of Contents

INDEPENDENT AUDITORS REPORT



To the Board of Directors and Stockholders

G&L Realty Corp.:



We have audited the accompanying consolidated balance sheets of G&L
Realty Corp. and subsidiaries (the Company) as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.



In our opinion,
such consolidated financial statements present fairly, in all material respects, the financial position of G&L Realty Corp. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.



As discussed in Notes 3 and 15 to the financial statements, the Company changed the presentation of the results of operations and realized gains and
losses from properties disposed of in accordance with the adoption of Statement of Financial Accountant Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, during the year ended December 31, 2002.



/s/ Deloitte & Touche LLP



Los Angeles, California

March 30, 2004



F-1



---

##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                   |  |              |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                   |  | December 31, |        
|                                                                                                                                                   |  | 2003         |         |   | 2002 |  
|ASSETS                                                                                                                                             |  |              |         |   |      |   |         |  
|Rental properties (Note 18):                                                                                                                       |  |              |         |   |      |   |         |  
|Land                                                                                                                                               |  | $            | 23,544  |   |      | $ | 23,788  |  
|Building and improvements, net                                                                                                                     |  |              | 101,425 |   |      |   | 117,132 |  
|Projects under development                                                                                                                         |  |              | 989     |   |      |   | 219     |  
|                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total rental properties                                                                                                                            |  |              | 125,958 |   |      |   | 141,139 |  
|Assets held for sale (Note 3)                                                                                                                      |  |              | 30,097  |   |      |   | 31,192  |  
|Cash and cash equivalents                                                                                                                          |  |              | 11,950  |   |      |   | 2,366   |  
|Restricted cash                                                                                                                                    |  |              | 2,613   |   |      |   | 2,976   |  
|Tenant rent and reimbursements receivable, net (Note 4)                                                                                            |  |              | 5,278   |   |      |   | 6,463   |  
|Unbilled rent receivable, net (Note 5)                                                                                                             |  |              | 2,584   |   |      |   | 2,695   |  
|Mortgage loans and bonds receivable, net (Note 6)                                                                                                  |  |              | 764     |   |      |   | 1,829   |  
|Investments in unconsolidated affiliates (Note 7)                                                                                                  |  |              | 5,077   |   |      |   | 4,139   |  
|Deferred charges and other assets, net (Note 8)                                                                                                    |  |              | 3,896   |   |      |   | 5,209   |  
|                                                                                                                                                   |  |              |         |   |      |   |         |  
|TOTAL ASSETS                                                                                                                                       |  | $            | 188,217 |   |      | $ | 198,008 |  
|                                                                                                                                                   |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                               |  |              |         |   |      |   |         |  
|LIABILITIES:                                                                                                                                       |  |              |         |   |      |   |         |  
|Notes payable (Note 9)                                                                                                                             |  | $            | 179,379 |   |      | $ | 170,720 |  
|Liabilities of assets held for sale (Note 3)                                                                                                       |  |              | 17,377  |   |      |   | 23,691  |  
|Accounts payable and other liabilities                                                                                                             |  |              | 5,836   |   |      |   | 5,666   |  
|Tenant security deposits                                                                                                                           |  |              | 1,371   |   |      |   | 1,351   |  
|                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total liabilities                                                                                                                                  |  |              | 203,963 |   |      |   | 201,428 |  
|Commitments and Contingencies (Note 10)                                                                                                            |  |              |         |   |      |   |         |  
|Minority interest in consolidated affiliates                                                                                                       |  |              | (1,453  | ) |      |   | (1,148  | )
|Minority interest in Operating and Senior Care Partnerships                                                                                        |  |              |        |   |      |   |        |  
|                                                                                                                                                   |  |             
|STOCKHOLDERS EQUITY (Notes 11 and 12):                                                                                                            |  |              |         |   |      |   |         |  
|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 December 31, 2003 and 2002,
respectively                                 |  |              | 15      |   |      |   | 15      |  
|      Series B Preferred - 1,380,000 shares issued and outstanding as of December 31, 2003 and 2002,
respectively                                 |  |              | 14      |   |      |   | 14      |  
|Common shares - $.01 par value, 50,000,000 shares authorized, 710,199 shares issued and outstanding as of December 31, 2003 and 2002,
respectively |  |              | 7       |   |      |   | 7       |  
|Additional paid-in capital                                                                                                                         |  |              | 40,827  |   |      |   | 40,827  |  
|Distributions in excess of net income                                                                                                              |  |              | (50,042 | ) |      |   | (37,895 | )
|Notes receivable from stockholders                                                                                                                 |  |              | (5,114  | ) |      |   | (5,240  | )
|                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total stockholders (deficit) equity                                                                                                               |  |              | (14,293 | ) |      |   | (2,272  | )
|                                                                                                                                                   |  |              |         |   |      |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                         |  | $            | 188,217 |   |      | $ | 198,008 |  
|                                                                                                                                                   |  |              |         |   |      |   |         |  



See accompanying notes
to Consolidated Financial Statements



F-2



---

##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                               |  | Year Ended December 31, |        
|                                                                                                                                               |  | 2003                    |         |   | 2002 |   |        | 2001 | 
|REVENUES:                                                                                                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Rent (Notes 5 and 13)                                                                                                                          |  | $                       | 23,017  |   |      | $ | 23,145 |      |  | $ | 21,126 |  
|Patient revenues                                                                                                                               |  |                         | 26,129  |   |      |   | 24,261 |      |  |   | 21,057 |  
|Tenant reimbursements                                                                                                                          |  |                         | 3,055   |   |      |   | 2,497  |      |  |   | 1,606  |  
|Parking                                                                                                                                        |  |                         | 1,644   |   |      |   | 1,472  |      |  |   | 1,439  |  
|Interest and loan fees                                                                                                                         |  |                         | 787     |   |      |   | 2,459  |      |  |   | 2,801  |  
|Other income                                                                                                                                   |  |                         | 2,562   |   |      |   | 1,412  |      |  |   | 1,790  |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Total revenues                                                                                                                                 |  |                         | 57,194  |   |      |   | 55,246 |      |  |   | 49,819 |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|EXPENSES:                                                                                                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Property operations                                                                                                                            |  |                         | 7,709   |   |      |   | 7,314  |      |  |   | 7,360  |  
|Skilled nursing operations                                                                                                                     |  |                         | 23,901  |   |      |   | 21,421 |      |  |   | 19,004 |  
|Depreciation and amortization                                                                                                                  |  |                         | 4,876   |   |      |   | 4,907  |      |  |   | 4,726  |  
|Interest                                                                                                                                       |  |                         | 25,122  |   |      |   | 13,588 |      |  |   | 10,235 |  
|Loss on sale of bonds receivable (Note 6)                                                                                                      |  |                         | 120     |   |      |   |       |      |  |   |       |  
|General and administrative                                                                                                                     |  |                         | 4,551   |   |      |   | 3,280  |      |  |   | 3,953  |  
|Provision for doubtful accounts, notes and bonds receivable (Notes 4 and 6)                                                                    |  |                         | 975     |   |      |   | 1,542  |      |  |   | 1,004  |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Total expenses                                                                                                                                 |  |                         | 67,254  |   |      |   | 52,052 |      |  |   | 46,282 |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|(Loss) income from operations before minority interests and equity in earnings (loss) of unconsolidated affiliates and discontinued
operations |  |                         | (10,060 | ) |      |   | 3,194  |      |  |   | 3,537  |  
|                                                                                                                                               |  |                         |        
|Equity in earnings (loss) of unconsolidated affiliates                                                                                         |  |                         | 3,743   |   |      |   | (140   | )    |  |   | 205    |  
|Minority interest in consolidated affiliates                                                                                                   |  |                         | (150    | ) |      |   | (285   | )    |  |   | (302   | )
|Corporate income tax expense                                                                                                                   |  |                         | (136    | ) |      |   | (295   | )    |  |   | (85    | )
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|(Loss) Income from operations before discontinued operations                                                                                   |  |                         | (6,603  | ) |      |   | 2,474  |      |  |   | 3,355  |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Discontinued operations (Note 15):                                                                                                             |  |                         |         |   |      |   |        |      |  |   |        |  
|Net (loss) income from operations of discontinued operations                                                                                   |  |                         | (224    | ) |      |   | (305   | )    |  |   | 2,775  |  
|Gain from sale of discontinued operations                                                                                                      |  |                         | 7,347   |   |      |   | 2,320  |      |  |   |       |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Total income from discontinued operations                                                                                                      |  |                         | 7,123   |   |      |   | 2,015  |      |  |   | 2,775  |  
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Net income                                                                                                                                     |  |                         | 520     |   |      |   | 4,489  |      |  |   | 6,130  |  
|Dividends on preferred stock                                                                                                                   |  |                         | (7,162  | ) |      |   | (7,162 | )    |  |   | (7,162 | )
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Net loss available to common stockholders                                                                                                      |  | $                       | (6,642  | ) |      | $ | (2,673 | )    |  | $ | (1,032 | )
|                                                                                                                                               |  |                         |         |   |      |   |        |      |  |   |        |  



See accompanying notes
to Consolidated Financial Statements



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##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                                           |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------- | ------ | ----------------------- | ------ | ----------------------- | ------ | ------------ | ------ |  | -------------------------- | -- |  | ------------------------------------- | - |  | ---------------------------------- | --- | - | -------------------------- | - | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                           |        | PreferredStock Series A |        | PreferredStock Series B |        | Common Stock |        |  | Additional Paid-in Capital |    |  | Distributions in excess of net income |   |  | Notes receivable from stockholders |     |   | Total stockholders equity |  
|                                                           | Shares |                         | Amount |                         | Shares |              | Amount |  | Shares                     |    |  | Amount                                |   |  |                                    |     |  
|BALANCE JANUARY 1, 2001                                    |        | 1,495                   |        | $                       | 15     |              | 1,380  |  | $                          | 14 |  | 2,334                                 |   |  | $                                  | 23  |   |                            | $ | 72,441  |   |  | $ | (32,602 | ) |  | $ |       |   |  | $ | 39,891  |  
|Repurchase of common stock                                 |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Partnership units                                          |        |                         |        |                         |        |              |        |  |                            |    |  | (1,624                                | ) |  |                                    | (16 | ) |                            |   | (31,439 | ) |  |   |         |   |  |   |        |   |  |   | (31,455 | )
|Issuance of notes receivable to stockholders               |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   | (5,240 | ) |  |   | (5,240  | )
|Net Income                                                 |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   | 6,130   |   |  |   |        |   |  |   | 6,130   |  
|Distributions declared                                     |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   | (175    | ) |  |   | (8,250  | ) |  |   |        |   |  |   | (8,425  | )
|                                                           |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCE DECEMBER 31, 2001                                  |        | 1,495                   |        |                         | 15     |              | 1,380  |  |                            | 14 |  | 710                                   |   |  |                                    | 7   |   |                            |   | 40,827  |   |  |   | (34,722 | ) |  |   | (5,240 | ) |  |   | 901     |  
|Net Income                                                 |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   | 4,489   |   |  |   |        |   |  |   | 4,489   |  
|Distributions declared                                     |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   | (7,662  | ) |  |   |        |   |  |   | (7,662  | )
|                                                           |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCE DECEMBER 31, 2002                                  |        | 1,495                   |        |                         | 15     |              | 1,380  |  |                            | 14 |  | 710                                   |   |  |                                    | 7   |   |                            |   | 40,827  |   |  |   | (37,895 | ) |  |   | (5,240 | ) |  |   | (2,272  | )
|Principal reductions to notes receivable from stockholders |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   | 126    |   |  |   | 126     |  
|Net Income                                                 |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   | 520     |   |  |   |        |   |  |   | 520     |  
|Distributions declared                                     |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   | (12,667 | ) |  |   |        |   |  |   | (12,667 | )
|                                                           |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCE DECEMBER 31, 2003                                  |        | 1,495                   |        | $                       | 15     |              | 1,380  |  | $                          | 14 |  | 710                                   |   |  | $                                  | 7   |   |                            | $ | 40,827  |   |  | $ | (50,042 | ) |  | $ | (5,114 | ) |  | $ | (14,293 | )
|                                                           |        |                         |        |                         |        |              |        |  |                            |    |  |                                       |   |  |                                    |     |   |                            |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  



See accompanying notes
to Consolidated Financial Statements



F-4



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##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | Year Ended December 31, |         
|                                                                                  |  | 2003                    |          |   | 2002 |   |         | 2001 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                       | 520      |   |      | $ | 4,489   |      |  | $ | 6,130   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                     |  |                         | 5,653    |   |      |   | 6,275   |      |  |   | 6,063   |  
|Amortization of deferred financing costs                                          |  |                         | 638      |   |      |   | 929     |      |  |   | 703     |  
|Write-off of deferred loan costs                                                  |  |                         | 1,984    |   |      |   |        |      |  |   |        |  
|Net gain from sale of discontinued operations                                     |  |                         | (7,347   | ) |      |   | (2,320  | )    |  |   |        |  
|Loss on sale of bonds receivable                                                  |  |                         | 120      |   |      |   |        |      |  |   |        |  
|Gain on sale of interest rate hedge                                               |  |                         | (23      | ) |      |   |        |      |  |   |        |  
|Loss (gain) on change in value of interest rate hedge                             |  |                         | 333      |   |      |   | 957     |      |  |   | (545    | )
|Minority interests                                                                |  |                         | 150      |   |      |   | 285     |      |  |   | 302     |  
|Unbilled rent receivable                                                          |  |                         | (73      | ) |      |   | (631    | )    |  |   | (249    | )
|Equity in (earnings) loss of unconsolidated affiliates                            |  |                         | (3,743   | ) |      |   | 140     |      |  |   | (205    | )
|Provision for doubtful accounts, notes and bonds receivables                      |  |                         | 975      |   |      |   | 1,542   |      |  |   | 1,004   |  
|(Increase) decrease in:                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Prepaid expense and other assets                                                  |  |                         | (570     | ) |      |   | (232    | )    |  |   | (74     | )
|Tenant rent and reimbursements receivable                                         |  |                         | (53      | ) |      |   | (2,570  | )    |  |   | (340    | )
|Accrued interest and loan fees receivable                                         |  |                         | 278      |   |      |   | (234    | )    |  |   | (1,207  | )
|Increase (decrease) in:                                                           |  |                         |          |   |      |   |         |      |  |   |         |  
|Accounts payable and other liabilities                                            |  |                         | 163      |   |      |   | (4,655  | )    |  |   | 3,706   |  
|Tenant security deposits                                                          |  |                         | 59       |   |      |   | (104    | )    |  |   | 194     |  
|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by operating activities                               |  |                         | (936     | ) |      |   | 3,871   |      |  |   | 15,482  |  
|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Additions to rental properties                                                    |  |                         | (1,904   | ) |      |   | (2,234  | )    |  |   | (3,189  | )
|Purchase of real estate assets                                                    |  |                         | (3,956   | ) |      |   |        |      |  |   |        |  
|Sale of bonds receivable                                                          |  |                         | 600      |   |      |   |        |      |  |   |        |  
|Sale of interest rate hedge                                                       |  |                         | 183      |   |      |   |        |      |  |   |        |  
|Sale of real estate assets                                                        |  |                         | 25,963   |   |      |   | 5,141   |      |  |   |        |  
|Construction in progress                                                          |  |                         | (1,140   | ) |      |   | (246    | )    |  |   | 171     |  
|Pre-acquisition costs, net                                                        |  |                         | 6        |   |      |   | 116     |      |  |   | (107    | )
|Contributions to unconsolidated affiliates                                        |  |                         | (248     | ) |      |   | (1,746  | )    |  |   | (256    | )
|Distributions from unconsolidated affiliates                                      |  |                         | 3,053    |   |      |   | 1,717   |      |  |   | 731     |  
|Leasing commissions                                                               |  |                         | (134     | ) |      |   | (159    | )    |  |   | (488    | )
|Investments in notes and bonds receivable                                         |  |                         |         |   |      |   | (310    | )    |  |   | (478    | )
|Principal payments received from notes and bonds receivable                       |  |                         | 126      |   |      |   | 9,333   |      |  |   | 807     |  
|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) investing activities                               |  |                         | 22,549   |   |      |   | 11,612  |      |  |   | (2,809  | )
|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Notes payable proceeds                                                            |  |                         | 123,925  |   |      |   | 14,526  |      |  |   | 47,550  |  
|Repayment of notes payable                                                        |  |                         | (121,690 | ) |      |   | (23,029 | )    |  |   | (13,286 | )
|Payment of deferred loan costs                                                    |  |                         | (1,489   | ) |      |   | (171    | )    |  |   | (2,958  | )
|Decrease in restricted cash                                                       |  |                         | 225      |   |      |   | 1,479   |      |  |   | 372     |  
|Minority interest equity contribution                                             |  |                         |         |   |      |   | 25      |      |  |   |        |  
|Purchase of common and preferred stock and partnership units                      |  |                         |         |   |      |   |        |      |  |   | (36,078 | )
|Distributions                                                                     |  |                         | (13,000  | ) |      |   | (7,986  | )    |  |   | (9,025  | )
|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash used in financing activities                                             |  |                         | (12,029  | ) |      |   | (15,156 | )    |  |   | (13,425 | )
|                                                                                  |  |                         |          |   |      |   |         |      |  |   |         |  



Continued



F-5



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##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | - | ------ |  | - | ------ | - |  | - | ------ | -
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                               |  |   | 9,584  |  |   | 327    |   |  |   | (752   | )
|BEGINNING CASH AND CASH EQUIVALENTS                                                                                |  |   | 2,366  |  |   | 2,039  |   |  |   | 2,791  |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|ENDING CASH AND CASH EQUIVALENTS                                                                                   |  | $ | 11,950 |  | $ | 2,366  |   |  | $ | 2,039  |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                                                 |  |   |        |  |   |        |   |  |   |        |  
|Cash paid during the year for interest                                                                             |  | $ | 13,496 |  | $ | 16,019 |   |  | $ | 12,479 |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|Cash paid during the year for mortgage loan prepayment penalties                                                   |  | $ | 11,194 |  | $ | 718    |   |  | $ |       |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|NONCASH INVESTING AND FINANCING ACTIVITIES                                                                         |  |   |        |  |   |        |   |  |   |        |  
|Distributions declared not yet paid                                                                                |  | $ |       |  | $ |       |   |  | $ | 370    |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|Transfers from projects under development to building                                                              |  | $ |       |  | $ |       |   |  | $ | 376    |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|Preferred distributions due to minority partner                                                                    |  | $ | 105    |  | $ | 60     |   |  | $ | 44     |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|Exchange of equity interest in consolidated affiliate for partnership units held by non-affiliated limited partner |  | $ |       |  | $ |       |   |  | $ | 617    |  
|                                                                                                                   |  |   |        |  |   |        |   |  |   |        |  
|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



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##### Table of Contents

G&L REALTY CORP.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2003



1. General



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



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



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



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



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)*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

---

|* | Maryland Gardens, Hampden, Holy Cross, Burbank and Tustin are herein defined collectively 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 in either 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%



F-7



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##### Table of Contents

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 and the Senior Care Partnership.



References in these consolidated financial statements to the Company include its operations, assets and liabilities including the operations, assets and
liabilities of the Operating Partnership, the Senior Care Partnership, the Subsidiaries, the Financing Entities, the Roxbury Partnership (in which the Operating Partnership owns a 32.81% partnership interest and is the sole general partner), Tarzana
(in which the Operating Partnership owns a 85% membership interest and is a co-managing member) and Hoquiam, Lyons, Coronado, Massachusetts, Aspen, Tustin II, Tustin III, St. Thomas More, St. Thomas More, Inc., 405 Bedford, 415 Bedford, 416 Bedford,
435 Bedford, 436 Bedford, Sherman Oaks and Regents (in which the Operating Partnership or the Senior Care Partnership own a 100% interest).



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



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

G&L Penasquitos, LLC (Penasquitos)

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

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

Lakeview Associates, LLC (Lakeview)

Tustin Heritage Place, LLC (Heritage Place)

Pac Par MOB, LLC (Pacific Park)

G&L Radius Realty, LLC (Radius)



San Pedro, Penasquitos, 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 consolidated financial statements include the accounts of the Company and its subsidiaries. The interests in the Roxbury Partnership, 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.



PropertiesThe Operating Partnership, the Senior Care Partnership, the Medical Partnership, Maryland Gardens, the Roxbury Partnership, Hampden, Valencia, Tustin, Holy Cross, Burbank, Hoquiam, Lyons, Coronado, Tarzana, Massachusetts, Aspen, Tustin III, St.
Thomas More Inc., 405 Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436 Bedford, Sherman Oaks and Regents own a 100% fee simple interest in all of the properties.



Income taxes The Company expects to qualify as a REIT under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the Code). As a REIT, the Company is generally not subject to corporate Federal income taxes so long as it distributes at least 90% of its taxable income to stockholders and meets certain other requirements
relating to its income and assets. For the years ended December 31, 2003, 2002 and 2001, the Company met all of these requirements. Though as a REIT the Company is generally not permitted to operate properties, in 2000, the Company foreclosed upon
and



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took over the operations at its three SNFs located in Hampden, Massachusetts. Under Section 856(e) of the Code, the
Company has the ability to operate these properties as foreclosure property for a period of up to three years after the year in which the foreclosure took place. However, the Company must pay Federal and State income taxes on the taxable
income produced by these three facilities during this period. As a result, the Company has included $136,000, $220,000 and $85,000 of corporate income tax expense in its financial statements for the years ended December 31, 2003, 2002 and 2001,
respectively, with respect to these properties. In February 2004, the manager of these facilities received approval from the Massachusetts Department of Health to obtain the operating licenses for the three facilities from the Company. The manager
subsequently entered into a lease agreement with the Company for these facilities effective on the date of the license transfers which is expected to be on April 1, 2004. Upon the transfer of the licenses, the Company will no longer be responsible
for Federal and State income taxes on the taxable income produced by these three facilities.



The Company recorded an additional $86,000 and $75,000 of corporate income tax expense in its financial statements for the years ended December 31, 2003 and 2002, respectively, related to its investment in a taxable
REIT subsidiary under Section 856(l) of the Internal Revenue Code. The taxable REIT subsidiary owns a SNF in Maryland and leases the SNF to an operator. State income tax requirements are similar to Federal requirements. At the end of 2003, the
Company revoked the taxable REIT subsidiary election and converted the subsidiary into a qualified REIT subsidiary.



Real estate and depreciation 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      



Depreciation expense
for the years ended December 31, 2003, 2002 and 2001 was $5,382,000, $5,972,000 and $5,730,000 respectively. Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations and all costs directly related to
acquisitions are capitalized.



Revenue recognition
Base rental income is recognized on a straight-line basis over the term of the lease regardless of when payments are due. Certain leases include rent concessions and escalation clauses creating an effective rent that is included in unbilled rent
receivable (Note 5). Patient revenue is reported at the estimated net realizable amount from patients, third party payors and others for services rendered, net of contractual adjustments.



Cash and cash equivalents All demand and money market accounts and short-term investments in governmental funds
with a maturity of three months or less are considered to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value due to the short period of time to maturity. Throughout the year, the Company maintained cash
balances at banks in excess of federally insured limits.



Restricted CashPursuant to various loan agreements, the Company is required to fund segregated interest bearing accounts to be used for debt service payments, property taxes, insurance premiums and property improvements.



Allowance for uncollectible amountsTenant rent
and reimbursements receivable and unbilled rent receivable are carried net of the allowances for uncollectible amounts. Management determines the adequacy of the allowances based upon the specific individual receivables, managements knowledge
of the business and other relevant factors.



Deferred
charges and other assets Deferred charges and other assets consist of leasing commissions, deferred loan fees, financing costs, construction-in-progress, investments, deposits and prepaid expenses. Leasing commissions are amortized on a
straight-line basis over the lives of the leases which range typically from five to ten years. Deferred loan fees are amortized using the straight-line method over the terms of the respective loan agreements. Expenses incurred to obtain financing
are capitalized and amortized over the term of the related loan as a yield adjustment.



Minority interest in consolidated affiliates The Operating Partnership, as sole general partner, has a 32.81% ownership interest in the Roxbury Partnership which owns the property located at 435 North
Roxbury Drive. The minority interest is a debit balance that resulted from depreciation allocations and cash distributed to partners in excess of their original investment



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and subsequent accumulated earnings. It is managements opinion that the deficit is adequately secured by the
unrecognized appreciated value of the Roxbury property and will be recovered through an accumulation of undistributed earnings or sale of the property. The Senior Care Partnership owns an 85% interest in Tarzana.



Long-lived assetsThe Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that an assets book value exceeds the undiscounted expected future cash flows to be derived from that asset. Whenever undiscounted expected future cash flows are less than the
book value, the asset will be reduced to estimated fair value and an impairment loss will be recognized. The Company recorded no impairment losses in 2003, 2002 and 2001.



Financial instrumentsThe estimated fair value of the Companys financial instruments is determined using
available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or estimation
methodologies may have a material impact on the estimated fair value amounts. The book value of cash, cash equivalents, tenant rent and other accounts receivable, accounts payable and other liabilities approximates fair value due to their short-term
maturities. The carrying amount of the Companys variable rate notes payable as of December 31, 2003 and 2002 approximate fair value because the interest rates are comparable to rates currently being offered to the Company. The fair value of
the Companys fixed rate notes payable as of December 31, 2003 and 2002 was $202.8 million and $168.0 million, respectively because the interest rates on the Companys fixed rate notes payable were higher for both 2003 and 2002 than the
rates being offered to the Company at that time. The estimated fair values of the Companys mortgage loans and bonds receivable, are based upon market values of loans and bonds receivable with similar characteristics adjusted for risk inherent
in the underlying transactions. Management estimates that the fair value of the Companys mortgage loans and bonds receivable approximate their amortized cost basis, after adjustment for the allowance for amounts deemed to be uncollectible.



Use of estimates The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Derivative financial instrumentsThe Company is exposed to the
effect of interest rate changes in the normal course of business. Under certain circumstances, the Company mitigates these risks by following established risk management policies and procedures which include the periodic use of derivatives. The
Companys primary strategy in entering into derivative contracts is to minimize the volatility that changes in interest rates could have on its future cash flows. The Company employs derivative instruments that are designated as cash flow
hedges, including interest rate swaps and caps, to effectively convert a portion of its variable-rate debt to fixed-rate debt. The Company does not enter into derivative instruments for speculative purposes.



In November 2001, the Company purchased an interest rate cap for $905,000 to
protect against an increase in the one month LIBOR rate on a $35 million variable rate loan the Company obtained in October 2001. SFAS 133 requires the Company to record the interest rate cap on the balance sheet at fair value and to record changes
in the fair value of the interest rate cap in the statement of operations. For the year ended December 31, 2001, the Company recognized a $0.5 million gain on the fair market value of its LIBOR interest rate cap while recognizing a $0.9 million loss
for the year ended December 31, 2002. For the year ended December 31, 2003, the Company recognized a $0.3 million loss on the fair market value of the LIBOR interest rate cap, thus the net effect on earnings since the Companys purchase of this
financial instrument has been a $0.7 million loss. In October 2003, the Company sold the LIBOR interest rate cap for $0.2 million. As of December 31, 2003, the Company did not own any derivative instruments.



Recent accounting pronouncementsOn January 1, 2003, the Company
adopted the provisions of SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). The most significant provisions of this statement relate to the rescission of
Statement No. 4 Reporting Gains and Losses from Extinguishment of Debt. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under
changed conditions. Under SFAS 145, any gain or loss on extinguishment of debt that was classified as an 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.



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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 December 2003, the FASB issued FASB Interpretation No. 46-R, Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51 (FIN 46-R). FIN 46-R 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 March 15, 2004. The Company has completed an evaluation of all
of its investments and other interests in entities that may be deemed VIEs under the provisions of FIN 46-R. These investments include real estate joint ventures with assets totaling $32.2 million as of December 31, 2003. The Company believes that
its real estate joint ventures do not fall under the provisions of FIN 46-R and will not be consolidated, however, it is still evaluating the provisions of FIN 46-R and cannot make a definitive conclusion until it completes the evaluation.



In April 2003, the FASB issued SFAS No. 149, Amendment
of Statement 133 on Derivative Instruments 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 activities 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. The adoption of this statement did
not have a material effect on the Companys results of operations or financial condition.



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3. Buildings and Improvements



Buildings and improvements consist of the following:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | December 31,   |        
|                                               |  | 2003           |         |   | 2002 |  
|                                               |  | (in thousands) |        
|Buildings and improvements                     |  | $              | 122,868 |   |      | $ | 137,330 |  
|Tenant improvements                            |  |                | 11,074  |   |      |   | 10,579  |  
|Furniture, fixtures and equipment              |  |                | 4,976   |   |      |   | 4,801   |  
|                                               |  |                |         |   |      |   |         |  
|                                               |  |                | 138,918 |   |      |   | 152,710 |  
|Less accumulated depreciation and amortization |  |                | (37,493 | ) |      |   | (35,578 | )
|                                               |  |                |         |   |      |   |         |  
|Total                                          |  | $              | 101,425 |   |      | $ | 117,132 |  
|                                               |  |                |         |   |      |   |         |  



As of December 31,
2003, the Company had listed for sale or was under contract to sell a total of five properties. The properties include a three-story, 40,000 square foot office and retail complex located in Coronado, California (Coronado), a two-story,
48,000 square foot research and development building located in Irwindale, California (Irwindale), a 59-bed nursing and rehabilitation center in Chico, California (Chico), a 10,000 square foot MOB located in Tustin,
California (Tustin) and a two-story, 80-unit, approximately 44,000 square foot ALF located in Tarzana, California (Tarzana). In January 2004, the Company completed the sale of its membership interest in the joint venture that
owns Tarzana for $1.7 million and recognized a gain on sale of $0.4 million. In March 2004, the Company completed the sale of Irwindale for $8.85 million and received net proceeds of $8.5 million. The Company recognized a gain on sale of $0.9
million. For presentation purposes, the assets and liabilities relating to these properties have been included in assets held for sale and liabilities of assets held for sale, respectively, on the balance sheet. The following tables summarize assets
held for sale and liabilities of assets held for sale as of December 31, 2003 and December 31, 2002:



Assets & Liabilities of Assets Held for Sale

As of December 31, 2003



|                                               |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|---------------------------------------------- |  | ----- | --- | --------- | - | ------- |  | -------- | ------ |  | ------ | ----- | ----- |  | - | ----- |  | - | ------
|                                               |  | Chico |     | Irwindale |   | Tarzana |  | Coronado |        |  | Tustin |       | Total
|Rental properties:                             |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|Land                                           |  | $     | 159 |           | $ | 1,260   |  | $        | 2,350  |  | $      | 809   |       |  | $ | 474   |  | $ | 5,052 
|Buildings and improvements, net                |  |       | 577 |           |   | 6,249   |  |          | 7,420  |  |        | 8,054 |       |  |   | 606   |  |   | 22,906
|Projects under development                     |  |       |    |           |   |        |  |          | 41     |  |        | 307   |       |  |   |      |  |   | 348   
|                                               |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|Total rental properties                        |  |       | 736 |           |   | 7,509   |  |          | 9,811  |  |        | 9,170 |       |  |   | 1,080 |  |   | 28,306
|                                               |  |       |     |           |   |        
|Restricted cash                                |  |       |    |           |   |        |  |          | 296    |  |        | 111   |       |  |   | 5     |  |   | 412   
|Tenant rent and reimbursements receivable, net |  |       |    |           |   |        |  |          | 153    |  |        | 60    |       |  |   | 9     |  |   | 222   
|Unbilled rent receivable, net                  |  |       |    |           |   | 365     |  |          |       |  |        | 37    |       |  |   | 136   |  |   | 538   
|Deferred charges and other assets, net         |  |       | 2   |           |   | 196     |  |          | 260    |  |        | 132   |       |  |   | 29    |  |   | 619   
|                                               |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|Total assets held for sale                     |  | $     | 738 |           | $ | 8,070   |  | $        | 10,520 |  | $      | 9,510 |       |  | $ | 1,259 |  | $ | 30,097
|                                               |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|LIABILITIES:                                   |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|Notes payable                                  |  | $     |    |           | $ |        |  | $        | 8,690  |  | $      | 7,060 |       |  | $ | 1,199 |  | $ | 16,949
|Accounts payable and other liabilities         |  |       | 3   |           |   |        |  |          | 336    |  |        | (3    | )     |  |   |      |  |   | 336   
|Tenant security deposits                       |  |       |    |           |   | 58      |  |          |       |  |        | 34    |       |  |   |      |  |   | 92    
|                                               |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       
|Total liabilities of assets held for sale      |  | $     | 3   |           | $ | 58      |  | $        | 9,026  |  | $      | 7,091 |       |  | $ | 1,199 |  | $ | 17,377
|                                               |  |       |     |           |   |         |  |          |        |  |        |       |       |  |   |       |  |   |       



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##### Table of Contents

Assets & Liabilities of Assets Held for Sale

As of December 31, 2002



|                                               |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|---------------------------------------------- |  | ----- | --- | --------- | - | ------- |  | -------- | ------ | ------ | - | ----- |  | - | ----- |  | - | ------
|                                               |  | Chico |     | Irwindale |   | Tarzana |  | Coronado |        | Tustin |   | Total
|Rental properties:                             |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|Land                                           |  | $     | 159 |           | $ | 1,260   |  | $        | 2,350  |        | $ | 809   |  | $ | 474   |  | $ | 5,052 
|Buildings and improvements, net                |  |       | 593 |           |   | 6,569   |  |          | 7,658  |        |   | 8,257 |  |   | 667   |  |   | 23,744
|Projects under development                     |  |       |    |           |   |        |  |          | 21     |        |   | 6     |  |   |      |  |   | 27    
|                                               |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|Total rental properties                        |  |       | 752 |           |   | 7,829   |  |          | 10,029 |        |   | 9,072 |  |   | 1,141 |  |   | 28,823
|                                               |  |       |     |           |   |        
|Restricted cash                                |  |       |    |           |   |        |  |          | 194    |        |   | 92    |  |   | 5     |  |   | 291   
|Tenant rent and reimbursements receivable, net |  |       |    |           |   |        |  |          | 841    |        |   | 1     |  |   | 9     |  |   | 851   
|Unbilled rent receivable, net                  |  |       |    |           |   | 335     |  |          |       |        |   | 15    |  |   | 137   |  |   | 487   
|Deferred charges and other assets, net         |  |       | 2   |           |   | 298     |  |          | 267    |        |   | 141   |  |   | 32    |  |   | 740   
|                                               |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|Total assets held for sale                     |  | $     | 754 |           | $ | 8,462   |  | $        | 11,331 |        | $ | 9,321 |  | $ | 1,324 |  | $ | 31,192
|                                               |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|LIABILITIES:                                   |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|Notes payable                                  |  | $     |    |           | $ | 6,215   |  | $        | 8,769  |        | $ | 7,161 |  | $ | 1,227 |  | $ | 23,372
|Accounts payable and other liabilities         |  |       | 4   |           |   | 31      |  |          | 204    |        |   |      |  |   |      |  |   | 239   
|Tenant security deposits                       |  |       |    |           |   | 48      |  |          |       |        |   | 32    |  |   |      |  |   | 80    
|                                               |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       
|Total liabilities of assets held for sale      |  | $     | 4   |           | $ | 6,294   |  | $        | 8,973  |        | $ | 7,193 |  | $ | 1,227 |  | $ | 23,691
|                                               |  |       |     |           |   |         |  |          |        |        |   |       |  |   |       |  |   |       



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##### Table of Contents

4. Tenant Rent and Reimbursements Receivable



Tenant rent and reimbursements receivable are net of an allowance for uncollectible amounts of $750,000 and $1,142,000 as of
December 31, 2003 and 2002, respectively. The activity in the allowance for uncollectible tenant accounts for the three years ending December 31, 2003, was as follows:



|                           |  |                         |        |   |      |   |        |      |  |   |       |  
|-------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                           |  | Year ended December 31, |       
|                           |  | 2003                    |        |   | 2002 |   |        | 2001 | 
|                           |  | (in thousands)          |       
|Balance, beginning of year |  | $                       | 1,142  |   |      | $ | 1,261  |      |  | $ | 555   |  
|Additions                  |  |                         | 908    |   |      |   | 1,316  |      |  |   | 858   |  
|Charge-offs                |  |                         | (1,300 | ) |      |   | (1,435 | )    |  |   | (152  | )
|                           |  |                         |        |   |      |   |        |      |  |   |       |  
|Balance, end of year       |  | $                       | 750    |   |      | $ | 1,142  |      |  | $ | 1,261 |  
|                           |  |                         |        |   |      |   |        |      |  |   |       |  



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##### Table of Contents

5. Unbilled Rent Receivable



The Company has operating leases with tenants that expire at various dates through 2014. The minimum rents due under these
leases are subject to either scheduled fixed increases or adjustments based on the Consumer Price Index. Generally accepted accounting principles require that rents due under operating leases with fixed increases be averaged over the life of the
lease. This practice, known as straight-line rents creates an unbilled rent receivable in any period during which the amount of straight-line rent exceeds the actual rent billed (this occurs primarily at the inception of the lease
period). As the lease approaches its expiration date, billed rent will eventually exceed the amount of straight-line rent causing the unbilled rent receivable to decline. The straight-line rent calculation assumes no new or re-negotiated rents or
extension periods during the life of the lease and excludes operating cost reimbursements. The following table summarizes future rents due under existing leases and the corresponding straight-line rent calculation as of December 31, 2003:



|                         |  |                     |        |                    |   |                          |  |   |      
|------------------------ |  | ------------------- | ------ | ------------------ | - | ------------------------ |  | - | -----
|Year Ending December 31, |  | Future Minimum Rent |        | Straight-line Rent |   | Unbilled Rent Receivable
|                         |  | (in thousands)     
|2004                     |  | $                   | 16,866 |                    | $ | 16,655                   |  | $ | 211  
|2005                     |  |                     | 14,606 |                    |   | 14,062                   |  |   | 544  
|2006                     |  |                     | 11,545 |                    |   | 10,860                   |  |   | 685  
|2007                     |  |                     | 7,007  |                    |   | 6,622                    |  |   | 385  
|2008                     |  |                     | 4,555  |                    |   | 4,245                    |  |   | 310  
|Thereafter               |  |                     | 5,575  |                    |   | 4,902                    |  |   | 673  
|                         |  |                     |        |                    |   |                          |  |   |      
|Total                    |  | $                   | 60,154 |                    | $ | 57,346                   |  | $ | 2,808
|                         |  |                     |        |                    |   |                          |  |   |      



The activity in the
allowance for unbilled rent, recorded as a reduction of rental revenue for the three years ending December 31, 2003, consisted of the following:



|                           |  |                         |      |   |      |   |      |      |  |   |    
|-------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---
|                           |  | Year ended December 31,
|                           |  | 2003                    |      |   | 2002 |   |      | 2001
|                           |  | (in thousands)         
|Balance, beginning of year |  | $                       | 365  |   |      | $ | 465  |      |  | $ | 387
|Additions                  |  |                         |     |   |      |   | 25   |      |  |   | 78 
|Charge-offs                |  |                         | (141 | ) |      |   | (125 | )    |  |   |   
|                           |  |                         |      |   |      |   |      |      |  |   |    
|Balance, end of year       |  | $                       | 224  |   |      | $ | 365  |      |  | $ | 465
|                           |  |                         |      |   |      |   |      |      |  |   |    



6. Mortgage Loans and Bonds
Receivable



Mortgage loans and bonds receivable consist of
the following:



|                                                                                                                       |  |                |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                       |  | December 31,   |       
|                                                                                                                       |  | 2003           |        |   | 2002 |  
|                                                                                                                       |  | (in thousands) |       
|Secured bond receivable due December 15, 2029, interest payable semiannually at 8.75% per annum                        |  | $              | 498    |   |      | $ | 1,218  |  
|Unsecured promissory note due January 31, 2010, principal and interest payable monthly at 10% per annum                |  |                | 567    |   |      |   | 567    |  
|Secured Note due April 1, 2008, interest payable semiannually at 10% per annum (This note is currently in default)     |  |                | 150    |   |      |   | 150    |  
|Unsecured promissory note due September 1, 2000, interest payable at 10% per annum (This note is currently in default) |  |                | 1,000  |   |      |   | 1,000  |  
|Unsecured promissory note due July 1, 2000, interest payable at 10% per annum (This note is currently in default)      |  |                | 69     |   |      |   | 79     |  
|Secured promissory note due August 25, 1998, interest payable at 12% per annum (This note is currently in default)     |  |                | 1,377  |   |      |   | 2,377  |  
|Unsecured promissory note receivable due April 11, 2003, interest payable monthly at 10%                               |  |                | 290    |   |      |   | 290    |  
|                                                                                                                       |  |                |        |   |      |   |        |  
|Face value of mortgage loans and bonds receivable                                                                      |  |                | 3,951  |   |      |   | 5,681  |  
|Accrued interest                                                                                                       |  |                | 278    |   |      |   | 623    |  
|Allowance for uncollectible amounts                                                                                    |  |                | (3,465 | ) |      |   | (4,475 | )
|                                                                                                                       |  |                |        |   |      |   |        |  
|Total mortgage loans and bonds interest receivable                                                                     |  | $              | 764    |   |      | $ | 1,829  |  
|                                                                                                                       |  |                |        |   |      |   |        |  



F-15



---

##### Table of Contents

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, a limited partner in the Roxbury Partnership and the Operating and Senior Care Partnerships, for $600,000. The Company recognized a loss of $120,000 on the sale of the
Bonds to Mr. Milner.



The activity in the allowance for
uncollectible notes receivable for the three years ending December 31, 2003, is as follows:



|                           |  |                         |        |   |      |   |       |      |  |   |        |  
|-------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                           |  | Year ended December 31, |       
|                           |  | 2003                    |        |   | 2002 |   |       | 2001 | 
|                           |  | (in thousands)          |       
|Balance, beginning of year |  | $                       | 4,475  |   |      | $ | 4,484 |      |  | $ | 5,527  |  
|Additions                  |  |                         | 67     |   |      |   | 89    |      |  |   | 146    |  
|Charge-offs                |  |                         | (1,077 | ) |      |   | (98   | )    |  |   | (1,189 | )
|                           |  |                         |        |   |      |   |       |      |  |   |        |  
|Balance, end of year       |  | $                       | 3,465  |   |      | $ | 4,475 |      |  | $ | 4,484  |  
|                           |  |                         |        |   |      |   |       |      |  |   |        |  



F-16



---

##### Table of Contents

|7. | Investments In Unconsolidated Affiliates
|-- | ----------------------------------------



The Company has investments in various unconsolidated affiliates as described in Note 1. The following tables provide a summary of the changes in the
Companys investment in each of these entities as of December 31, 2003 and 2002 (in thousands).



|                                         |  |           |       |   |                 |   |      |                |  |              |    |  |        |        |   |                |   |       |           |  |   |          |   |  |           |        |   |  |   |       |   |  |   |        |  
|---------------------------------------- |  | --------- | ----- | - | --------------- | - | ---- | -------------- |  | ------------ | -- |  | ------ | ------ | - | -------------- | - | ----- | --------- |  | - | -------- | - |  | --------- | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                         |  | San Pedro |       |   | Penasquitos LLC |   |      | Heritage Place |  | Pacific Park |    |  | Radius |        |   | Eagle Run Inc. |   |       | Eagle Run |  |   | Lakeview |   |  | 2003Total |       
|Opening balance at beginning of period   |  | $         | 1,520 |   |                 | $ | (475 | )              |  | $            |   |  | $      | 48     |   |                | $ | 1,217 |           |  | $ | (916     | ) |  | $         | 423    |   |  | $ | 442   |   |  | $ | 2,259  |  
|Equity in earnings (loss) of affiliates  |  |           | 162   |   |                 |   | (85  | )              |  |              |   |  |        | 1,276  |   |                |   | 53    |           |  |   | 51       |   |  |           | 2,597  |   |  |   | (311  | ) |  |   | 3,743  |  
|Cash contributions                       |  |           |      |   |                 |   |     |                |  |              |   |  |        | 25     |   |                |   |      |           |  |   |         |   |  |           |       |   |  |   | 620   |   |  |   | 645    |  
|Cash distributions                       |  |           |      |   |                 |   | (52  | )              |  |              |   |  |        | (1,233 | ) |                |   | (88   | )         |  |   |         |   |  |           | (1,745 | ) |  |   |      |   |  |   | (3,118 | )
|Intercompany elimination                 |  |           | (890  | ) |                 |   |     |                |  |              |   |  |        | (672   | ) |                |   |      |           |  |   | 36       |   |  |           | 48     |   |  |   |      |   |  |   | (1,478 | )
|Gain (loss) on investment                |  |           |      |   |                 |   |     |                |  |              |   |  |        | 556    |   |                |   |      |           |  |   | 829      |   |  |           | (1,323 | ) |  |   |      |   |  |   | 62     |  
|                                         |  |           |       |   |                 |   |      |                |  |              |    |  |        |        |   |                |   |       |           |  |   |          |   |  |           |        |   |  |   |       |   |  |   |        |  
|Equity, before inter-company adjustments |  |           | 792   |   |                 |   | (612 | )              |  |              |   |  |        |       |   |                |   | 1,182 |           |  |   |         |   |  |           |       |   |  |   | 751   |   |  |   | 2,113  |  
|                                         |  |           |       |   |                 |   |      |                |  |              |    |  |        |        |   |                |   |       |           |  |   |          |   |  |           |        |   |  |   |       |   |  |   |        |  
|Intercompany transactions:               |  |           |       |   |                 |   |      |                |  |              |    |  |        |        |   |                |   |       |           |  |   |          |   |  |           |        |   |  |   |       |   |  |   |        |  
|Receivable, net                          |  |           | 958   |   |                 |   | 297  |                |  |              | 14 |  |        |       |   |                |   |      |           |  |   |         |   |  |           |       |   |  |   | 1,695 |   |  |   | 2,964  |  
|                                         |  |           |       |   |                 |   |      |                |  |              |    |  |        |        |   |                |   |       |           |  |   |          |   |  |           |        |   |  |   |       |   |  |   |        |  
|Investment in unconsolidated affiliates  |  | $         | 1,750 |   |                 | $ | (315 | )              |  | $            | 14 |  | $      |       |   |                | $ | 1,182 |           |  | $ |         |   |  | $         |       |   |  | $ | 2,446 |   |  | $ | 5,077  |  
|                                         |  |           |       |   |                 |   |      |                |  |              |    |  |        |        |   |                |   |       |           |  |   |          |   |  |           |        |   |  |   |       |   |  |   |        |  



|                                         |  |             |      |   |           |   |                |  |   |               |   |        |   |             |  |   |        |  |                |      |   |           |   |          |  |   |           |   |  |   |     |  |   |       |   |  |   |        |  
|---------------------------------------- |  | ----------- | ---- | - | --------- | - | -------------- |  | - | ------------- | - | ------ | - | ----------- |  | - | ------ |  | -------------- | ---- | - | --------- | - | -------- |  | - | --------- | - |  | - | --- |  | - | ----- | - |  | - | ------ | -
|                                         |  | GLN Capital |      |   | San Pedro |   | PenasquitosLLC |  |   | HeritagePlace |   | Aurora |   | PacificPark |  |   | Radius |  | Eagle Run,Inc. |      |   | Eagle Run |   | Lakeview |  |   | 2002Total |  
|Opening balance at beginning of year     |  | $           | 807  |   |           | $ | 1,351          |  | $ | (358          | ) |        | $ |            |  | $ |       |  | $              |     |   |           | $ |         |  | $ | (501      | ) |  | $ | 375 |  | $ | 398   |   |  | $ | 2,072  |  
|Equity in earnings (loss) of affiliates  |  |             | 5    |   |           |   | 169            |  |   | (186          | ) |        |   |            |  |   |       |  |                | 48   |   |           |   | 43       |  |   | 53        |   |  |   | 48  |  |   | (320  | ) |  |   | (140   | )
|Cash contributions                       |  |             | 1    |   |           |   |               |  |   | 69            |   |        |   |            |  |   | 17     |  |                |     |   |           |   | 1,174    |  |   |          |   |  |   |    |  |   | 364   |   |  |   | 1,625  |  
|Cash distributions                       |  |             | (813 | ) |           |   |               |  |   |              |   |        |   |            |  |   |       |  |                |     |   |           |   |         |  |   | (468      | ) |  |   |    |  |   |      |   |  |   | (1,281 | )
|                                         |  |             |      |   |           |   |                |  |   |               |   |        |   |             |  |   |        |  |                |      |   |           |   |          |  |   |           |   |  |   |     |  |   |       |   |  |   |        |  
|Equity, before inter-company adjustments |  |             |     |   |           |   | 1,520          |  |   | (475          | ) |        |   |            |  |   | 17     |  |                | 48   |   |           |   | 1,217    |  |   | (916      | ) |  |   | 423 |  |   | 442   |   |  |   | 2,276  |  
|Intercompany receivable (payable), net   |  |             |     |   |           |   | 37             |  |   | 292           |   |        |   | 14          |  |   |       |  |                | (672 | ) |           |   |         |  |   | 36        |   |  |   | 48  |  |   | 2,108 |   |  |   | 1,863  |  
|                                         |  |             |      |   |           |   |                |  |   |               |   |        |   |             |  |   |        |  |                |      |   |           |   |          |  |   |           |   |  |   |     |  |   |       |   |  |   |        |  
|Investment in unconsolidated affiliates  |  | $           |     |   |           | $ | 1,557          |  | $ | (183          | ) |        | $ | 14          |  | $ | 17     |  | $              | (624 | ) |           | $ | 1,217    |  | $ | (880      | ) |  | $ | 471 |  | $ | 2,550 |   |  | $ | 4,139  |  
|                                         |  |             |      |   |           |   |                |  |   |               |   |        |   |             |  |   |        |  |                |      |   |           |   |          |  |   |           |   |  |   |     |  |   |       |   |  |   |        |  



F-17



---

##### Table of Contents

Following is a summary of the condensed financial information of each of the unconsolidated affiliates as
of and for the year ended December 31, 2003 (in thousands).



|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|-------------------------------- |  | --------- | ------ | - | --------------- | - | ------ | -------------- |  | - | ------------ | - |  | ------ | ----- | - | -------------- | - | ------ | --------- |  | - | -------- | - |  | ----- | ----- | - |  | - | ------ | - |  | - | ------- | -
|                                 |  | San Pedro |        |   | Penasquitos LLC |   |        | Heritage Place |  |   | Pacific Park |   |  | Radius |       |   | Eagle Run Inc. |   |        | Eagle Run |  |   | Lakeview |   |  | Total |      
|Financial Position:              |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Land                             |  | $         | 2,011  |   |                 | $ | 641    |                |  | $ | 750          |   |  | $      |      |   |                | $ | 200    |           |  | $ |         |   |  | $     |      |   |  | $ | 947    |   |  | $ | 4,549   |  
|Buildings                        |  |           | 4,131  |   |                 |   | 5,868  |                |  |   |             |   |  |        |      |   |                |   | 5,566  |           |  |   |         |   |  |       |      |   |  |   | 8,080  |   |  |   | 23,645  |  
|Other assets                     |  |           | 562    |   |                 |   | 1,177  |                |  |   | 238          |   |  |        |      |   |                |   | 1,260  |           |  |   |         |   |  |       |      |   |  |   | 773    |   |  |   | 4,010   |  
|Notes payable                    |  |           | (4,437 | ) |                 |   | (8,323 | )              |  |   | (940         | ) |  |        |      |   |                |   | (5,416 | )         |  |   |         |   |  |       |      |   |  |   | (7,417 | ) |  |   | (26,533 | )
|Other liabilities                |  |           | (1,122 | ) |                 |   | (604   | )              |  |   | (48          | ) |  |        |      |   |                |   | (14    | )         |  |   |         |   |  |       |      |   |  |   | (1,066 | ) |  |   | (2,854  | )
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Net assets                       |  | $         | 1,145  |   |                 | $ | (1,241 | )              |  | $ |             |   |  | $      |      |   |                | $ | 1,596  |           |  | $ |         |   |  | $     |      |   |  | $ | 1,317  |   |  | $ | 2,817   |  
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Partners equity:                |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Company                          |  | $         | 792    |   |                 | $ | (612   | )              |  | $ |             |   |  | $      |      |   |                | $ | 1,182  |           |  | $ |         |   |  | $     |      |   |  | $ | 751    |   |  | $ | 2,113   |  
|Others                           |  |           | 353    |   |                 |   | (629   | )              |  |   |             |   |  |        |      |   |                |   | 414    |           |  |   |         |   |  |       |      |   |  |   | 566    |   |  |   | 704     |  
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Total equity                     |  | $         | 1,145  |   |                 | $ | (1,241 | )              |  | $ |             |   |  | $      |      |   |                | $ | 1,596  |           |  | $ |         |   |  | $     |      |   |  | $ | 1,317  |   |  | $ | 2,817   |  
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Operations:                      |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Revenues                         |  | $         | 1,220  |   |                 | $ | 914    |                |  | $ |             |   |  | $      | 108   |   |                | $ | 701    |           |  | $ | 624      |   |  | $     | 143   |   |  | $ | 750    |   |  | $ | 4,460   |  
|Net gain on sale                 |  |           |       |   |                 |   |       |                |  |   |             |   |  |        | 2,632 |   |                |   |       |           |  |   |         |   |  |       | 5,295 |   |  |   |       |   |  |   | 7,927   |  
|Expenses                         |  |           | (1,002 | ) |                 |   | (1,084 | )              |  |   |             |   |  |        | (188  | ) |                |   | (631   | )         |  |   | (522     | ) |  |       | (243  | ) |  |   | (1,372 | ) |  |   | (5,042  | )
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Net income (loss)                |  | $         | 218    |   |                 | $ | (170   | )              |  | $ |             |   |  | $      | 2,552 |   |                | $ | 70     |           |  | $ | 102      |   |  | $     | 5,195 |   |  | $ | (622   | ) |  | $ | 7,345   |  
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Allocation of net income (loss): |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Company                          |  | $         | 162    |   |                 | $ | (85    | )              |  | $ |             |   |  | $      | 1,276 |   |                | $ | 53     |           |  | $ | 51       |   |  | $     | 2,597 |   |  | $ | (311   | ) |  | $ | 3,743   |  
|Others                           |  |           | 56     |   |                 |   | (85    | )              |  |   |             |   |  |        | 1,276 |   |                |   | 17     |           |  |   | 51       |   |  |       | 2,598 |   |  |   | (311   | ) |  |   | 3,602   |  
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  
|Net income (loss)                |  | $         | 218    |   |                 | $ | (170   | )              |  | $ |             |   |  | $      | 2,552 |   |                | $ | 70     |           |  | $ | 102      |   |  | $     | 5,195 |   |  | $ | (622   | ) |  | $ | 7,345   |  
|                                 |  |           |        |   |                 |   |        |                |  |   |              |   |  |        |       |   |                |   |        |           |  |   |          |   |  |       |       |   |  |   |        |   |  |   |         |  



F-18



---

##### Table of Contents

Following is a summary of the condensed financial information of each of the unconsolidated affiliates as
of and for the year ended December 31, 2002 (in thousands).



|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|-------------------------------- |  | --- | -- | - | -------- | - | ------ | -------------- |  | - | --------------- | - |  | ------ | --- | ------------- |  | - | ----------- |  | - | ------------- | - |  | -------- | ------ | - | ------ | - | ------ | -------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                 |  | GLN |    |   | SanPedro |   |        | PenasquitosLLC |  |   | PenasquitosInc. |   |  | Aurora |     | HeritagePlace |  |   | PacificPark |  |   | EagleRun Inc. |   |  | EagleRun |        |   | Radius |   |        | Lakeview |  |   | Total  |  
|Financial Position:              |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Land                             |  | $   |   |   |          | $ | 2,011  |                |  | $ | 641             |   |  | $      |    |               |  | $ |            |  | $ | 750           |   |  | $        | 822    |   |        | $ |       |          |  | $ | 1,191  |   |  | $ | 200    |   |  | $ | 947    |   |  | $ | 6,562   |  
|Buildings                        |  |     |   |   |          |   | 4,205  |                |  |   | 6,056           |   |  |        |    |               |  |   |            |  |   |              |   |  |          | 2,875  |   |        |   |       |          |  |   | 4,524  |   |  |   | 5,753  |   |  |   | 7,830  |   |  |   | 31,243  |  
|Notes receivable, net            |  |     |   |   |          |   |       |                |  |   |                |   |  |        |    |               |  |   |            |  |   |              |   |  |          |       |   |        |   |       |          |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |  
|Other assets                     |  |     | 7  |   |          |   | 446    |                |  |   | 954             |   |  |        |    |               |  |   | 17          |  |   | 238           |   |  |          | 1,556  |   |        |   | 399    |          |  |   | 1,341  |   |  |   | 1,147  |   |  |   | 392    |   |  |   | 6,497   |  
|Notes payable                    |  |     |   |   |          |   | (4,542 | )              |  |   | (8,377          | ) |  |        |    |               |  |   |            |  |   | (940          | ) |  |          | (4,582 | ) |        |   |       |          |  |   | (7,025 | ) |  |   | (5,457 | ) |  |   | (7,825 | ) |  |   | (38,748 | )
|Other liabilities                |  |     | (7 | ) |          |   | (947   | )              |  |   | (388            | ) |  |        | (10 | )             |  |   |            |  |   | (48           | ) |  |          | (407   | ) |        |   | (1,404 | )        |  |   | (98    | ) |  |   | (67    | ) |  |   | (918   | ) |  |   | (4,294  | )
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Net assets                       |  | $   |   |   |          | $ | 1,173  |                |  | $ | (1,114          | ) |  | $      | (10 | )             |  | $ | 17          |  | $ |              |   |  | $        | 264    |   |        | $ | (1,005 | )        |  | $ | (67    | ) |  | $ | 1,576  |   |  | $ | 426    |   |  | $ | 1,260   |  
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Partners equity:                |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Company                          |  | $   |   |   |          | $ | 1,520  |                |  | $ | (475            | ) |  | $      | 20  |               |  | $ | 17          |  | $ |              |   |  | $        | 48     |   |        | $ | (916   | )        |  | $ | 423    |   |  | $ | 1,217  |   |  | $ | 442    |   |  | $ | 2,296   |  
|Others                           |  |     |   |   |          |   | (347   | )              |  |   | (639            | ) |  |        | (30 | )             |  |   |            |  |   |              |   |  |          | 216    |   |        |   | (89    | )        |  |   | (490   | ) |  |   | 359    |   |  |   | (16    | ) |  |   | (1,036  | )
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Total equity                     |  | $   |   |   |          | $ | 1,173  |                |  | $ | (1,114          | ) |  | $      | (10 | )             |  | $ | 17          |  | $ |              |   |  | $        | 264    |   |        | $ | (1,005 | )        |  | $ | (67    | ) |  | $ | 1,576  |   |  | $ | 426    |   |  | $ | 1,260   |  
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Operations:                      |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Revenues                         |  | $   | 9  |   |          | $ | 1,186  |                |  | $ | 661             |   |  | $      |    |               |  | $ |            |  | $ |              |   |  | $        | 783    |   |        | $ | 3,504  |          |  | $ | 924    |   |  | $ | 467    |   |  | $ | 599    |   |  | $ | 8,133   |  
|Expenses                         |  |     |   |   |          |   | (960   | )              |  |   | (1,033          | ) |  |        |    |               |  |   |            |  |   |              |   |  |          | (687   | ) |        |   | (3,398 | )        |  |   | (828   | ) |  |   | (409   | ) |  |   | (1,239 | ) |  |   | (8,554  | )
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Net income (loss)                |  | $   | 9  |   |          | $ | 226    |                |  | $ | (372            | ) |  | $      |    |               |  | $ |            |  | $ |              |   |  | $        | 96     |   |        | $ | 106    |          |  | $ | 96     |   |  | $ | 58     |   |  | $ | (640   | ) |  | $ | (421    | )
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Allocation of net income (loss): |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Company.                         |  | $   | 5  |   |          | $ | 169    |                |  | $ | (186            | ) |  | $      |    |               |  | $ |            |  | $ |              |   |  | $        | 48     |   |        | $ | 53     |          |  | $ | 48     |   |  | $ | 43     |   |  | $ | (320   | ) |  | $ | (140    | )
|Others                           |  |     | 4  |   |          |   | 57     |                |  |   | (186            | ) |  |        |    |               |  |   |            |  |   |              |   |  |          | 48     |   |        |   | 53     |          |  |   | 48     |   |  |   | 15     |   |  |   | (320   | ) |  |   | (281    | )
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Net income (loss)                |  | $   | 9  |   |          | $ | 226    |                |  | $ | (372            | ) |  | $      |    |               |  | $ |            |  | $ |              |   |  | $        | 96     |   |        | $ | 106    |          |  | $ | 96     |   |  | $ | 58     |   |  | $ | (640   | ) |  | $ | (421    | )
|                                 |  |     |    |   |          |   |        |                |  |   |                 |   |  |        |     |               |  |   |             |  |   |               |   |  |          |        |   |        |   |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  



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8. Deferred Charges and Other Assets



Deferred charges and other assets consist of the following:



|                                 |  |                |        |   |      |   |        |  
|-------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                 |  | December 31,   |       
|                                 |  | 2003           |        |   | 2002 |  
|                                 |  | (in thousands) |       
|Deferred financing costs         |  | $              | 2,769  |   |      | $ | 6,184  |  
|Pre-acquisition costs            |  |                | 141    |   |      |   | 6      |  
|Leasing commissions              |  |                | 1,452  |   |      |   | 1,616  |  
|Prepaid expense and other assets |  |                | 1,036  |   |      |   | 524    |  
|                                 |  |                |        |   |      |   |        |  
|                                 |  |                | 5,398  |   |      |   | 8,330  |  
|Less accumulated amortization    |  |                | (1,502 | ) |      |   | (3,121 | )
|                                 |  |                |        |   |      |   |        |  
|Total                            |  | $              | 3,896  |   |      | $ | 5,209  |  
|                                 |  |                |        |   |      |   |        |  



9. Notes Payable



Notes payable consist of the following:



|                                                                                                                                                                  |  |                |        |      |   |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                                                                                                                                  |  | December 31,  
|                                                                                                                                                                  |  | 2003           |        | 2002
|                                                                                                                                                                  |  | (in thousands)
|$8,100,000 Note due April 1, 2008, collateralized by deed of trust, monthly principal and interest payments of $58,000, interest at 7.05% per
annum.              |  | $              | 7,286  |      | $ | 7,456 
|$1,333,125 Note due April 1, 2008 collateralized by deed of trust, monthly principal and interest payments of $9,554, interest at 7.05% per
annum. (Note 3)       |  |                | 1,199  |      |   | 1,227 
|$2,475,000 Note due September 1, 2008 collateralized by deed of trust, monthly principal and interest payments of $18,000, interest at 7.49%
per annum.           |  |                | 2,261  |      |   | 2,305 
|$7,500,000 Note due December 11, 2008, collateralized by deed of trust, monthly principal and interest payments of $50,000, interest at 6.90%
per annum. (Note 3) |  |                | 7,060  |      |   | 7,161 
|$10,000,000 Note due July 1, 2009 collateralized by deed of trust, monthly principal and interest payments of $73,000, interest at 6.85% per
annum.               |  |                | 9,035  |      |   | 9,260 
|$13,920,000 Note due July 1, 2004 collateralized by deed of trust, monthly principal and interest payments at LIBOR plus 4.0% per
annum.                          |  |                | 12,910 |      |   | 13,168
|$3,500,000 Secured line of credit due May 1, 2005, interest payable at Prime plus 2.0% per annum.                                                                 |  |                | 2,186  |      |   | 2,357 
|$7,200,000 Note due on August 1, 2011, collateralized by deed of trust, monthly principal and interest of $50,000, interest at 7.51% per
annum                    |  |                | 7,061  |      |   | 7,121 
|$11,941,000 Note due January 1, 2027, collateralized by deed of trust, monthly principal and interest payments of $85,000, interest at 7.05%
per annum.           |  |                | 11,598 |      |   | 11,773
|$8,327,000 Note due May 17, 2037, collateralized by deed of trust, monthly principal and interest payments of $53,000, interest at 6.95% per
annum. (Note 3)      |  |                | 8,233  |      |   | 8,296 
|$483,000 Unsecured promissory note due May 17, 2017, interest rate of 8.0% per annum, monthly principal and interest payments of $4,600. (Note
3)                 |  |                | 457    |      |   | 473   
|$4,300,000 Note due July 1, 2005, collateralized by deed of trust, monthly principal and interest payments of $27,000, interest at LIBOR plus
4.5% per annum.     |  |                | 4,218  |      |   | 4,300 
|$8,200,000 Note due February 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $47,000, interest at 5.55%
per annum.            |  |                | 8,125  |      |   |      
|$8,625,000 Note due June 1, 2013, collateralized by deed of trust, monthly principal and interest payments of $49,000, interest at 5.48% per
annum.               |  |                | 8,572  |      |   |      
|$14,175,000 Note due July 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $82,000, interest at 5.69% per
annum.               |  |                | 14,106 |      |   |      



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##### Table of Contents

|                                                                                                                                                             |  |   |         |  |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | - | ------- |  | - | -------
|$6,100,000 Note due July 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $35,000, interest at 5.69% per
annum.           |  |   | 6,065   |  |   |       
|$11,325,000 Note due July 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $66,000, interest at 5.69% per
annum.          |  |   | 11,270  |  |   |       
|$15,400,000 Note due July 1, 2013, collateralized by deed of trust, monthly principal and interest payments of $89,000, interest at 5.69% per
annum.         |  |   | 15,311  |  |   |       
|$30,117,000 Note due October 1, 2010, collateralized by deed of trust, monthly principal and interest payments of $168,000, interest at 5.34%
per annum.     |  |   | 30,053  |  |   |       
|$12,412,500 Note due October 1, 2010, collateralized by deed of trust, monthly principal and interest payments of $69,000, interest at 5.34%
per annum.      |  |   | 12,386  |  |   |       
|$16,970,500 Note due October 1, 2010, collateralized by deed of trust, monthly principal and interest payments of $95,000, interest at 5.34%
per annum.      |  |   | 16,935  |  |   |       
|$7,831,000 Note due April 1, 2008 collateralized by deed of trust, monthly principal and interest payments of $56,000, interest at 7.05% per
annum.          |  |   |        |  |   | 7,207  
|$250,000 Unsecured note due October 1, 2002, monthly principal and interest payments at Prime plus 1.0%                                                      |  |   |        |  |   | 220    
|$5,225,000 Note due January 1, 2019 collateralized by deed of trust, monthly principal and interest payments of $38,209, interest at 6.75% per
annum.        |  |   |        |  |   | 4,661  
|$30,000,000 Note due August 11, 2005, collateralized by deed of trust, monthly principal and interest payments of $229,000, interest at 7.89%
per annum.     |  |   |        |  |   | 26,521 
|$35,000,000 Note due August 11, 2006, collateralized by deed of trust, monthly payments of $282,000 of principal and interest, interest at
8.492% per annum. |  |   |        |  |   | 31,987 
|$35,000,000 Note due October 29, 2011, monthly principal and interest payable at LIBOR plus 7.50% per annum.                                                 |  |   |        |  |   | 33,095 
|$1,440,000 Note due July 1, 2009 collateralized by deed of trust, monthly principal and interest payments of $11,000, interest at 7.375% per
annum.          |  |   |        |  |   | 1,360  
|$11,400,000 Note due September 1, 2034, collateralized by deed of trust, monthly principal and interest payments of $77,000, interest at 8%
per annum.       |  |   |        |  |   | 11,137 
|$3,267,000 Note due April 1, 2008 collateralized by deed of trust, monthly principal and interest payments of $23,000, interest at 7.05% per
annum.          |  |   |        |  |   | 3,007  
|                                                                                                                                                             |  |   |         |  |   |        
|Total                                                                                                                                                        |  | $ | 196,327 |  | $ | 194,092
|                                                                                                                                                             |  |   |         |  |   |        



As of December 31,
2003, 30-day LIBOR was 1.12% and the prime rate was 4.00%. As of December 31, 2002, 30-day LIBOR was 1.382% and the prime rate was 4.25%.



Aggregate future principal payments as of December 31, 2003 are as follows:



|                         |  |   |        
|------------------------ |  | - | -------
|Years Ending December 31 |  |  
|(in thousands)           |  |  
|2004                     |  | $ | 15,475 
|2005                     |  |   | 9,156  
|2006                     |  |   | 2,927  
|2007                     |  |   | 3,112  
|2008                     |  |   | 18,949 
|Thereafter               |  |   | 146,708
|                         |  |   |        
|Total                    |  | $ | 196,327
|                         |  |   |        



10. Commitments and Contingencies



Neither the Company, the Operating Partnership, the
Financing Entities, the Subsidiaries, the Roxbury Partnership, Valencia, Hoquiam, Lyons, Coronado, Tarzana, Massachusetts, Aspen, Tustin II, Tustin III, St. Thomas More, St. Thomas More, Inc., 405 Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436
Bedford, Sherman Oaks, Regents, the Unconsolidated Affiliates nor any of the assets within their portfolios of MOBs, parking facilities, and retail space (the Properties) is currently a party to any material litigation, except as
discussed below.



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There are a number of common 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, with Lukoff designated as the lead action. No trial date has been set. The Morse action has been stayed pending the conclusion of the California class actions.



In addition, a group of four former common stockholders of the
Company filed an individual suit against the Company and its directors arising from the same conduct alleged in the putative class actions. This suit, Lyle Weisman, et al. v. G & L Realty Corp., et al., case number BC 271401, filed in the
Superior Court of California, County of Los Angeles, on April 4, 2002, asserts claims for breach of fiduciary duty and fraud against the director defendants The third amended complaint also asserts a claim for unjust enrichment against Messrs.
Gottlieb and Lebowitz and a claim for unfair competition under Business and Professions Code sections 17200 et seq. against Messrs. Gottlieb and Lebowitz and the Company. The Weisman plaintiffs have also attempted to plead claims for alleged
intentional interference with prospective business advantage based on interference with the Weisman plaintiffs purported efforts to acquire the Company. However, the Court has dismissed the Weisman plaintiffs interference claims on the
basis of the pleadings without 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, among other things, intentional interference with contract, intentional interference with prospective economic advantage,
and fraud. The Weisman suit has been consolidated with the Lukoff class actions for purposes of discovery. No trial date has been set in this action.



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. However, NVHF has defaulted on the December 2003 semi-annual interest payment to the holders of the subordinated B-bonds and the Company anticipates the letter of credit will be called upon by NVHF in order to
make future interest payments on the secured debt. It appears probable that the Company will be required to fund its guaranty under the letter of credit. The Companys maximum liability under the guarantee is $250,000 and the Company has
accrued this amount as a liability on its balance sheet as of December 31, 2003. The Company also holds an unsecured promissory note from NVHF in the amount of $567,000. The Company has held the note for almost four years and NVHF is current on all
payments due under the terms of the note.



In the third quarter
of 2003, Lakeview, a joint venture in which the Company owns a 50% interest, received a one-year extension on a $6.4 million mortgage loan secured by the ALF that is owned by Lakeview. The Company, along with the Companys joint venture
partner, is a guarantor on the loan. The individual owners of the Companys joint venture partner have also personally guaranteed the loan. The Companys maximum liability under the guarantee is $6.4 million although the Company does not
anticipate having to pay anything under this guarantee. The Company has recorded no liability on its balance sheet related to this guarantee as of December 31, 2003.



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11. Stockholders Equity



In May 1997, the Company issued 1,495,000 shares of the 10.25% Series A Preferred Stock, from which it received net proceeds
of $35.4 million. In November 1997, the Company issued 1,380,000 shares of 9.8% Series B Preferred Stock and received net proceeds of $32.6 million. The Companys preferred stock has no stated maturity, is not subject to any sinking fund
requirements and is not convertible into or exchangeable for any property or other securities of the Company. The Company, at its sole discretion, may call the Series A and Series B Preferred Stock at any time. All classes of the Companys
preferred stock have a par value of $0.01 and rank senior to the Companys common stock with respect to payment of dividends and upon liquidation. All classes of Preferred Stock are on parity with all other classes of the Companys
Preferred Stock for payment of dividends and liquidation purposes. In the event of liquidation, or if the Company elects to call the Preferred Stock, holders of the Companys Preferred Stock are entitled to receive $25.00 per share plus any
accrued and unpaid dividends, whether or not such dividends have been declared by the Companys Board of Directors. Holders of the Companys Series A Preferred Stock are entitled to receive monthly dividends at an annual rate of $2.56 per
share. Series B Preferred Stockholders are entitled to receive monthly dividends at an annual rate of $2.45 per share.



On October 29, 2001, the Company completed a merger with G & L Acquisition, LLC, a Maryland limited liability company, substantially on the terms
provided for in the Agreement of Plan and Merger, dated as of May 10, 2001, as amended, by and between the Company and G & L Acquisition, LLC (the Merger). The Company was the survivor in the Merger. G & L Acquisition, LLC was
owned by Daniel M. Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President, respectively, of the Company. Upon completion of the Merger, each outstanding share of the Companys Common Stock, other than a portion of the shares
held by Messrs. Gottlieb and Lebowitz, was converted into the right to receive $13.00 in cash, without interest. After completion of the Merger, the Companys Common Stock was delisted from the New York Stock Exchange.



Distributions in excess of net incomeAs described in Note 2,
the Company has elected to be treated as a REIT for Federal income tax purposes. As such, the Company is required to distribute at least 90% of its annual taxable income. For the years ended December 31, 2003, 2002 and 2001, cash distributed in the
form of dividends to holders of the Companys Common Stock exceeded the Companys taxable income and is therefore considered to be a return of capital. In 2003, 2002 and 2001, 100% of the Companys common stock dividend was considered
a return of capital to common stockholders. In 2003, dividends paid to holders of the Companys preferred stock were considered a 94.24% return of capital to preferred stockholders and the remaining 5.76% taxable as Section 1250 unrecaptured
gain on sale. In 2002, dividends paid to holders of the Companys preferred stock were considered a 40.8% return of capital to preferred stockholders, 32.9% taxable as long-term capital gain, 3.4% taxable as Section 1250 unrecaptured gain on
sale and the remaining 22.9% taxable as ordinary income. In 2001, dividends paid to holders of the Companys preferred stock were considered a 26.1% return of capital to preferred stockholders and the remaining 73.9% taxable as ordinary income.
In previous years, the dividends paid to holders of the Companys preferred stock were fully taxable as ordinary income.



12. Concentration of Credit Risk



The Company is subject to the all risks associated with leasing property, including but not limited to, the risk that upon the expiration of leases for
space located in the Companys properties, the leases may not be renewed, the space may not be re-leased or the terms of renewal or re-leasing (including any cost of required renovations or concessions to tenants) may be less favorable than
current lease terms. If the Company is unable to promptly re-lease or renew leases for a significant portion of its space or if the rental rates upon renewal or re-leasing are significantly lower than expected, the Companys earnings and the
ability to make distributions to stockholders may be adversely affected. Most of the tenants in the Companys healthcare properties provide specialized health care services. The ability of the tenants to honor the terms of their respective
leases is dependent upon the economic, regulatory and social factors affecting the communities and industry in which the tenants operate. With the exception of the tenant that occupies Irwindale, which was sold on March 18, 2004, no tenant occupies
more than 3% of the Companys total square footage.



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Many of the Companys medical office properties are in close proximity to one or more local
hospitals. Relocation or closure of a local hospital could make the Companys nearby properties (particularly those outside of the Beverly Hills area) less desirable to doctors and healthcare providers affiliated with the hospital and affect
the Companys ability to collect rent due under existing leases, renew leases and attract new business.



G&L Hampden, LLC, a wholly owned subsidiary of the Company, acquired three SNFs in Massachusetts on October 28, 1997 from Hampden Nursing Homes, Inc.
(HNH), a nonprofit corporation. Lenox Healthcare, Inc. (Lenox) managed the three facilities from October 1998 through December 1999. In November 1999, Lenox filed for bankruptcy protection. The Company immediately moved to
replace Lenox as the manager of the nursing homes. In January 2000, the Company received the bankruptcy courts permission to replace Lenox as the manager and a new management firm, a subsidiary of Roush & Associates (Roush),
was immediately retained. Although Lenox managed these Massachusetts nursing homes, HNH held the licenses necessary to operate the facilities. In March 2000, the Company successfully transferred the licenses to G&L Massachusetts, LLC, a
subsidiary of the Operating Partnership. Revenue from the three Massachusetts nursing homes represented approximately 42.5% of the Companys total revenues in 2003. Roush is an experienced skilled nursing facility operator and the
Companys management believes that Roush will be able to profitably manage these facilities for the Company; however, the financial position of the Company, and its ability to make expected distributions to stockholders, may be adversely
affected in the event that Roush experiences financial difficulties.



In addition to the nursing homes in Massachusetts, the Company owns other ALF and SNF Properties that it leases to operators. All of the leases are for five years or less with non-credit tenants. In the event that the operators of these
facilities 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 facility in order to keep it 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 may be adversely affected.



13. Segment Information



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



| |  | Medical office buildings  These investments consist of 22 high quality MOBs, an office and retail facility, one research and development facility and one parking facility
totaling approximately 832,000 rentable square feet and all located in Southern California. These properties are owned either directly by the Company or indirectly through joint ventures.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Skilled nursing facilities  These investments 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 consolidated financial statements of the Company and the segment information provided below. The
Company is 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. In February 2004, the manager of these facilities
received approval from the Massachusetts Department of Health to obtain the operating licenses for the three facilities from the Company. The manager subsequently entered into a lease agreement with the Company for these facilities effective on the
date of the license transfers which is expected to be on April 1, 2004. Upon the transfer of the licenses, the Company will no longer reflect all of the assets, liabilities, revenues and expenses of these three SNFs in its consolidated financial
statements. The Company will record rental income per the terms of the lease it entered into with the management company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-24



---

##### Table of Contents

| |  | Assisted living facilities  These investments consist of three ALFs, all owned through joint ventures. The three ALFs contain over 252 units that are typically occupied by
residents who require a less intense level of care in comparison to the SNFs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Debt obligations  These investments initially consisted of short-term secured and unsecured loans made to third parties to facilitate the acquisition of healthcare facilities.
The Company is no longer in the business of lending money and has not originated any new loans over the past couple of years. The Company is working to collect the balance of its loans that are currently outstanding, most of which have been
partially or fully reserved. As of December 31, 2003, the Company had seven loans outstanding with a net book value of $0.8 million.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The tables on the following pages reconcile the Companys income and expense activity for the years ending December 31, 2003, 2002 and 2001 and
balance sheet data as of December 31, 2003 and 2002.





F-25



---

##### Table of Contents

2003 Reconciliation of Reportable Segment Information



|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|------------------------------------------------------------ |  | -------------- | ------ | - | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | ----- | ----- | - | ------ | - |  | - | ------- | -
|                                                             |  | MedicalOffice  |        |   | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |       | Total |  
|                                                             |  | (In thousands) |       
|Revenue:                                                     |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Rents, tenant reimbursements and parking                     |  | $              | 25,607 |   |                | $ | 2,109  |                |  | $ |                |   |       | $ |      |       | $ |       |   |  | $ | 27,716  |  
|Patient revenues                                             |  |                |       |   |                |   | 26,129 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 26,129  |  
|Interest and loan fees                                       |  |                | 32     |   |                |   | 29     |                |  |   |                |   |       |   | 695   |       |   | 31     |   |  |   | 787     |  
|Other income                                                 |  |                | 1,527  |   |                |   | 56     |                |  |   | (494            | ) |       |   | 1,000 |       |   | 473    |   |  |   | 2,562   |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Total revenues                                               |  |                | 27,166 |   |                |   | 28,323 |                |  |   | (494            | ) |       |   | 1,695 |       |   | 504    |   |  |   | 57,194  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Expenses:                                                    |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Property operations                                          |  |                | 7,010  |   |                |   | 601    |                |  |   |                |   |       |   | 98    |       |   |       |   |  |   | 7,709   |  
|Skilled nursing operations                                   |  |                |       |   |                |   | 23,901 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 23,901  |  
|Depreciation and amortization                                |  |                | 3,320  |   |                |   | 1,528  |                |  |   |                |   |       |   |      |       |   | 28     |   |  |   | 4,876   |  
|Interest                                                     |  |                | 18,496 |   |                |   | 2,341  |                |  |   |                |   |       |   |      |       |   | 4,285  |   |  |   | 25,122  |  
|Loss on sale of bonds receivable                             |  |                |       |   |                |   |       |                |  |   |                |   |       |   | 120   |       |   |       |   |  |   | 120     |  
|Provision for doubtful accounts, notes and bonds receivable  |  |                |       |   |                |   | 975    |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 975     |  
|General and administrative                                   |  |                |       |   |                |   |       |                |  |   |                |   |       |   |      |       |   | 4,551  |   |  |   | 4,551   |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Total expenses                                               |  |                | 28,826 |   |                |   | 29,346 |                |  |   |                |   |       |   | 218   |       |   | 8,864  |   |  |   | 67,254  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|(Loss) income from operations                                |  |                | (1,660 | ) |                |   | (1,023 | )              |  |   | (494            | ) |       |   | 1,477 |       |   | (8,360 | ) |  |   | (10,060 | )
|Equity in earnings (loss) of unconsolidated affiliates       |  |                | 1,438  |   |                |   | 52     |                |  |   | 2,253           |   |       |   |      |       |   |       |   |  |   | 3,743   |  
|Net income (loss) from operations of discontinued operations |  |                | 1,174  |   |                |   | (57    | )              |  |   | (1,341          | ) |       |   |      |       |   |       |   |  |   | (224    | )
|Gain from sale of discontinued operations                    |  |                | 2,278  |   |                |   |       |                |  |   | 5,069           |   |       |   |      |       |   |       |   |  |   | 7,347   |  
|Corporate tax expense                                        |  |                |       |   |                |   | (136   | )              |  |   |                |   |       |   |      |       |   |       |   |  |   | (136    | )
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Income (loss) from operations before minority interests      |  | $              | 3,230  |   |                | $ | (1,164 | )              |  | $ | 5,487           |   |       | $ | 1,477 |       | $ | (8,360 | ) |  | $ | 670     |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  



2003 Reconciliation
of Reportable Segment Information



|                                              |  |                |         |                |   |                |  |                 |        |       |   |       |  |   |        |  |   |        
|--------------------------------------------- |  | -------------- | ------- | -------------- | - | -------------- |  | --------------- | ------ | ----- | - | ----- |  | - | ------ |  | - | -------
|                                              |  | MedicalOffice  |         | SkilledNursing |   | AssistedLiving |  | DebtObligations |        | Other |   | Total
|                                              |  | (In thousands)
|Rental properties                             |  | $              | 87,570  |                | $ | 38,210         |  | $               |       |       | $ |      |  | $ | 178    |  | $ | 125,958
|Assets held for sale                          |  |                | 18,839  |                |   | 738            |  |                 | 10,520 |       |   |      |  |   |       |  |   | 30,097 
|Mortgage loans and notes receivable, net      |  |                |        |                |   | 268            |  |                 |       |       |   | 496   |  |   |       |  |   | 764    
|Cash and cash equivalents                     |  |                | 881     |                |   | 689            |  |                 |       |       |   |      |  |   | 10,380 |  |   | 11,950 
|Restricted cash                               |  |                | 1,823   |                |   | 731            |  |                 |       |       |   |      |  |   | 59     |  |   | 2,613  
|Tenant rent and reimbursement receivable, net |  |                | 402     |                |   | 3,970          |  |                 |       |       |   |      |  |   | 906    |  |   | 5,278  
|Unbilled rent receivable, net                 |  |                | 2,584   |                |   |               |  |                 |       |       |   |      |  |   |       |  |   | 2,584  
|Investment in unconsolidated affiliates       |  |                | 1,764   |                |   | 1,182          |  |                 | 2,131  |       |   |      |  |   |       |  |   | 5,077  
|Deferred financing costs, net                 |  |                | 1,731   |                |   | 568            |  |                 |       |       |   |      |  |   |       |  |   | 2,299  
|Pre-acquisition costs                         |  |                | 141     |                |   |               |  |                 |       |       |   |      |  |   |       |  |   | 141    
|Deferred lease costs, net                     |  |                | 420     |                |   |               |  |                 |       |       |   |      |  |   |       |  |   | 420    
|Prepaid expense and other                     |  |                | 728     |                |   | 308            |  |                 |       |       |   |      |  |   |       |  |   | 1,036  
|                                              |  |                |         |                |   |                |  |                 |        |       |   |       |  |   |        |  |   |        
|Total assets                                  |  | $              | 116,883 |                | $ | 46,664         |  | $               | 12,651 |       | $ | 496   |  | $ | 11,523 |  | $ | 188,217
|                                              |  |                |         |                |   |                |  |                 |        |       |   |       |  |   |        |  |   |        



F-26



---

##### Table of Contents

2002 Reconciliation of Reportable Segment Information



|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | ----- | ----- | - | ------ | - |  | - | ------ | -
|                                                             |  | MedicalOffice  |        | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |       | Total |  
|                                                             |  | (In thousands) |       
|Revenue:                                                     |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Rents, tenant reimbursements and parking                     |  | $              | 24,558 |                | $ | 2,556  |                |  | $ |                |   |       | $ |      |       | $ |       |   |  | $ | 27,114 |  
|Patient revenues                                             |  |                |       |                |   | 24,261 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 24,261 |  
|Interest and loan fees                                       |  |                | 42     |                |   | 33     |                |  |   |                |   |       |   | 2,345 |       |   | 39     |   |  |   | 2,459  |  
|Other income                                                 |  |                | 584    |                |   | 762    |                |  |   |                |   |       |   |      |       |   | 66     |   |  |   | 1,412  |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Total revenues                                               |  |                | 25,184 |                |   | 27,612 |                |  |   |                |   |       |   | 2,345 |       |   | 105    |   |  |   | 55,246 |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Expenses:                                                    |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Property operations                                          |  |                | 6,716  |                |   | 455    |                |  |   |                |   |       |   | 143   |       |   |       |   |  |   | 7,314  |  
|Skilled nursing operations                                   |  |                |       |                |   | 21,421 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 21,421 |  
|Depreciation and amortization                                |  |                | 3,494  |                |   | 1,371  |                |  |   |                |   |       |   |      |       |   | 42     |   |  |   | 4,907  |  
|Interest                                                     |  |                | 7,185  |                |   | 1,959  |                |  |   |                |   |       |   | 150   |       |   | 4,294  |   |  |   | 13,588 |  
|Provision for doubtful accounts, notes and bonds receivable  |  |                | 10     |                |   | 993    |                |  |   |                |   |       |   | 89    |       |   | 450    |   |  |   | 1,542  |  
|General and administrative                                   |  |                |       |                |   |       |                |  |   |                |   |       |   |      |       |   | 3,280  |   |  |   | 3,280  |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Total expenses                                               |  |                | 17,405 |                |   | 26,199 |                |  |   |                |   |       |   | 382   |       |   | 8,066  |   |  |   | 52,052 |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Income (loss) from operations                                |  |                | 7,779  |                |   | 1,413  |                |  |   |                |   |       |   | 1,963 |       |   | (7,961 | ) |  |   | 3,194  |  
|Equity in earnings (loss) of unconsolidated affiliates       |  |                | 218    |                |   | 43     |                |  |   | (406            | ) |       |   | 5     |       |   |       |   |  |   | (140   | )
|Net income (loss) from operations of discontinued operations |  |                | 294    |                |   | (70    | )              |  |   | (529            | ) |       |   |      |       |   |       |   |  |   | (305   | )
|Gain from sale of discontinued operations                    |  |                | 2,458  |                |   | (138   | )              |  |   |                |   |       |   |      |       |   |       |   |  |   | 2,320  |  
|Corporate tax expense                                        |  |                |       |                |   | (295   | )              |  |   |                |   |       |   |      |       |   |       |   |  |   | (295   | )
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests      |  | $              | 10,749 |                | $ | 953    |                |  | $ | (935            | ) |       | $ | 1,968 |       | $ | (7,961 | ) |  | $ | 4,774  |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  



2002 Reconciliation
of Reportable Segment Information



|                                              |  |                |         |                |   |                |  |   |                 |   |       |   |       |  |   |     |  |   |        
|--------------------------------------------- |  | -------------- | ------- | -------------- | - | -------------- |  | - | --------------- | - | ----- | - | ----- |  | - | --- |  | - | -------
|                                              |  | MedicalOffice  |         | SkilledNursing |   | AssistedLiving |  |   | DebtObligations |   | Other |   | Total
|                                              |  | (In thousands)
|Rental properties                             |  | $              | 91,673  |                | $ | 38,396         |  | $ | 10,898          |   |       | $ |      |  | $ | 172 |  | $ | 141,139
|Assets held for sale                          |  |                | 19,107  |                |   | 754            |  |   | 11,331          |   |       |   |      |  |   |    |  |   | 31,192 
|Mortgage loans and notes receivable, net      |  |                |        |                |   | 268            |  |   |                |   |       |   | 1,561 |  |   |    |  |   | 1,829  
|Cash and cash equivalents                     |  |                | 1,444   |                |   | 778            |  |   | (108            | ) |       |   |      |  |   | 252 |  |   | 2,366  
|Restricted cash                               |  |                | 1,980   |                |   | 917            |  |   | 19              |   |       |   |      |  |   | 60  |  |   | 2,976  
|Tenant rent and reimbursement receivable, net |  |                | 365     |                |   | 4,008          |  |   | 1,595           |   |       |   |      |  |   | 495 |  |   | 6,463  
|Unbilled rent receivable, net                 |  |                | 2,695   |                |   |               |  |   |                |   |       |   |      |  |   |    |  |   | 2,695  
|Investment in unconsolidated affiliates       |  |                | 932     |                |   | 1,218          |  |   | 1,989           |   |       |   |      |  |   |    |  |   | 4,139  
|Deferred financing costs, net                 |  |                | 3,149   |                |   | 747            |  |   | 286             |   |       |   |      |  |   |    |  |   | 4,182  
|Pre-acquisition costs                         |  |                | 6       |                |   |               |  |   |                |   |       |   |      |  |   |    |  |   | 6      
|Deferred lease costs, net                     |  |                | 497     |                |   |               |  |   |                |   |       |   |      |  |   |    |  |   | 497    
|Prepaid expense and other                     |  |                | 250     |                |   | 231            |  |   | 43              |   |       |   |      |  |   |    |  |   | 524    
|                                              |  |                |         |                |   |                |  |   |                 |   |       |   |       |  |   |     |  |   |        
|Total assets                                  |  | $              | 122,098 |                | $ | 47,317         |  | $ | 26,053          |   |       | $ | 1,561 |  | $ | 979 |  | $ | 198,008
|                                              |  |                |         |                |   |                |  |   |                 |   |       |   |       |  |   |     |  |   |        



F-27



---

##### Table of Contents

2001 Reconciliation of Reportable Segment Information



|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|----------------------------------------------------------- |  | -------------- | ------ | -------------- | - | ------ | -------------- |  | --------------- | --- |  | ----- | ----- | - | ----- | - | ------ | - |  | - | ------ | -
|                                                            |  | MedicalOffice  |        | SkilledNursing |   |        | AssistedLiving |  | DebtObligations |     |  | Other |       |   | Total |  
|                                                            |  | (In thousands) |       
|Revenue:                                                    |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Rents, tenant reimbursements and parking                    |  | $              | 22,905 |                | $ | 1,266  |                |  | $               |    |  | $     |      |   |       | $ |       |   |  | $ | 24,171 |  
|Patient revenues                                            |  |                |       |                |   | 21,057 |                |  |                 |    |  |       |      |   |       |   |       |   |  |   | 21,057 |  
|Interest and loan fees                                      |  |                | 132    |                |   | 37     |                |  |                 |    |  |       | 1,906 |   |       |   | 726    |   |  |   | 2,801  |  
|Other income                                                |  |                | 184    |                |   | 753    |                |  |                 |    |  |       | 794   |   |       |   | 59     |   |  |   | 1,790  |  
|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Total revenues                                              |  |                | 23,221 |                |   | 23,113 |                |  |                 |    |  |       | 2,700 |   |       |   | 785    |   |  |   | 49,819 |  
|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Expenses:                                                   |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Property operations                                         |  |                | 6,805  |                |   | 461    |                |  |                 |    |  |       | 94    |   |       |   |       |   |  |   | 7,360  |  
|Skilled nursing operations                                  |  |                |       |                |   | 19,004 |                |  |                 |    |  |       |      |   |       |   |       |   |  |   | 19,004 |  
|Depreciation and amortization                               |  |                | 3,707  |                |   | 971    |                |  |                 |    |  |       |      |   |       |   | 48     |   |  |   | 4,726  |  
|Interest                                                    |  |                | 7,622  |                |   | 1,307  |                |  |                 |    |  |       | 671   |   |       |   | 635    |   |  |   | 10,235 |  
|Provision for doubtful accounts, notes and bonds receivable |  |                | 83     |                |   | 850    |                |  |                 |    |  |       | 71    |   |       |   |       |   |  |   | 1,004  |  
|General and administrative                                  |  |                |       |                |   |       |                |  |                 |    |  |       |      |   |       |   | 3,953  |   |  |   | 3,953  |  
|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Total expenses                                              |  |                | 18,217 |                |   | 22,593 |                |  |                 |    |  |       | 836   |   |       |   | 4,636  |   |  |   | 46,282 |  
|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Income (loss) from operations                               |  |                | 5,004  |                |   | 520    |                |  |                 |    |  |       | 1,864 |   |       |   | (3,851 | ) |  |   | 3,537  |  
|Equity in earnings (loss) of unconsolidated affiliates      |  |                | 207    |                |   |       |                |  |                 | 2   |  |       | (4    | ) |       |   |       |   |  |   | 205    |  
|Net income from operations of discontinued operations       |  |                | 155    |                |   | 2,077  |                |  |                 | 543 |  |       |      |   |       |   |       |   |  |   | 2,775  |  
|Corporate tax expense                                       |  |                |       |                |   | (85    | )              |  |                 |    |  |       |      |   |       |   |       |   |  |   | (85    | )
|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests     |  | $              | 5,366  |                | $ | 2,512  |                |  | $               | 545 |  | $     | 1,860 |   |       | $ | (3,851 | ) |  | $ | 6,432  |  
|                                                            |  |                |        |                |   |        |                |  |                 |     |  |       |       |   |       |   |        |   |  |   |        |  



14. Related Party Transactions



On October 29, 2001, the Company completed a merger with
G & L Acquisition, LLC, a Maryland limited liability company, substantially on the terms provided for in the Agreement of Plan and Merger, dated as of May 10, 2001, as amended, by and between the Company and G & L Acquisition, LLC (the
Merger). The Company was the survivor in the Merger. G & L Acquisition, LLC was owned by Daniel M. Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President, respectively, of the Company. Upon completion of the Merger,
each outstanding share of the Companys Common Stock, other than a portion of the shares held by Messrs. Gottlieb and Lebowitz, was converted into the right to receive $13.00 in cash, without interest. After completion of the Merger, the
Companys Common Stock was delisted from the New York Stock Exchange.



As part of the Merger, the Operating Partnership loaned $5.2 million of the loan proceeds to Messrs. Gottlieb and Lebowitz to fund a $3.5 million tender offer for the Companys Series A and Series B Preferred
Stock and to repay $1.7 million of personal debt. Each of the $2.6 million loans to Messrs. Gottlieb and Lebowitz are for a term of ten years, bear interest at the interest rate in effect on the Loan and require monthly interest only payments.
Messrs. Gottlieb and Lebowitz have the option to accrue any and all interest payments, which shall then be added to the principal balance of the notes. As of December 31, 2003, the outstanding principal balance on the notes was $5.114 million. For
purposes of presentation in these consolidated financial statements, the $5.114 million balance has been reflected on the balance sheet as a deduction to stockholders equity.



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##### Table of Contents

15. Discontinued Operations



In accordance with SFAS 144, the net income or loss and the net gain or loss on dispositions of operating properties sold
subsequent to December 31, 2002 are reflected in the consolidated statement of operations as discontinued operations for all periods presented (see Note 2). For the years ended December 31, 2003, 2002 and 2001, discontinued operations relates to a
retail facility located in Aliso Viejo, California, an MOB located in Burbank, California, and an ALF located in Santa Monica, California that the Company sold in 2003 as well as a three-story, 40,000 square foot office and retail complex located in
Coronado, California, a two-story, 48,000 square foot research and development building located in Irwindale, California, a 59-bed nursing and rehabilitation center in Chico, California, a 10,000 square foot MOB located in Tustin, California and a
two-story, 80-unit ALF located in Tarzana, California that were listed for sale or under contract to be sold as of December 31, 2003. The related interest expense was also allocated to discontinued operations. The following table summarizes the
income and expense components that comprise discontinued operations:



|                                               |  |                         |       |   |      |   |       |      |  |   |      
|---------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | -----
|                                               |  | Year Ended December 31,
|                                               |  | 2003                    |       |   | 2002 |   |       | 2001
|                                               |  | (In thousands)         
|REVENUES:                                      |  |                         |       |   |      |   |       |      |  |   |      
|Rent, tenant reimbursements and parking        |  | $                       | 4,343 |   |      | $ | 6,309 |      |  | $ | 6,022
|Other income                                   |  |                         | 34    |   |      |   | 21    |      |  |   | 2,694
|                                               |  |                         |       |   |      |   |       |      |  |   |      
|Total revenues                                 |  | $                       | 4,377 |   |      | $ | 6,330 |      |  | $ | 8,716
|                                               |  |                         |       |   |      |   |       |      |  |   |      
|EXPENSES:                                      |  |                         |       |   |      |   |       |      |  |   |      
|Property operations                            |  |                         | 1,097 |   |      |   | 1,482 |      |  |   | 1,318
|Depreciation and amortization                  |  |                         | 777   |   |      |   | 1,371 |      |  |   | 1,337
|Interest                                       |  |                         | 2,727 |   |      |   | 3,782 |      |  |   | 3,286
|                                               |  |                         |       |   |      |   |       |      |  |   |      
|Total expenses                                 |  |                         | 4,601 |   |      |   | 6,635 |      |  |   | 5,941
|                                               |  |                         |       |   |      |   |       |      |  |   |      
|Net (loss) income from discontinued operations |  |                         | (224  | ) |      |   | (305  | )    |  |   | 2,775
|Gain from sale of discontinued operations      |  |                         | 7,347 |   |      |   | 2,320 |      |  |   |     
|                                               |  |                         |       |   |      |   |       |      |  |   |      
|Total income from discontinued operations      |  | $                       | 7,123 |   |      | $ | 2,015 |      |  | $ | 2,775
|                                               |  |                         |       |   |      |   |       |      |  |   |      



16. Subsequent Events



On January 26, 2004, the Company sold its membership
interest in Tarzana for $1.7 million and recognized a net gain on sale of $0.4 million. Tarzana owned a two-story, 80-unit ALF located in Tarzana, California. The net proceeds are being held by the Company for new acquisitions, future common stock
dividends and general corporate purposes.



On March 18, 2004,
the Company sold its two-story, 48,000 square foot research and development building located in Irwindale, California for $8.85 million and received net proceeds of $8.5 million. The Company recognized a gain on sale of $0.9 million.



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##### Table of Contents

17. Unaudited Consolidated Quarterly Information



Unaudited consolidated quarterly financial information for the periods as follows:



|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | --- | - | ------ | --- |  | - | ------ | - |  | - | ------ | -
|                                                             |  | 2003 Fiscal Quarter                      |       
|                                                             |  | 1st                                      |        |   | 2nd |   |        | 3rd |  |   | 4th    |  
|                                                             |  | (In thousands, except per share amounts) |       
|Revenue:                                                     |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Rental                                                       |  | $                                        | 5,716  |   |     | $ | 5,625  |     |  | $ | 5,764  |   |  | $ | 5,912  |  
|Patient revenues                                             |  |                                          | 5,899  |   |     |   | 6,337  |     |  |   | 6,882  |   |  |   | 7,011  |  
|Tenant reimbursements                                        |  |                                          | 701    |   |     |   | 711    |     |  |   | 939    |   |  |   | 704    |  
|Parking                                                      |  |                                          | 369    |   |     |   | 403    |     |  |   | 454    |   |  |   | 418    |  
|Interest and loan fees                                       |  |                                          | 207    |   |     |   | 192    |     |  |   | 196    |   |  |   | 192    |  
|Other income                                                 |  |                                          | 525    |   |     |   | 72     |     |  |   | 1,216  |   |  |   | 749    |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total revenues                                               |  |                                          | 13,417 |   |     |   | 13,340 |     |  |   | 15,451 |   |  |   | 14,986 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Expenses:                                                    |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Property operations                                          |  |                                          | 1,958  |   |     |   | 1,960  |     |  |   | 2,003  |   |  |   | 1,788  |  
|Skilled nursing operations                                   |  |                                          | 5,409  |   |     |   | 5,843  |     |  |   | 6,281  |   |  |   | 6,368  |  
|Depreciation and amortization                                |  |                                          | 1,302  |   |     |   | 899    |     |  |   | 1,211  |   |  |   | 1,464  |  
|Interest                                                     |  |                                          | 3,399  |   |     |   | 7,984  |     |  |   | 10,985 |   |  |   | 2,754  |  
|Loss on sale of bonds receivable                             |  |                                          | 120    |   |     |   |       |     |  |   |       |   |  |   |       |  
|General and administrative                                   |  |                                          | 953    |   |     |   | 879    |     |  |   | 1,376  |   |  |   | 1,343  |  
|Provision for doubtful accounts                              |  |                                          | 279    |   |     |   | 114    |     |  |   | 269    |   |  |   | 313    |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total expenses                                               |  |                                          | 13,420 |   |     |   | 17,679 |     |  |   | 22,125 |   |  |   | 14,030 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|(Loss) income from operations before minority interests      |  |                                          | (3     | ) |     |   | (4,339 | )   |  |   | (6,674 | ) |  |   | 956    |  
|Equity in earnings (loss) of unconsolidated affiliates       |  |                                          | 3,884  |   |     |   | (84    | )   |  |   | (41    | ) |  |   | (16    | )
|Minority interest in consolidated affiliates                 |  |                                          | 71     |   |     |   | (81    | )   |  |   | (66    | ) |  |   | (74    | )
|Corporate income tax expense                                 |  |                                          | (23    | ) |     |   | (22    | )   |  |   | (73    | ) |  |   | (18    | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income before discontinued operations                        |  |                                          | 3,929  |   |     |   | (4,526 | )   |  |   | (6,854 | ) |  |   | 848    |  
|Net (loss) income from operations of discontinued operations |  |                                          | (119   | ) |     |   | (158   | )   |  |   | (70    | ) |  |   | 123    |  
|Gain (loss) from discontinued operations                     |  |                                          |       |   |     |   |       |     |  |   |       |   |  |   | 7,347  |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss)                                            |  |                                          | 3,810  |   |     |   | (4,684 | )   |  |   | (6,924 | ) |  |   | 8,318  |  
|Dividends on preferred stock                                 |  |                                          | (1,790 | ) |     |   | (1,791 | )   |  |   | (1,790 | ) |  |   | (1,791 | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss) to common stockholders                     |  | $                                        | 2,020  |   |     | $ | (6,475 | )   |  | $ | (8,714 | ) |  | $ | 6,527  |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  



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##### Table of Contents

|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | --- | - | ------ | --- |  | - | ------ | - |  | - | ------ | -
|                                                             |  | 2002 Fiscal Quarter                      |       
|                                                             |  | 1st                                      |        |   | 2nd |   |        | 3rd |  |   | 4th    |  
|                                                             |  | (In thousands, except per share amounts) |       
|Revenue:                                                     |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Rental                                                       |  | $                                        | 5,633  |   |     | $ | 6,073  |     |  | $ | 5,861  |   |  | $ | 5,578  |  
|Patient revenues                                             |  |                                          | 5,724  |   |     |   | 5,852  |     |  |   | 6,549  |   |  |   | 6,136  |  
|Tenant reimbursements                                        |  |                                          | 475    |   |     |   | 898    |     |  |   | 574    |   |  |   | 550    |  
|Parking                                                      |  |                                          | 350    |   |     |   | 381    |     |  |   | 374    |   |  |   | 367    |  
|Interest and loan fees                                       |  |                                          | 1,800  |   |     |   | 232    |     |  |   | 214    |   |  |   | 213    |  
|Other income                                                 |  |                                          | 375    |   |     |   | 430    |     |  |   | 568    |   |  |   | 39     |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total revenues                                               |  |                                          | 14,357 |   |     |   | 13,866 |     |  |   | 14,140 |   |  |   | 12,883 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Expenses:                                                    |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Property operations                                          |  |                                          | 1,938  |   |     |   | 1,971  |     |  |   | 1,961  |   |  |   | 1,444  |  
|Skilled nursing operations                                   |  |                                          | 5,098  |   |     |   | 5,264  |     |  |   | 5,553  |   |  |   | 5,506  |  
|Depreciation and amortization                                |  |                                          | 1,231  |   |     |   | 1,218  |     |  |   | 1,212  |   |  |   | 1,246  |  
|Interest                                                     |  |                                          | 3,859  |   |     |   | 3,798  |     |  |   | 3,404  |   |  |   | 2,527  |  
|General and administrative                                   |  |                                          | 789    |   |     |   | 814    |     |  |   | 793    |   |  |   | 884    |  
|Provision for doubtful accounts                              |  |                                          | 209    |   |     |   | 355    |     |  |   | 385    |   |  |   | 593    |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total expenses                                               |  |                                          | 13,124 |   |     |   | 13,420 |     |  |   | 13,308 |   |  |   | 12,200 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income from operations before minority interests             |  |                                          | 1,233  |   |     |   | 446    |     |  |   | 832    |   |  |   | 683    |  
|Equity in earnings (loss) of unconsolidated affiliates       |  |                                          | 89     |   |     |   | 9      |     |  |   | (96    | ) |  |   | (142   | )
|Minority interest in consolidated affiliates                 |  |                                          | (125   | ) |     |   | (13    | )   |  |   | (85    | ) |  |   | (62    | )
|Corporate income tax expense                                 |  |                                          |       |   |     |   |       |     |  |   | (120   | ) |  |   | (175   | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income before discontinued operations                        |  |                                          | 1,197  |   |     |   | 442    |     |  |   | 531    |   |  |   | 304    |  
|Net income (loss) from operations of discontinued operations |  |                                          | 241    |   |     |   | 189    |     |  |   | 39     |   |  |   | (774   | )
|Gain (loss) from discontinued operations                     |  |                                          | 2,458  |   |     |   | (138   | )   |  |   |       |   |  |   |       |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss)                                            |  |                                          | 3,896  |   |     |   | 493    |     |  |   | 570    |   |  |   | (470   | )
|Dividends on preferred stock                                 |  |                                          | (1,790 | ) |     |   | (1,791 | )   |  |   | (1,790 | ) |  |   | (1,791 | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss) to common stockholders                     |  | $                                        | 2,106  |   |     | $ | (1,298 | )   |  | $ | (1,220 | ) |  | $ | (2,261 | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  





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##### Table of Contents

18. SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003. (In Thousands).



|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|----------------------------------------------- |  | ------------------------ | ----------- | - | ---------------------- | - | ----------------------------------------- |  | ------------------------------------------------------------ | ------- | ------------------------ | - | ----- |  | ------------------------- | ------ | ----- | - | ------------------------ |  | ---------------- | ------- | -------------------------------------- | - | ------- |  | - | ------ |  | ---- |  | --------------
|                                                |  |                          |             |   | Initial Cost toCompany |   | Cost Capitalized Subsequentto Acquisition |  | Gross amount at which carried at close ofPeriod (See Note G) |         |                          |   |      
|Description                                     |  | Encumbrances (See Notes) |             |   | Land                   |   | Building and Improvements                 |  | Land                                                         |         | Building and Improvement |   | Land  |  | Building and Improvements |        | Total |   | Accumulated Depreciation |  | Acquisition Date |         | Date of Construction or Rehabilitation
|Medical Office Buildings California Properties: |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|405 North Bedford Drive                         |  | $                        | 14,106      |   |                        | $ | 2,186                                     |  | $                                                            | 4,076   |                          | $ | 452   |  | $                         | 10,506 |       | $ | 2,638                    |  | $                | 14,582  |                                        | $ | 17,220  |  | $ | 5,725  |  | 1993 |  | 1947/1987     
|415 North Bedford Drive                         |  |                          | 6,065       |   |                        |   | 292                                       |  |                                                              | 573     |                          |   |      |  |                           | 628    |       |   | 292                      |  |                  | 1,201   |                                        |   | 1,493   |  |   | 677    |  | 1993 |  | 1955          
|416 North Bedford Drive                         |  |                          | 11,270      |   |                        |   | 427                                       |  |                                                              | 247     |                          |   |      |  |                           | 2,792  |       |   | 427                      |  |                  | 3,039   |                                        |   | 3,466   |  |   | 1,452  |  | 1993 |  | 1946/1986     
|435 North Bedford Drive                         |  |                          | 15,311      |   |                        |   | 1,144                                     |  |                                                              | 2,853   |                          |   |      |  |                           | 3,647  |       |   | 1,144                    |  |                  | 6,500   |                                        |   | 7,644   |  |   | 3,633  |  | 1993 |  | 1950/1963/1984
|435 North Roxbury Drive                         |  |                          | 8,125       |   |                        |   | 162                                       |  |                                                              | 390     |                          |   | 39    |  |                           | 3,371  |       |   | 201                      |  |                  | 3,761   |                                        |   | 3,962   |  |   | 1,676  |  | 1993 |  | 1956/1983     
|436 North Bedford Drive                         |  |                          | 30,053      |   |                        |   | 2,675                                     |  |                                                              | 15,317  |                          |   |      |  |                           | 741    |       |   | 2,675                    |  |                  | 16,058  |                                        |   | 18,733  |  |   | 3,178  |  | 1990 |  | 1980          
|439 North Bedford Drive                         |  |                          |            |   |                        |   |                                          |  |                                                              | 109     |                          |   |      |  |                           | 544    |       |   |                         |  |                  | 653     |                                        |   | 653     |  |   | 474    |  | 1993 |  | 1956/1983     
|Holy Cross Medical Plaza                        |  |                          | 7,286       |   |                        |   | 2,556                                     |  |                                                              | 10,256  |                          |   |      |  |                           | 1,556  |       |   | 2,556                    |  |                  | 11,812  |                                        |   | 14,368  |  |   | 3,595  |  | 1994 |  | 1985          
|Sherman Oaks Medical Plaza                      |  |                          | 12,386      |   |                        |   | 1,454                                     |  |                                                              | 8,278   |                          |   |      |  |                           | 2,819  |       |   | 1,454                    |  |                  | 11,097  |                                        |   | 12,551  |  |   | 3,799  |  | 1994 |  | 1969/1993     
|Regents Medical Center                          |  |                          | 16,935      |   |                        |   | 1,470                                     |  |                                                              | 8,390   |                          |   |      |  |                           | 1,463  |       |   | 1,470                    |  |                  | 9,853   |                                        |   | 11,323  |  |   | 3,109  |  | 1994 |  | 1989          
|Irwindale Bldg (See Note C)                     |  |                          |            |   |                        |   | 1,260                                     |  |                                                              | 7,282   |                          |   |      |  |                           | 1,023  |       |   | 1,260                    |  |                  | 8,305   |                                        |   | 9,565   |  |   | 1,949  |  | 1994 |  | 1992          
|1095 Irvine Blvd (See Note C)                   |  |                          | 1,199       |   |                        |   | 474                                       |  |                                                              | 663     |                          |   |      |  |                           | 454    |       |   | 474                      |  |                  | 1,117   |                                        |   | 1,591   |  |   | 510    |  | 1994 |  | 1994/1995     
|14591 Newport Avenue                            |  |                          | (See Note B | ) |                        |   | 160                                       |  |                                                              | 36      |                          |   |      |  |                           | 542    |       |   | 160                      |  |                  | 578     |                                        |   | 738     |  |   | 175    |  | 1996 |  | 1969          
|14642 Newport Avenue                            |  |                          | (See Note B | ) |                        |   | 400                                       |  |                                                              | 1,033   |                          |   |      |  |                           | 681    |       |   | 400                      |  |                  | 1,714   |                                        |   | 2,114   |  |   | 649    |  | 1996 |  | 1985          
|23861  23929 McBean Parkway                    |  |                          | 9,035       |   |                        |   |                                          |  |                                                              | 4,164   |                          |   | 3,973 |  |                           | 8,501  |       |   | 3,973                    |  |                  | 12,665  |                                        |   | 16,638  |  |   | 2,275  |  | 1998 |  | 1981/1999     
|24355 Lyons Avenue                              |  |                          | 8,572       |   |                        |   | 623                                       |  |                                                              | 6,752   |                          |   |      |  |                           | 669    |       |   | 623                      |  |                  | 7,421   |                                        |   | 8,044   |  |   | 1,186  |  | 1998 |  | 1990          
|1330 Orange Ave (See Note C)                    |  |                          | 7,061       |   |                        |   | 809                                       |  |                                                              | 8,753   |                          |   |      |  |                           | 457    |       |   | 809                      |  |                  | 9,210   |                                        |   | 10,019  |  |   | 918    |  | 1998 |  | 1977/1985     
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                         
|Senior Care Facilities Arizona Properties:      |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|31 West Maryland Avenue                         |  |                          | 4,218       |   |                        |   | 800                                       |  |                                                              | 3,847   |                          |   |      |  |                           | 893    |       |   | 800                      |  |                  | 4,740   |                                        |   | 5,540   |  |   | 980    |  | 1997 |  | 1951-1957     
|39 West Maryland Avenue                         |  |                          |            |   |                        |   | 172                                       |  |                                                              | 835     |                          |   |      |  |                           | 118    |       |   | 172                      |  |                  | 953     |                                        |   | 1,125   |  |   | 163    |  | 1998 |  | 1968          
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                         
|California Properties:                          |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|1645 Esplanade (See Note C)                     |  |                          |            |   |                        |   | 159                                       |  |                                                              | 636     |                          |   |      |  |                           | 2      |       |   | 159                      |  |                  | 638     |                                        |   | 797     |  |   | 60     |  | 2000 |  | 1960          
|18700 Burbank Blvd (See Note D)                 |  |                          | 8,690       |   |                        |   | 2,350                                     |  |                                                              | 8,035   |                          |   |      |  |                           | 348    |       |   | 2,350                    |  |                  | 8,383   |                                        |   | 10,733  |  |   | 938    |  | 2000 |  | 1989          
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                         
|Massachusetts Properties:                       |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|42 Prospect Avenue                              |  |                          | (See Note A | ) |                        |   | 1,048                                     |  |                                                              | 4,609   |                          |   |      |  |                           | 1      |       |   | 1,048                    |  |                  | 4,610   |                                        |   | 5,658   |  |   | 1,319  |  | 1997 |  | 1957/65/78/85 
|32 Chestnut Street                              |  |                          | (See Note A | ) |                        |   | 1,319                                     |  |                                                              | 9,307   |                          |   |      |  |                           | 894    |       |   | 1,319                    |  |                  | 10,201  |                                        |   | 11,520  |  |   | 1,457  |  | 1997 |  | 1985          
|34 Main Street                                  |  |                          | (See Note A | ) |                        |   | 702                                       |  |                                                              | 3,040   |                          |   |      |  |                           |       |       |   | 702                      |  |                  | 3,040   |                                        |   | 3,742   |  |   | 867    |  | 1997 |  | 1965/1985     
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                         
|Maryland Properties:                            |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|4922 La Salle Road                              |  |                          | 11,598      |   |                        |   | 1,390                                     |  |                                                              | 10,759  |                          |   |      |  |                           | 397    |       |   | 1,390                    |  |                  | 11,156  |                                        |   | 12,546  |  |   | 836    |  | 2002 |  | 1955-56/1976  
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                         
|Washington Properties:                          |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|3035 Cherry Street                              |  |                          | 2,261       |   |                        |   | 100                                       |  |                                                              | 3,216   |                          |   |      |  |                           | 69     |       |   | 100                      |  |                  | 3,285   |                                        |   | 3,385   |  |   | 641    |  | 1998 |  | 1954          
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|Total                                           |  | $                        | 174,171     |   |                        | $ | 24,132                                    |  | $                                                            | 123,456 |                          | $ | 4,464 |  | $                         | 43,116 |       | $ | 28,596                   |  | $                | 166,572 |                                        | $ | 195,168 |  | $ | 42,241 |  |      |  |               
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|G&L Hampden, LLC (See Note A)                   |  |                          | 12,910      |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|G&L Tustin III, LLC (See Note B)                |  |                          | 7,060       |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|Per Above                                       |  |                          | 174,171     |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|Total encumbrances                              |  | $                        | 194,141     |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               
|                                                |  |                          |             |   |                        |   |                                           |  |                                                              |         |                          |   |       |  |                           |        |       |   |                          |  |                  |         |                                        |   |         |  |   |        |  |      |  |               



F-32



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##### Table of Contents

The changes in total real estate assets and accumulated depreciation for the years ended December 31 are as follows:



|                              |  |                          |         |   |      |                          |         |      |  |   |         |      |                         |  |      |        |   |      |   |        |   |  |   |       
|----------------------------- |  | ------------------------ | ------- | - | ---- | ------------------------ | ------- | ---- |  | - | ------- | ---- | ----------------------- |  | ---- | ------ | - | ---- | - | ------ | - |  | - | ------
|                              |  | Total Real Estate Assets |         |   |      | Accumulated Depreciation
|                              |  | 2003                     |         |   | 2002 |                          |         | 2001 |  |   |         | 2003 |                         |  | 2002 |        |   | 2001
|                              |  | (in thousands)           |         |   |      | (in thousands)          
|Balance at beginning of year  |  | $                        | 209,155 |   |      | $                        | 199,882 |      |  | $ | 196,317 |      | Balance at beg. of year |  | $    | 39,439 |   |      | $ | 33,873 |   |  | $ | 28,208
|Improvements and acquisitions |  |                          | 5,665   |   |      |                          | 12,361  |      |  |   | 3,565   |      | Depreciation            |  |      | 5,576  |   |      |   | 5,855  |   |  |   | 5,665 
|Dispositions                  |  |                          | (19,652 | ) |      |                          | (3.088  | )    |  |   |        |      | Dispositions            |  |      | (2,774 | ) |      |   | (289   | ) |  |   |      
|                              |  |                          |         |   |      |                          |         |      |  |   |         |      |                         |  |      |        |   |      |   |        |   |  |   |       
|Balance at end of year        |  | $                        | 195,168 |   |      | $                        | 209,155 |      |  | $ | 199,882 |      | Balance at end of year  |  | $    | 42,241 |   |      | $ | 39,439 |   |  | $ | 33,873
|                              |  |                          |         |   |      |                          |         |      |  |   |         |      |                         |  |      |        |   |      |   |        |   |  |   |       

---

|Note A:    G&L | Hampden, LLC owns the following properties, which are security for a first trust deed: 42 Prospect Avenue, 32 Chestnut Street, and 34 Main Street.
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------

|Note B:    G&L | Tustin III, LLC owns the following properties which are security for a first trust deed: 14591 Newport Avenue, 14642 Newport Avenue
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------

|Note C:    This | building has been listed for sale and is included in Assets Held for Sale in the Companys balance sheet.
|--------------- | ---------------------------------------------------------------------------------------------------------

|Note D:    This | building was sold in January 2004 and is included in Assets Held for Sale in the Companys balance sheet.
|--------------- | ---------------------------------------------------------------------------------------------------------



F-33



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2004 |  | By:              |  | /s/ David E. Hamer                     
|                     |  |                  |  | David E. Hamer                         
|                     |  |                  |  | Controller and Chief Accounting Officer



Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                         |  |                                                                                              |  |               
|---------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                        |  | Date          
|                                         |  |                                                                                             
|/s/ Daniel M. GottliebDaniel M. Gottlieb |  | Chief Executive Officer, Co-Chairman of the Board and
Director (Principal Executive Officer) |  | March 30, 2004
|                                         |  |                                                                                             
|/s/ Steven D. LebowitzSteven D. Lebowitz |  | President, Co-Chairman of the Board and Director                                             |  | March 30, 2004
|                                         |  |                                                                                             
|/s/ Richard L. LesherRichard L. Lesher   |  | Director                                                                                     |  | March 30, 2004
|                                         |  |                                                                                             
|/s/ Charles P. ReillyCharles P. Reilly   |  | Director                                                                                     |  | March 30, 2004
|                                         |  |                                                                                             
|/s/ S. Craig TompkinsS. Craig Tompkins   |  | Director                                                                                     |  | March 30, 2004



F-34