<PAGE>
 
================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                     ------------------------------------
                                   FORM 10-K
(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, 1998

                                      OR

  [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                                        
        For the transaction period from _____________ to _____________

                        Commission file number 1-12566

                -----------------------------------------------
                
                              G & L REALTY CORP.
            (Exact name of Registrant as specified in its charter)

                     Maryland                                95-4449388
          (State or other jurisdiction of                 (I.R.S. Employer
           incorporation or organization)                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

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

                                                       Name of each exchange
               Title of each class                      on which registered
               -------------------                   -----------------------
          Common Stock, $.01 par value               New York Stock Exchange
      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

  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. [ ]

  The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of such stock, as reported on the New
York Stock Exchange, on March 19, 1999) was $39,897,000.

  The number of shares outstanding of the Registrant's Common Stock, $.01 par
value (the "Common Stock"), as of March 19, 1999, was 3,971,000 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Part III incorporates by reference portions of the Registrant's Proxy
Statement relating to the 1999 Annual Meeting of Stockholders (the "Proxy
Statement").

================================================================================
<PAGE>
 
                          ANNUAL REPORT ON FORM 10-K

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PART I
<C>        <S>                                                               <C>
ITEM 1.    BUSINESS.........................................................   1
ITEM 2.    PROPERTIES.......................................................   7
ITEM 3.    LEGAL PROCEEDINGS................................................  27
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............  27

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.............................................  28
ITEM 6.    CONSOLIDATED SELECTED FINANCIAL DATA.............................  29
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS........................................  31
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......  41
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.......................  42
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE.........................................  42

PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  42
ITEM 11.   EXECUTIVE COMPENSATION...........................................  42
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...  42
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  42

PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K   43
</TABLE>
<PAGE>
 
                                    PART I


ITEM 1.  BUSINESS

   The Company is a self-administered and self-managed real estate investment
trust ("REIT") that owns, acquires, develops, manages, leases and finances
health care properties. The Company's business currently consists of
investments, made either directly or through joint ventures, in health care
properties and in debt obligations secured by health care properties. The
Company's operations focus primarily on opportunities to own or develop  medical
office buildings ("MOB") through its MOB operations, or own or finance senior
care facilities ("Senior Care Facilities") through its senior care operations.
The Company was incorporated in Maryland on September 15, 1993.

   The 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 or development
of additional MOBs directly or through strategic joint ventures. The MOB
portfolio, including projects under development, currently consists of
approximately 985,000 rentable square feet. The Company directly owns 25 high
quality MOBs, an adjacent parking facility and two retail facilities and
indirectly owns three additional MOBs (collectively, the "MOB Properties").
Twenty-five of the MOB Properties are located in California and six of the MOB
Properties are located in New Jersey. Several of the MOB Properties include
retail space on the ground level.  As of January 31, 1999, the MOB Properties
were approximately 92.8% leased to over 410 tenants.

   The senior care business strategy is to capitalize on consolidation
opportunities in the senior care industry by making selected equity investments
in Senior Care Facilities and by providing short-term secured loans to
facilitate third-party acquisitions. The Company directly owns 8 Senior Care
Facilities consisting of a skilled nursing facility and a senior resident
apartment complex located in Arizona, a Senior Care Facility in California,
three nursing homes in Massachusetts, a hospital located in California and a
skilled nursing facility in Washington (the "Senior Care Properties").  The
Senior Care Properties have an aggregate of 894 beds or units.  The Company also
has a 50% interest in Valley Convalescent, LLC ("Valley Convalescent"), a joint
venture with Continuum Health Incorporated ("Continuum") which owns a 123-bed
skilled nursing facility in El Centro, California.

   The Company, directly and through GLN Capital Co. ("GLN"), an unconsolidated
operating venture with Nomura Asset Capital Corporation ("Nomura"), also
provides short-term financing and participating loans secured by health care
properties throughout the United States.  Many of the loans are intended to
serve as bridge or interim financing (generally 6 to 24 months) for the
acquisition of such facilities by joint ventures in which the Company
participates or by third parties.  Loans made by the Company generally bear
interest at fixed rates.  As of December 31, 1998, the Company had ten loans
outstanding which total approximately $15.6 million before reserves of $3.5
million.  As of March 19, 1999, GLN's portfolio consists of one secured loan
with an outstanding balance of approximately $1.6 million including principal
(at face value) and accrued, unpaid interest.

   As part of its overall business strategy, the Company also develops both MOBs
and Senior Care Facilities, either directly or through joint ventures.  The
Company has a long history of successful developments and believes that it can
maximize growth through a combination of development and acquisition.  The
Company currently has five development projects in progress consisting of a
33,000 square foot MOB and a 22,000 square foot MOB both located in Aliso Viejo,
California, a 44,000 square foot MOB located in Valencia, California and two
assisted living facilities located in Rancho Penasquitos, California and Omaha,
Nebraska.  These developments are expected to be occupied within the next three
to eighteen months.  In addition, the Company also owns two vacant parcels of
land in California which it intends to use to develop Senior Care Facilities or
to sell to third parties for development of Senior Care Facilities.
 
   The Company intends to continue to grow by enhancing the operating
performance of its existing properties, selectively acquiring and developing
MOBs and Senior Care Facilities and originating loans secured by Senior Care
Facilities that meet the Company's underwriting criteria. Among the key elements
of the Company's growth

                                       1
<PAGE>
 
strategy are improving rental income by aggressively marketing available space
and applying rigorous investment analysis to proposed acquisitions and short-
term loans.

   The Company's primary business objective is to maximize the total return to
stockholders through increases in dividends and appreciation in the value of the
Company's capital stock through long-term investment in MOBs and Senior Care
Facilities, either directly or through affiliates, and short-term investments in
loans secured by Senior Care Facilities located throughout the United States,
either directly or through affiliates.  The Company seeks to achieve these
objectives by enhancing the operating performance of its existing properties as
well as through the selective acquisition of MOBs and Senior Care Facilities and
originating loans secured by Senior Care Facilities in which the Company has an
investment interest.  Key elements of the Company's MOB operating strategy
include:  (i) improving rental income and cash flow by aggressively marketing
available space; (ii) designing and renovating tenant space to meet the unique
needs of medical practitioners; (iii) actively managing renovation costs and
minimizing other operating expenses such as leasing commissions by conducting
management, leasing, maintenance and marketing activities internally; (iv)
maintaining a diversified tenant base consisting of a cross section of medical
specialties; and (v) emphasizing regular maintenance, periodic renovation and
capital improvements to maximize long-term returns.  Key elements of the
Company's Senior Care operating strategy include: (i) making short-term secured
loans, typically to nonprofit entities; (ii) monitoring the issuance of tax-
exempt bonds by a political subdivision with which a nonprofit entity has
contracted; (iii) negotiating the repayment of the Company's loans through a
combination of cash payments and permanent loan replacement; and (iv) locating
high-quality operators who will effectively and efficiently operate the Senior
Care Facilities in which the Company has an investment interest to maximize
their value.

   Medical Office Building Operations. In its acquisition analysis, management
reviews certain factors including: (i) location, particularly proximity to major
hospitals; (ii) construction quality and design; (iii) historical, current and
projected cash flow; (iv) potential for increased cash flow and capital
appreciation; (v) tenant mix and terms of the tenant leases, including the
potential for rent increases; (vi) occupancy rates and demand for medical office
properties in the vicinity; and (vii) prospects for liquidity through sale,
financing or refinancing. The Company anticipates that G&L Realty Partnership,
L.P. (the "Operating Partnership"), the subsidiary through which the Company
conducts its business, will continue to purchase fee interests in MOB
Properties; however, the Company may participate, on a selective basis, in joint
venture transactions, or acquire partnership interests as the Board of Directors
may determine from time to time to be in the best interests of the Company.
Such investments may be subject to existing mortgage financing and other
indebtedness that have priority over the equity interest of the Company and may
not afford the Company with the operating control it has with respect to the MOB
Properties.

   Senior Care Operations. In connection with its acquisition of Senior Care
Facilities and funding of short-term mortgage loans, management analyzes and
reviews certain factors including: (i) operating and financial history of the
entity and the managers who will be responsible for operating the Senior Care
Facility; (ii) value of the  property; (iii) location of the property,
particularly proximity to shops, markets and other health care facilities; and
(iv) anticipated potential for short-term gain and long-term profits from
investment in the property. In its mortgage loans analysis, management also
reviews, among other factors, the investment history of the organization
acquiring the Senior Care Facility. The Company anticipates that it will
continue to acquire ownership interests in, and provide financing for, Senior
Care Facilities.

   Development Activities. In connection with its development projects,
management analyzes and reviews certain factors including: (i) location,
particularly proximity to major medical centers; (ii) demand for MOBs or Senior
Care Facilities in the area; (iii) cost of construction in relation to direct
acquisition; (iv) potential for capital appreciation; (v) potential for
financing or sale; (vi) operating and development capabilities of potential
partners; and (vii) estimated return on investment.  The Company considers
development to be a vital part of its operations and anticipates that it will
continue to seek development opportunities in the future.

   See Item 14 for financial information about the Company's two main business
segments: investments in (i) healthcare properties and (ii) debt obligations
secured by Senior Care Properties.

                                       2
<PAGE>
 
Competitive Strengths

   In addition to the Company's investments in existing MOB properties, the
Company also seeks to make selective acquisitions of MOBs. From time to time
hospital owners sell their MOBs to raise capital. These sales create
opportunities for the Company to acquire MOBs on attractive terms. Because
hospitals will often seek a buyer with the operating skills necessary to meet
the needs of the medical practitioners located in the building, the Company
believes that its successful history of operating MOBs provides it with a
competitive advantage in the acquisition, development and management of MOBs.

   Through its senior care operations, and indirectly through GLN, the Company
initially provided short-term financing (typically 6-24 months) secured by
Senior Care Facilities.  The Company has expanded its senior care operations and
currently also seeks to selectively acquire ownership interests in Senior Care
Facilities which have characteristics consistent with the Company's growth
strategy.  The Company believes that the aging population in the United States
has increased the demand for efficiently operated Senior Care Facilities.  The
Company believes that it is in a position to capitalize on this increased demand
by selectively acquiring ownership interests in attractively situated Senior
Care Facilities as well as by funding secured short-term mortgage loans to
facilitate the acquisition of Senior Care Facilities by third-party investors.
The Company also believes that there is potential for the Company to make
additional acquisitions of Senior Care Facilities and to fund new secured short-
term loans for the acquisition of Senior Care Facilities by third parties.

   Financing for new acquisitions of MOB properties and Senior Care Facilities
and investments may be provided through existing or new joint ventures with
third parties, third-party financing in the form of secured or unsecured debt or
equity or from the sale of securities.  The Company's access to the public
capital markets and its capacity to obtain debt financing facilitates its
ability to acquire ownership interests in additional MOBs and Senior Care
Facilities and to invest in loans secured by Senior Care Facilities.  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, that such properties will be profitably
operated or that the Company, or its investment affiliates, will continue to
make favorable investments in mortgages secured by Senior Care Facilities.  In
addition, the Company and its investment affiliates will likely incur additional
indebtedness in connection with future acquisitions.


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 to date.  The Company has
experienced lease renewal rates of approximately 91.1%, 87.3% and 86.7% for the
years ended December 31, 1996, 1997 and 1998, respectively, with respect to
medical office space in the MOB Properties based on the medical office space
leases available for renewal in these periods.  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 in the public areas due to heavy foot traffic,
many short appointments which increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more 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 so
that referrals by practitioners with different specialties within the building
are facilitated.  The Company stresses meeting these and other special demands
of medical property tenants.

                                       3
<PAGE>
 
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.


Employees

   As of March 19, 1999, the Company (including the Operating Partnership)
employed 39 persons, 10 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 Company's MOBs typically consist of several smaller tenants rather than
one or two large tenants.  During 1998, only one MOB tenant accounted for more
than 10% of the Company's total rental revenues.  During 1998, a subsidiary of
PHP Healthcare, Inc. ("PHP"), occupied 100% of the six MOB Properties located in
New Jersey, which accounted for approximately 10.8% of the Company's total
rental revenues.  In November 1998, PHP and the subsidiary filed petitions under
Chapters 7 and 11, respectively, of the U.S. Bankruptcy Code.  The subsidiary's
Chapter 11 proceeding was subsequently converted to Chapter 7.  After the
bankruptcy filing, the facilities were operated by HIP of New Jersey, Inc.
("HIP").  HIP's operations were taken over by the Commissioner of the New Jersey
Department of Banking and Insurance (the "Commissioner") in December 1998.  The
State of New Jersey continued to occupy and lease the buildings through March 5,
1999.  By the end of March 1999, the Commissioner vacated the buildings.  If the
Company is unable to re-lease these buildings in a timely manner, the earnings
of the Company may be adversely affected.

   The Senior Care Facilities are leased 100% to senior care companies that
operate the facilities.  Although all of the Company's Senior Care Facilities
are currently leased, finding experienced senior care operators is a time-
consuming and difficult task.  As of March 19, 1999, Lenox Healthcare, Inc.
("Lenox") operated the three nursing homes in Massachusetts, which accounted for
approximately 10.8% of the Company's total rental revenues in 1998.  If Lenox,
or any of the Company's other senior care operators, experience financial
difficulties and the Company is unable to re-lease the affected Senior Care
Properties in a timely manner, the earnings of the Company may be adversely
affected.


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 Senior Care 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 

                                       4
<PAGE>
 
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 Senior Care 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 were present in the
Sherman Oaks Medical Plaza.  The Company removed the asbestos in 1994 in
connection with the renovation of this building.  Limited quantities of non-
friable asbestos were also discovered in the Maryland Gardens facility and
Riverdale Gardens Nursing Home.  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 requires 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.

   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 Senior Care
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.

                                       5
<PAGE>
 
         [G&L REALTY CORPORATION ORGANIZATIONAL CHART APPEARS HERE]

1)   The Company, a Maryland corporation, was formed to continue the ownership,
     management, acquisition and development activities previously conducted by
     G&L Development, a California general partnership.
2)   The Company is the sole general partner and 86% owner of the Operating
     Partnership. Of its 86% interest, 1% is held as general partner and 85% is
     held as a limited partner. Individual limited partners own the Operating
     Partnership's remaining 14% partnership interest.
3)   G&L Realty Financing II, Inc. a Delaware corporation and a wholly owned
     subsidiary of the Company, is the sole general partner and 1% owner of the
     Realty Financing Partnership.
4)   G&L Medical, Inc. a Delaware corporation and a wholly owned subsidiary of
     the Company, is the sole general partner and 1% owner of the Medical
     Partnership.
5)   The Operating Partnership is the sole general partner and 61.75% owner of
     the Roxbury Partnership. Individual limited partners own the remaining
     38.25% limited partnership interest.
6)   G&L Management Delaware Corp., a Delaware corporation and a wholly owned
     subsidiary of the Company, is the managing member and the owner of a 1%
     membership interest of the GL/PHP.
7)   G&L Senior Care Inc., a Delaware corporation and a wholly owned subsidiary
     of the Company, is the managing member and the owner of a 1% membership
     interest of G&L Gardens.
8)   G&L Hampden, Inc., a Delaware corporation and a wholly owned subsidiary of
     the Company, is the sole managing member and 1% owner of Hampden.
9)   G&L Holy Cross Managers Corp., a California corporation and a wholly owned
     subsidiary of the Company, is the managing member of G&L Holy Cross.
10)  G&L Burbank Managers Corp., a California corporation and a wholly owned
     subsidiary of the Company, is the managing member of G&L Burbank.
11)  G&L Tustin Managers Corp., a California corporation and a wholly owned
     subsidiary of the Company, is the managing member of G&L Tustin.
12)  The Operating Partnership is sole managing member and 80% owner of
     Valencia. The remaining 20% is owned by Landmark Healthcare Facilities,
     LLC.
13)  The Operating Partnership is co-managing member and 93% owner of Pacific
     Gardens. The remaining 7% is owned by ASL Santa Monica, Inc.
14)  Hoquiam, Lyons and Coronado are owned 100% by the Operating Partnership.
15)  GLN Capital is a Delaware limited liability company owned 49.9% by the
     Operating Partnership and 50.1% by Nomura.
16)  Valley Convalescent is a California limited liability company owned 50% by
     the Operating Partnership and 50% by Continuum Healthcare, Inc.
17)  San Pedro is a California limited liability company owned 50% by the
     Operating Partnership and 50% by Gary Grabel.
18)  Penasquitos LLC is a California limited liability company owned 50% by the
     Operating Partnership and 50% by Parsons House, LLC.
19)  Penasquitos Inc. is a California Corporation owned 50% by the Operating
     Partnership and 50% by Parsons House, LL
20)  Pacific Gardens Corp. is a California corporation owned 93% by the
     Operating Partnership in the form of non-voting preferred stock and 7% by
     ASL Santa Monica, Inc.
21)  Eagle Run is a California limited liability company owned 50% by the
     Operating Partnership and 50% by Parsons House, LLC.

                                       6
<PAGE>
 
ITEM 2.  PROPERTIES

   The MOB Properties consist of 25 high quality MOBs, an adjacent parking
facility and two retail facilities and three MOBs indirectly-owned by the
Company. The Senior Care Properties consist of 7 Senior Care Facilities and one
hospital. As of January 31, 1999, the MOBs were approximately 92.8% leased to
over 390 tenants and the Senior Care Properties were approximately 76.4%
occupied. The Company's MOB tenants are primarily established medical
practitioners representing a cross section of medical practices.


Description of the MOB Properties and Senior Care Properties


MOB Properties

   The Company, through its MOB operations, acquires, develops, manages and
leases MOBs, 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.  Because
doctors now perform a variety of medical procedures in their offices, many MOBs
have become sophisticated ambulatory centers that allow for outpatient surgery
and procedures.  In addition, MOBs generally have higher maintenance
requirements in the public areas due to heavy foot traffic, many short
appointments that increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more 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 to accommodate
increased space needs and managing the tenant mix at properties to facilitate
referrals by practitioners with different specialties within the building.  The
Company stresses meeting these and other special demands of MOB tenants.

Senior Care Properties

   The Company, as part of its overall strategy, acquires, develops and leases
Senior Care Facilities.  The Company leases its Senior Care Properties to third
party senior care operators.  The operation of Senior Care Facilities 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 Senior Care Facilities 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.

   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 adversely affected by the new Medicare prospective payment system, cost
containment and other health care reform proposals.  Proposals that limit access
to medical care or reduce reimbursement for physicians' services may 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.

                                       7
<PAGE>
 
   The following tables set forth certain information regarding each of the MOB
Properties and Senior Care Properties as of January 31, 1999.  All of the MOB
Properties and Senior Care Properties are held in fee by the Company or, in the
case of jointly-owned properties, by the joint venture property partnership or
limited liability company.


                          MOB Properties--Summary Data
<TABLE>
<CAPTION>
                                            Number         Year         Rentable   Rented                     Total       Average
                                              of      Constructed or     Square    Square                   Annualized    Rent per
                Property                   Buildings  Rehabilitated      Feet(1)   Feet(2)   Occupancy(2)     Rent(3)     Sq. Ft.(4)
   ------------------------------------    ---------  --------------   ---------   -------   ------------  ------------  ----------
Southern California
-------------------
<S>                                        <C>        <C>              <C>         <C>       <C>           <C>           <C>
 405 N. Bedford, Beverly Hills,..........      1        1947/1987        43,002     36,770        85.5%      $1,554,000      $42.27
 415 N. Bedford, Beverly Hills(5)........      1           1955           5,720      5,720       100.0          224,000       39.10
 416 N. Bedford, Beverly Hills...........      1        1946/1986        40,571     36,581        90.2        1,380,000       37.72
 435 N. Bedford, Beverly Hills...........      1       1950/63/84        54,936     52,609        95.8        1,683,000       31.99
 435 N. Roxbury, Beverly Hills...........      1        1956/1983        42,455     41,059        96.7        1,486,000       36.21
 436 N. Bedford, Beverly Hills...........      1           1990          73,685     73,685       100.0        3,030,000       41.12
 Holy Cross Medical Plaza
   11550 Indian Hills Road
   Mission Hills.........................      1           1985          72,146     64,080        88.8        1,822,000       28.44
 St. Joseph's Medical Office Bldg.
   2031 West Alameda Ave.
   Burbank (6)...........................      1           1987          25,684     24,869        96.8          667,000       26.82
 Sherman Oaks Medical Plaza
   4955 Van Nuys Blvd.
   Sherman Oaks..........................      1        1969/1993        68,806     66,941        97.3        1,364,000       20.37
 Regents Medical Center
   4150 Regents Park Row , La Jolla......      1           1989          65,313     65,313       100.0        1,618,000       24.77
 Cigna HealthCare Building
   12701 Schabarum Ave.
   Irwindale.............................      1           1992          47,604     47,604       100.0        1,097,000       23.04
 Tustin--Medical Office I
   14591 Newport Avenue, Tustin..........      1           1969          18,092      9,959        55.0          151,000       15.13
 Tustin--Medical Office II
   14642 Newport Avenue, Tustin..........      1           1985          47,745     38,432        80.5          636,000       16.54
 1095 Irvine Boulevard, Tustin...........      1           1995          10,125     10,125       100.0          206,000       20.30
 San Pedro Medical Plaza
   1360 West 6/th/ Street, San Pedro.....      3        1963/1979        58,435     50,687        86.7        1,199,000       23.65
 Santa Clarita Valley Medical Center
   23861 McBean Pkwy, Santa Clarita......      5           1981          42,335     40,238        95.0          834,000       20.72
 Pier One Retail Center
   26771 Aliso Creek Road, Aliso Viejo ..      1           1998           9,100      9,100       100.0          182,000       20.00
 Lyons Avenue Medical Building
   24355 Lyons Avenue, Santa Clarita.....      1           1990          48,953     41,737        85.3          851,000       20.39
 Coronado Plaza
   1330 Orange Ave, Coronado.............      1        1977/1985        39,854     35,552        89.2          983,000       27.65
</TABLE> 
----------------------------------
See footnotes on following page                             Continued....
                                        

                                       8
<PAGE>
 
<TABLE>
<CAPTION>
New Jersey (7)
--------------
<S>                                        <C>        <C>     <C>        <C>         <C>      <C>            <C>
   2103 Mt. Holly Rd, Burlington.........    1        1994     12,560     12,560     100.0        435,000    34.63
   150 Century Parkway, Mt. Laurel.......    1        1995     12,560     12,560     100.0        391,000    31.16
   274 Highway 35, South Eatontown.......    1        1995     12,560     12,560     100.0        481,000    38.30
   80 Eisenhower Drive, Paramus..........    1        1994     12,675     12,675     100.0        422,000    33.28
   16 Commerce Drive, Cranford...........    1        1963     17,500     17,500     100.0        492,000    28.10
   4622 Black Horse Pike, May Landing....    1        1994     12,560     12,560     100.0        438,000    34.83
                                            --                -------    -------              -----------
Total/Weighted average of
   MOB Properties........................   31                885,876    822,376      92.8%   $23,442,000   $28.51
                                            ==                =======    =======              ===========

Developments (8)
---------------
   Santa Clarita Valley Medical Center
        23861 McBean Pkwy, Santa Clarita     1     1998/1999   43,911     26,768      62.3%       668,168    24.96
   Hoag Hospital MOB
        26671 Aliso Creek Road, Aliso        
        Viejo                                1     1998/1999   33,000     33,000     100.0        750,000    22.73
   Pacific Park
        5 Journey Road, Aliso Viejo          1     1998/1999   22,300     16,950      76.0        427,140    25.20
                                            --                -------    -------              -----------   ------
Total/Weighted average of
    Developments                             3                 99,211     76,558      77.2%   $ 1,845,000   $24.10
                                            --                -------    -------              -----------

Total/Weighted average of all               34                985,087    898,934      91.3%   $25,287,000   $28.12
    MOB Properties (including               ==                =======    =======              ===========
     Developments)
</TABLE>

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 1999; no rent
     is assumed from management space.
4)   Average rent per square foot is calculated based upon third-party leased
     space as of January 31, 1999.
5)   This property consists of retail space and parking facilities.
6)   The St. Joseph's Professional Building was acquired from the Sisters of
     Providence, who guaranteed up to an annual gross rent of $765,000 per year
     through October 31, 1998; however, the guarantee was limited to a maximum
     annual reimbursement of $225,000.
7)   All six facilities were acquired in February 1997. Prior to acquisition the
     previous owner operated the facilities as an acute care MOB. Due to the PHP
     bankruptcy discussed below, all six facilities were vacant as of March 31,
     1999.
8)   Developments consist of MOB properties under construction as of January 31,
     1999. Occupancy and rental information is based on pre-leased space as of
     January 31, 1999.

                                       9
<PAGE>
 
                     Senior Care Properties--Summary Data

<TABLE>
<CAPTION>


                                   Number          Year                                                              Total
                                     of       Constructed or    Date     Number of                    Purchase     Annualized
             Property             Buildings   Rehabilitated    Leased    Beds/Units   Occupancy(1)      Price         Rent
    ---------------------------   ---------   --------------   -------   ----------   ------------   -----------   ----------
Southern California
-------------------
<S>                               <C>         <C>              <C>       <C>          <C>            <C>           <C>
   Pacific Gardens
     1437 Seventh Street,
     Santa Monica................      1           1990        6/30/98        92          96.2%      $11,210,000   $  960,000
   Tustin Hospital
     14662 Newport Avenue,
     Tustin.(3)..................      1           1969         5/1/97       183          19.0         2,545,000      421,000
Arizona
-------
   Maryland Gardens (4)
     31 West Maryland Avenue,
     Phoenix ....................      1         1951-1957      2/1/98        98          91.9         4,647,000      408,000
   Maryland Gardens II
     39 West Maryland Avenue,
     Phoenix.....................      1           1968           N/A         20          95.0         1,024,000      101,000
Massachusetts
-------------
   Riverdale Gardens
     42 Prospect Avenue,
     West Springfield ...........      1         1957-1975     10/1/97       168          88.7         5,655,000      762,000
   Chestnut Hill
     32 Chestnut Street,
     East Longmeadow.............      1           1984        10/1/97       123          91.2        10,627,000    1,433,000
   Mary Lyon
     34 Main Street,
     Hampden.....................      1           1986        10/1/97       100          91.0         3,744,000      505,000
Washington
----------
   Pacific Care Center
     3035 Cherry Street,
     Hoquiam.....................      1           1954        7/31/98       110          89.8         3,316,000      600,000
                                       -                                     ---          ----                     ----------

Total/Weighted average of all
   Senior Care Properties........      8                                     894          76.4%                    $5,190,000
                                       =                                     ===          ====                     ==========

       Developments
-----------------------------
Southern California
-------------------
   The Arbors
     12979 Rancho Penasquitos
     Boulevard,
     San Diego ..................      1         1998/1999        N/A        N/A           N/A         4,200,000        N/A
Nebraska
--------
   14325 Eagle Run Drive,
     Omaha ......................      1         1999/2000        N/A        N/A           N/A         1,100,000        N/A

<CAPTION>
                                          Average
                                           Annual
                                          Rent per
             Property                   Bed/Unit (2)
    ---------------------------         ------------
<S>                                     <C> 
Southern California
-------------------
   Pacific Gardens
     1437 Seventh Street,
     Santa Monica.....................    $10,435
   Tustin Hospital
     14662 Newport Avenue,
     Tustin.(3).......................      2,300
Arizona
-------
   Maryland Gardens (4)
     31 West Maryland Avenue,
     Phoenix .........................      4,163
   Maryland Gardens II
     39 West Maryland Avenue,
     Phoenix..........................      5,050
Massachusetts
-------------
   Riverdale Gardens
     42 Prospect Avenue,
     West Springfield ................      4,536
   Chestnut Hill
     32 Chestnut Street,
     East Longmeadow..................     11,650
   Mary Lyon
     34 Main Street,
     Hampden..........................      5,050
Washington
----------
   Pacific Care Center
     3035 Cherry Street,
     Hoquiam..........................      5,455
                                          -------

Total/Weighted average of all
   Senior Care Properties.............    $ 5,805
                                          =======

       Developments
-----------------------------
Southern California
-------------------
   The Arbors
     12979 Rancho Penasquitos
     Boulevard,
     San Diego .......................      N/A
Nebraska
--------
   14325 Eagle Run Drive,
     Omaha ...........................      N/A
</TABLE>
_______________________
1)   Occupancy is on a per-bed or unit basis.
2)   Average rent per bed is calculated based upon annualized rents as of
     January 31, 1999.
3)   Tustin Hospital is leased 100% to Pacific Health Corporation. Occupancy
     percentage of 19.0% represents average hospital census for January 1999.
4)   Lease expired on January 31, 1999.  Tenant is currently month-to-month.

                                       10
<PAGE>
 
MOB Properties

Southern California 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 ten
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, Beverly Hills

   The 405 North Bedford Drive MOB, built in 1947 and extensively remodeled in
1987, consists of 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.

   On March 31, 1998, St. John's Hospital lease expired.  St. John's Hospital
occupied approximately 37,000 square feet, or 75% of the building.  St. John's
Hospital had subleased much of its space to doctors affiliated with the
hospital.  Upon expiration of the lease, management began to sign leases with
the sub-tenants of St. John's Hospital.  Management has been successful in
signing the majority of these sub-tenants or finding new occupants.  Currently,
two tenants occupy more than 10% of the rentable square footage in the 405 North
Bedford property.  A surgery center occupies 6,019 square feet (approximately
14%) of the rentable square footage pursuant to a lease that provides for
monthly rent of $22,000.  The lease expires on August 31, 2004 and provides for
a five-year renewal option.  An obstetrician occupies 5,374 square feet
(approximately 12.5%) of the rentable square footage pursuant to a lease that
provides for monthly rent of $23,000.


 415 North Bedford Drive, Beverly Hills

   The 415 North Bedford Drive building is a four-level parking structure with
approximately 5,720 square feet of ground floor retail space for seven tenants.
The parking structure contains 316 tandem-striped spaces and is valet operated.


 416 North Bedford Drive, Beverly Hills

   The 416 North Bedford Drive property is a four-story 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.

   A plastic surgeon occupies 4,622 square feet or 11.3% of the rentable square
footage of the building, pursuant to a lease which provides for monthly rent of
$19,000.  The lease expires on November 30, 2002 and contains a five-year
renewal option.

 

                                       11
<PAGE>
 
 435 North Bedford Drive, Beverly Hills

   The 435 North Bedford Drive property is a four-story, 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, Beverly Hills

   The 435 North Roxbury Drive property is a four-story 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.

   Two tenants in 435 North Roxbury each occupy more than 10% of the rentable
square footage.  A dermatologist occupies 5,291 square feet (12.5% of the
rentable square footage) pursuant to a lease which provides for a monthly rental
of $17,000.  The lease expires September 30, 2001 and contains a provision for a
five-year renewal option.  An internist occupies 6,183 square feet (14.6% of the
rentable square footage) pursuant to a lease which provides for a monthly rental
of $19,000.  The lease expires on November 30, 1999.


 436 North Bedford Drive, Beverly Hills

   The 436 North Bedford Drive property is a three-story MOB with three levels
of subterranean parking.  Built in 1990, 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.


 Holy Cross Medical Plaza, Mission Hills

   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 skilled nursing facility, another MOB, a
magnetic resonance imaging center, and an outpatient diagnostic center.  Built
in 1984, the Holy Cross Medical Plaza is a three-story office building 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.

   Two tenants occupy more than 10% of the rentable square footage in the Holy
Cross Medical Plaza property.  Holy Cross Surgical Center occupies 12,456 square
feet (17.2% of the rentable square footage) pursuant to a lease that provides
for monthly rent of $41,000.  The lease expires October 31, 2006 and provides
for a ten-year renewal option.  Dialysis Center occupies 10,639 square feet
(14.7% of the rentable square footage) pursuant to a lease that provides for
monthly rent of $20,000.  The lease expires March 31, 2006 and provides for two,
five-year renewal options.


 St. Joseph's Professional Building, Burbank

   The St. Joseph's Professional Building is a steel frame, brick-facade
building, constructed in 1987, that features two floors of office space over
three levels of subterranean parking which can accommodate up to 100 vehicles.
The building is located one-quarter of a mile from St. Joseph's Hospital and is
directly across the street from the 

                                       12
<PAGE>
 
Walt Disney Company's world headquarters campus. Saint Joseph's Hospital
includes 658 beds and is owned by the Sisters of Providence, an organization
which owns other hospitals throughout North America. The St. Joseph's
Professional Building was acquired from the Sisters of Providence, who
guaranteed up to an annual gross rent of $765,000 per year through October 31,
1998; however, the guarantee was limited to a maximum annual reimbursement of
$225,000. Currently, the office building is fully leased. Since the acquisition,
the Company has negotiated with the existing tenants to extend their leases
beyond the rent guarantee period.

   Two tenants in the St. Joseph's Professional Building occupy more than 10% of
the rentable square footage.  Total Renal Care occupies 9,067 square feet (35.3%
of the rentable square footage) pursuant to a lease which provides for a monthly
rental of $22,000 plus expense reimbursements for excess utility consumption.
This lease expires October 31, 2000 and provides for one five-year renewal
option.  Two internists occupy 3,707 square feet (14.4%) of the rentable square
footage pursuant to two leases which provide for aggregate monthly rents of
$8,000.  The leases expire on October 31, 2001 and have five-year renewal
options.


 Sherman Oaks Medical Plaza, Sherman Oaks

   The Sherman Oaks Medical Plaza is a seven-story office building, 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.


 Regents Medical Center, La Jolla

   The Regents Medical Center is a three-story building 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.

   UCSD Orthomed, an affiliate of the University of California, occupies 11,166
square feet (approximately 16.8%) of the rentable area of the building pursuant
to leases which provide for an aggregate monthly rental of $26,000.  The leases
expire at various dates between January 31, 2000 and January 31, 2002.


 Cigna Health Care Building, Irwindale

   The Cigna Health Care Building in Irwindale, California is a two-story MOB,
constructed in 1992, on a site that provides two parking areas with a total of
244 spaces.  This property is 100% leased to Friendly Hills Healthcare Network,
Inc.  Rent obligations under the lease are guaranteed by Cigna Health Care,
Inc., the previous lessee of the property.  The lease, which provides for
monthly rent of $91,000 triple net, expires November 30, 2004 and provides for
two, five-year options.


 Tustin--MOB I

   The 14591 Newport Avenue building in Tustin, California is a two-story 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.

   Two tenants occupy more than 10% of the rentable square footage of the
building.  A general practice physician occupies 1,881 square feet
(approximately 10.4%) of the rentable area of the building pursuant to a lease

                                       13
<PAGE>
 
which provides for monthly rental revenue of $2,000.  The lease expires on May
31, 2003.  A neurologist occupies 2,954 square feet (approximately 16.3%) of the
rentable area of the building pursuant to leases which provide for monthly rent
of $4,000.  The leases expire on January 31, 2001.


 Tustin--MOB II

   The 14642 Newport Avenue building in Tustin, California is a four-story 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.

   Three tenants occupy more than 10% of the rentable square footage in the
14642 Newport Avenue Building.  Pacific Health Corporation leases the surgery
center and occupies 7,444 square feet (approximately 15.6%) of the rentable area
of the building pursuant to a lease that provides for a monthly rental of
$18,000.  The lease expires on November 30, 2001 and provides for one, five-year
renewal option.  Prospect Medical Systems, Inc. occupies 6,004 square feet
(approximately 12.6%) of the rentable area pursuant to leases which provide for
monthly rent of $10,000.  The leases expire on September 30, 2003.  A general
practice physician occupies 4,951 square feet (approximately 10.4%) of the
rentable area pursuant to a lease which provides for monthly rent of $2,000.
The lease expires on October 31, 1999.


 1095 Irvine Boulevard, Tustin

   The 1095 Irvine Boulevard building in Tustin, California 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.  The lease
provides for a monthly rental of $17,000 and expires on July 31, 2010.


 San Pedro Medical Plaza

   The San Pedro Medical Plaza in San Pedro, California is a 58,000 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.

   One tenant occupies more than 10% of the rentable square footage of the
building.  Cor Healthcare Medical Associates occupies 6,470 square feet
(approximately 11.1%) of the rentable area pursuant to a lease that provides for
monthly rent of $12,000.  The lease expires on July 31, 1999.


 Santa Clarita Valley Medical Center

   The Santa Clarita Valley Medical Center in Valencia, California is a 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 open-air asphalt parking lot can accommodate up to
435 vehicles.  The buildings are subject to a 60-year ground lease which
includes payments of $11,000 per month.

                                       14
<PAGE>
 
 Lyon Avenue Medical Building

   The Lyon Avenue Medical Building is a two-story, 49,000 square foot MOB
located in Valencia, California only  1/2 mile from the Santa Clarita Valley
Medical Center.  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.

   Two tenants occupy more than 10% of the rentable square footage of the
building.  Valencia Surgical Center occupies 7,212 square feet (approximately
14.7%) of the rentable area pursuant to a lease that provides for monthly rent
of $14,000.  The lease expires on September 1, 2005.  Two orthopedists occupy
6,233 square feet (approximately 12.7%) of the rentable area pursuant to leases
which provide for monthly rent of $10,000.  The leases expire on December 31,
2001 and provide for one, five-year renewal option.


 Coronado Plaza

   Coronado Plaza is a three-story, 40,000 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.

   Two tenants occupy more than 10% of the rentable square footage in Coronado
Plaza.  Wendy's San Diego Restaurant occupies 3,684 square feet (approximately
10.2%) of the rentable area pursuant to a lease that provides for monthly rent
of $9,000.  The lease expires on May 31, 2007 and provides for one, five-year
renewal option.  Marie Calendar's Restaurant occupies 6,163 square feet
(approximately 15.7%) of the rentable area pursuant to leases which provide for
monthly rent of $12,000.  The leases expire on September 30, 2008 and provide
for two, five-year renewal options.
 

New Jersey Properties
---------------------

   As of August 15, 1997, a subsidiary of PHP Healthcare Corporation ("PHP")
leased 100% of the following properties from GL/PHP under the terms of a 17-year
net operating lease that provided for rent increases equal to the annual
increase in the Consumer Price Index, subject to a 5% maximum annual increase.
PHP guaranteed the obligations of its subsidiary under the lease.  On November
20, 1998, PHP and its subsidiary each filed a petition under Chapters 7 and 11,
respectively, of the U.S. Bankruptcy Code.  The subsidiary's Chapter 11
proceeding was converted to a Chapter 7 on November 23, 1998.  The facilities
were being operated by HIP.  HIP's operations were taken over by the
Commissioner on or about December 2, 1998.  The Commissioner continued to occupy
and lease the buildings and paid all rent owing for the period from November 20,
1998 through March 5, 1999.  By the end of March 1999, the Commissioner had
vacated the buildings.  The Company holds a $2.0 million security deposit in the
form of a $2.0 million note payable to PHP.  The Company is actively seeking to
re-lease the buildings and has already obtained a rental commitment from a
tenant for one of the buildings.


 150 Century Parkway, Mount Laurel Township

   The property is located in Burlington County and consists of a one-story MOB
containing a net rentable area of approximately 12,560 square feet.  The
building is situated on approximately 2.50 acres.

                                       15
<PAGE>
 
 80 Eisenhower Drive, Paramus Borough

   The property is located in Bergen County and consists of a one-story MOB
containing a net rentable area of approximately 12,675 square feet.  The
building is situated on approximately 2.27 acres.


 16 Commerce Drive, Cranford Township

   The property is located in Union County and consists of a two level MOB
containing a net rentable area of approximately 17,500 square feet.  The
building is situated on approximately 3.06 acres.


 4622 Black Horse Pike, Hamilton Township

   The property is located in Atlantic County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet.  The
building is situated on approximately 2.73 acres.


 2103 Mount Holly Road, Burlington Township

   The property is located in Burlington County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet.  The
building is situated on approximately 2.43 acres.

 274 Route 35, Eaton Town Borough

   The property is located in Monmouth County and consists of a one level MOB
containing a net rentable area of approximately 12,560 square feet.  The
building is situated on approximately 4.66 acres.


Senior Care Properties


Southern California Properties
------------------------------


Pacific Gardens

   Pacific Gardens is a 92-unit, 61,000 square foot, four-story Senior Care
Facility located in Santa Monica, California just two blocks from the beach.
The building contains a 3-story, subterranean parking garage for 112 vehicles.
GLH Pacific Gardens Corp., a joint venture with ASL Santa Monica, Inc. in which
the Company owns 93% of the equity in the form of non-voting preferred stock,
leases the facility for triple net base rental payments of $80,000 per month as
of January 31, 1999.  On January 1, 2000, the monthly base rent increases to
$105,000.  The lease expires on June 30, 2003, although either landlord or
tenant can terminate the lease without cause upon at least 90 days written
notice after June 30, 2001.


 Tustin Hospital

   The 14662 Newport Avenue building in Tustin, California is a single-story,
183-bed, 101,000 square foot hospital that was developed in two phases beginning
in 1969 and ending in 1974.  The hospital includes a full service emergency
room, five operating rooms, an intensive care ward, administrative offices,
conference rooms, kitchen and cafeteria, pharmacy facilities, gift shop, x-ray
facilities and a basement service area.  The hospital has an emergency back-up
generator with a 10,000-gallon underground fuel tank that complies with current
environmental requirements.  The hospital was vacant when the Company acquired
the property on June 14, 1996.  As of May 1, 1997, the hospital was 100% leased
to Pacific Health Corporation.  The lease provides for triple net 

                                       16
<PAGE>
 
rental payments which commenced in January 1998. Rental payments for the months
of October through December 1997 were deferred until July 1998, at which time
the monthly rent was increased from $33,000 to approximately $35,000. The lease
expires June 30, 2002 and provides for three, five-year renewal options. In July
1997, the Company granted Pacific Health Corporation an option, which expires on
July 1, 2001, to purchase the hospital for $5.0 million.


Arizona Properties
------------------

 Maryland Gardens

   Maryland Gardens is a 98-bed skilled nursing facility located in Phoenix.
The facility is situated on approximately 1.84 acres and is leased to Stefan
Healthcare, Inc. ("Stefan") under terms of a lease which provides for triple net
rental payments in the amount of $34,000 per month.  The lease was for one year
and ended on January 31, 1999.  Stefan is currently operating the facility on a
month-to-month basis.

 Maryland Gardens II

   Maryland Gardens II is a 20-unit, 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 skilled nursing facility.  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.


Massachusetts Properties
------------------------

 Hampden Properties

   In October 1997, the Company acquired three Massachusetts nursing home
facilities (collectively, "the Hampden Properties") from Hampden Nursing Homes,
Inc. ("Hampden") for total consideration of approximately $20.0 million.  Of
this amount, the Company borrowed $6.0 million from Nomura at an interest rate
of 8.62% per annum. (See discussion of $6.0 million note payable below in "Debt
Structure").  In conjunction with the acquisition of the Hampden Properties, the
Company entered into a 15-year net-operating lease with Iatros Health Networks,
Inc. ("Iatros"), a skilled nursing care operator.  The operating lease provides
for monthly lease payments of $225,000 and fixed annual increases of 2.0% per
year at the end of each of the first seven years.  Thereafter, annual increases
are based upon the greater of 2.0% of the previous year's rent or 2.5% of the
increase in gross receipts derived from the operation of the Hampden Properties
in excess of $17,750,000.  On October 8, 1998, Iatros voluntarily gave up
possession of the facilities because of severe financial problems.  Lenox
Healthcare, Inc. ("Lenox") replaced Iatros as the operator of the nursing homes
for an initial term ending on March 31, 1999.  A proposed amendment extending
the term until December 31, 1999 is currently being negotiated.

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.

                                       17
<PAGE>
 
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.


Washington Property
-------------------

 Pacific Care Center

   Pacific Care Center is a 110-bed skilled nursing facility located in Hoquiam.
The facility is leased on a triple net basis to Stefan for $50,000 per month.
The lease expires on July 31, 2003.


Leases

  MOB Properties

   As of January 31, 1999, the MOB Properties were approximately 92.8% leased.
New leases and extensions are normally granted for a minimum of 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 operating the building.  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

<TABLE>
<CAPTION>
                                                                Number of       Approximate                       % of
                                                                 Leases        Total Rented                   Total Annual
                      Year of Lease Expiration                 Expiring(1)    Square Feet (1)   Annual Rent       Rent
                    -------------------------------------      ------------   ---------------   -----------   -------------
                    <S>                                        <C>            <C>               <C>           <C>
                    1999.................................           49            79,977        $ 2,184,000       10.4%
                    2000.................................           61            87,193          2,668,000       12.7%
                    2001.................................           70           122,779          3,403,000       16.1%
                    2002.................................           47            80,262          2,294,000       10.9%
                    2003.................................           41            66,665          1,810,000        8.6%
                    2004.................................           12            70,579          1,786,000        8.5%
                    2005.................................           13            28,376            819,000        3.9%
                    2006.................................           16            46,398          1,461,000        6.9%
                    2007.................................            8            30,766          1,094,000        5.2%
                    2008.................................            5            16,105            524,000        2.5%
                    2009 or later........................            9            96,621          3,024,000       14.3%
                                                                   ---           -------        -----------      -----
                              Total                                331           725,721        $21,067,000      100.0%
                                                                   ===           =======        ===========      =====
</TABLE>

                                       18
<PAGE>
 
_______________________________________________
1)    Does not include month-to-month leases or vacant space. There are 86 
      month-to-month tenants who occupy approximately 93,000 square feet of
      space and pay approximately $185,000 per month in rent.

   The Company was successful in obtaining lease renewals, achieving a weighted
average renewal rate of approximately 86.7% on MOB leases that expired during
1998.  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.


The following table sets forth the scheduled annual rent increases for the
leases with respect to the MOB Properties in effect at December 31, 1998.

                        MOB Properties--Rent Increases
<TABLE>
<CAPTION>
                                                                                          % of Total Rented
                             Scheduled Annual Rent Increases           Square Feet(1)     Square Feet(1)(2)
                             -------------------------------         -----------------   -------------------
                        <S>                                           <C>                <C>
                        None (3).....................................       116,171             14.2%
                        Consumer Price Index.........................       353,610             43.3%
                        2.00%........................................         7,532              0.9%
                        2.50%........................................        22,880              2.8%
                        2.75% .......................................         3,251              0.4%
                        3.00% .......................................        87,000             10.6%
                        3.20% .......................................         1,201              0.1%
                        3.50% .......................................         4,450              0.5%
                        4.00%........................................        34,167              4.2%
                        5.00%........................................       181,914             22.3%
                        8.00%........................................         5,440              0.7%
                                                                            -------            -----
                            Total                                           817,616            100.0%
                                                                            =======            =====
</TABLE>
______________________________
1)  Does not include 1.4% and 6.2% of the total rented square feet, which is
    management and vacant space, respectively.
2)  Percent of total rented square feet that has been rounded to the nearest
    tenth of one percent.
3)  Approximately 21% of these leases are month-to-month.

                                       19
<PAGE>
 
  The historical occupancy, rounded to the nearest tenth of one percent, of the
MOB Properties is shown in the following table:

                     MOB Properties--Historical Occupancy
<TABLE>
<CAPTION>
MOB Property                                                      1998        1997        1996        1995        1994
------------                                                    ---------   ---------   ---------   ---------   ---------
Southern California
-------------------
<S>                                                             <C>         <C>         <C>         <C>         <C>
  405 N. Bedford  .........................................        85.5%       97.4%      100.0%      100.0%       96.2%
  415 N. Bedford(1)........................................       100.0       100.0       100.0       100.0       100.0
  416 N. Bedford  .........................................        90.2        90.7        97.6       100.0       100.0
  435 N. Bedford  .........................................        95.8        93.9        93.1        89.2        85.3
  435 N. Roxbury  .........................................        96.7        93.5        93.6        95.6        91.7
  436 N. Bedford  .........................................       100.0       100.0        98.4        90.0        92.8
  Holy Cross Medical Plaza(2)..............................        88.8        92.2        93.1        94.7        87.7
  St. Joseph's Medical Building(3).........................        96.8       100.0       100.0       100.0       100.0
  Sherman Oaks Medical Plaza(2)............................        97.3        93.9        86.7        90.0        79.8
  Regents Medical Center(2)................................       100.0       100.0       100.0        90.9        87.6
  Cigna Health Care Building(2)............................       100.0       100.0       100.0       100.0       100.0
  1095 Irvine Boulevard(4).................................       100.0       100.0       100.0       100.0         N/A
  14591 Newport Avenue, Medical Office I(5)................        55.0        52.4        49.6         N/A         N/A
  14642 Newport Avenue, Medical Office II(5)...............        80.5        71.5        85.1         N/A         N/A
  San Pedro Medical Plaza (6)..............................        86.7         N/A         N/A         N/A         N/A
  Santa Clarita Valley Medical Center (6)..................        95.0         N/A         N/A         N/A         N/A
  26771 Aliso Creek Road (7)...............................       100.0         N/A         N/A         N/A         N/A
  24355 Lyons Avenue (6)...................................        85.3         N/A         N/A         N/A         N/A
  1330 Orange Avenue (6)...................................       100.0         N/A         N/A         N/A         N/A
New Jersey (8)
--------------
  2103 Mt. Holly Rd., Burlington...........................       100.0         N/A         N/A         N/A         N/A
  150 Century Parkway, Mt. Laurel..........................       100.0         N/A         N/A         N/A         N/A
  274 Highway 35, South Eatontown..........................       100.0         N/A         N/A         N/A         N/A
  80 Eisenhower Drive, Paramus.............................       100.0         N/A         N/A         N/A         N/A
  16 Commerce Drive, Cranford..............................       100.0         N/A         N/A         N/A         N/A
  4622 Black Horse Pike, May Landing.......................       100.0         N/A         N/A         N/A         N/A
                                                                  -----       -----       -----       -----    --------
Weighted average                                                   92.8%       93.7%       94.2%       90.9%       97.9%
                                                                  =====       =====       =====       =====       =====
</TABLE>
______________________________
1)   Retail space.
2)   Acquired in 1994.
3)   Acquired in December 1993.
4)   Placed in service in 1995.
5)   Acquired in June 1996 from a creditors committee. Previous operating
     statistics were not available.
6)   Property acquired in 1998.
7)   Property was built in 1998.
8)   All six facilities were acquired in February 1997. Prior to acquisition the
     previous owner operated the facilities as an acute care MOB. Due to the PHP
     bankruptcy discussed above, all six facilities were vacant as of March 31,
     1999.


                                       20
<PAGE>
 
  The following tables set forth the annualized base rent per square foot and
annualized base rent for the MOB Properties for the past five years.

         MOB Properties--Annualized Average Base Rent Per Square Foot

<TABLE>
<CAPTION>
MOB Property                                                      1998        1997        1996        1995        1994
------------                                                    ---------   ---------   ---------   ---------   ---------
Southern California
-------------------
<S>                                                             <C>         <C>         <C>         <C>         <C>
  405 N. Bedford  .........................................       $42.24      $47.58      $44.51       $41.64      $42.01
  415 N. Bedford(1)........................................        39.10       38.35       36.28        36.21       36.79
  416 N. Bedford  .........................................        37.72       38.05       36.89        37.04       40.88
  435 N. Bedford  .........................................        31.99       37.74       33.49        34.35       39.25
  435 N. Roxbury  .........................................        36.21       35.64       36.50        37.11       38.39
  436 N. Bedford  .........................................        41.12       42.08       39.84        42.13       44.71
  Holy Cross Medical Plaza(2)..............................        28.44       28.04       28.07        25.91       28.77
  St. Joseph's Medical Building(3).........................        26.82       27.19       27.03        29.12       29.92
  Sherman Oaks Medical Plaza(2)............................        20.37       20.19       22.90        23.32       23.57
  Regents Medical Center(2)................................        24.77       24.18       24.93        27.11       28.38
  Cigna Health Care Building(2)............................        23.04       23.04       23.04        23.04       23.01
  1095 Irvine Boulevard(4).................................        20.30       19.87       19.46        17.14        N/A
  14591 Newport Avenue, Medical Office I(5)................        15.13       13.39       14.66         N/A         N/A
  14642 Newport Avenue, Medical Office II(5)...............        16.54       13.19       12.34         N/A         N/A
  San Pedro Medical Plaza (6)..............................        23.65        N/A         N/A          N/A         N/A
  Santa Clarita Valley Medical Center (6)..................        20.72        N/A         N/A          N/A         N/A
  26771 Aliso Creek Road (7)...............................        20.00        N/A         N/A          N/A         N/A
  24355 Lyons Avenue (6)...................................        20.39        N/A         N/A          N/A         N/A
  1330 Orange Avenue (6)...................................        27.01        N/A         N/A          N/A         N/A
New Jersey (8)
--------------
  2103 Mt. Holly Rd., Burlington...........................        34.63       34.63        N/A          N/A         N/A
  150 Century Parkway, Mt. Laurel..........................        31.16       31.16        N/A          N/A         N/A
  274 Highway 35, South Eatontown..........................        38.30       38.30        N/A          N/A         N/A
  80 Eisenhower Drive, Paramus.............................        33.28       33.28        N/A          N/A         N/A
  16 Commerce Drive, Cranford..............................        28.10       28.10        N/A          N/A         N/A
  4622 Black Horse Pike, May Landing.......................        34.83       34.83        N/A          N/A         N/A

       Weighted average....................................       $28.51      $30.69      $29.81       $31.70      $34.01

</TABLE>
--------------------------------
1)   Retail space.
2)   Acquired in 1994.
3)   Acquired in December 1993.
4)   Placed in service in 1995.
5)   Acquired in June 1996 from a creditors committee. Previous operating
     statistics were not available.
6)   Property acquired in 1998
7)   Property was built in 1998.
8)   All six facilities were acquired in February 1997. Prior to acquisition the
     previous owner operated the facilities as an acute care MOB. Due to the PHP
     bankruptcy discussed above, all six facilities were vacant as of March 31,
     1999


                                       21
<PAGE>
 
                     MOB Properties--Annualized Base Rent
                            (Amounts in Thousands)
                                        
<TABLE>
<CAPTION>
     MOB Property                                                 1998        1997        1996        1995        1994
     ------------                                              ---------   ---------   ---------   ---------   ---------
Southern California
-------------------
<S>                                                             <C>         <C>         <C>         <C>         <C>
  405 N. Bedford  .........................................      $ 1,554     $ 2,125     $ 2,183     $ 2,033     $ 1,904
  415 N. Bedford(1)........................................          224         219         217         216         210
  416 N. Bedford  .........................................        1,380       1,399       1,468       1,511       1,658
  435 N. Bedford  .........................................        1,683       1,630       1,718       1,690       1,660
  435 N. Roxbury  .........................................        1,487       1,412       1,450       1,507       1,495
  436 N. Bedford  .........................................        3,030       3,101       3,090       2,988       3,222
  Holy Cross Medical Plaza(2)..............................        1,822       1,864       1,896       1,749       1,785
  St. Joseph's Medical Building(3).........................          667         698         694         758         764
  Sherman Oaks Medical Plaza(2)............................        1,364       1,291       1,378       1,457       1,277
  Regents Medical Center(2)................................        1,618       1,570       1,555       1,640       1,531
  Cigna Health Care Building(2)............................        1,097       1,097       1,097       1,097       1,097
  1095 Irvine Boulevard(4).................................          206         201         197         174         N/A
  14591 Newport Avenue, Medical Office I(5)................          151         127         120         N/A         N/A
  14642 Newport Avenue, Medical Office II(5)...............          636         452         504         N/A         N/A
  San Pedro Medical Plaza (6)..............................        1,199         N/A         N/A         N/A         N/A
  Santa Clarita Valley Medical Center (6)..................          834         N/A         N/A         N/A         N/A
  26771 Aliso Creek Road (7)...............................          182         N/A         N/A         N/A         N/A
  24355 Lyons Avenue (6)...................................          851         N/A         N/A         N/A         N/A
  1330 Orange Avenue (6)...................................          755         N/A         N/A         N/A         N/A
New Jersey (8)
--------------
  2103 Mt. Holly Rd., Burlington...........................          435         435         N/A         N/A         N/A
  150 Century Parkway, Mt. Laurel..........................          391         391         N/A         N/A         N/A
  274 Highway 35, South Eatontown..........................          481         481         N/A         N/A         N/A
  80 Eisenhower Drive, Paramus.............................          422         422         N/A         N/A         N/A
  16 Commerce Drive, Cranford..............................          492         492         N/A         N/A         N/A
  4622 Black Horse Pike, May Landing.......................          438         438         N/A         N/A         N/A
                                                                 -------     -------   ---------   ---------   ---------
       Total                                                     $23,442     $19,845     $17,567     $16,820     $16,603
                                                                 =======     =======   =========   =========   =========
</TABLE>
----------------------------------
 1)   Retail space
 2)   Acquired in 1994.
 3)   Acquired in December 1993.
 4)   Placed in service in 1995.
 5)   Acquired in June 1996 from a creditors committee. Previous operating
      statistics were not available
 6)   Property acquired in 1998
 7)   Property built in 1998.
 8)   All six facilities were acquired in February 1997 and operated as an
      acutecare MOB by the previous owner. Due to the PHP bankruptcy discussed
      above, all six facilities were vacant as of March 31, 1999.


                                       22
<PAGE>
 
  Senior Care Properties


  The following lease expiration table sets forth the number, square feet,
number of beds and associated annual rent for the Company's Senior Care
Properties.

<TABLE>
<CAPTION>
                           Senior Care Properties - Lease Expirations
                                                                                         % of
                                 Number of     Approximate                              Total
                                   Leases     Total Rented    Number                    Annual
 Year of Lease Expiration (1)     Expiring     Square Feet    of Beds   Annual Rent      Rent
------------------------------   ----------   -------------   -------   -----------   ----------
<S>                              <C>          <C>             <C>       <C>           <C>
     1999(2)...................       1              24,862      98      $  408,000       8.1%
     2001......................       1              60,566      92         960,000      19.0%
     2002......................       1             101,000     183         421,000       7.8%
     2003......................       1              29,500     110         600,000      11.8%
     2012(3)...................       1             135,955     391       2,700,000      53.3%
                                                                ---      ----------     -----
                                                                874      $5,089,000     100.0%
                                                                ===      ==========     =====
</TABLE>
----------------------------
1)   Table does not include Maryland Gardens II.
2)   On February 1, 1998, the Company signed a lease with Stefan. It provided
     for triple net rental payments in the amount of $34,000 per month and
     expired on January 31, 1999. Stefan is currently operating the facility on
     a month-to-month basis.
3)   Only one operating lease was signed for all the Hampden Properties which
     consist of the Riverdale Gardens Nursing Home, Chestnut Hill Nursing Home,
     and Mary Lyon Nursing Home.

  The historical occupancy, rounded to the nearest tenth of one percent, of the
Senior Care Properties is shown in the following table:


                Senior Care Properties--Historical Occupancy(1)

<TABLE>
<CAPTION>
                      Senior Care Property             1998        1997        1996        1995        1994
                      --------------------           ---------   ---------   ---------   ---------   ---------
                    Southern California
                    -------------------
                    <S>                              <C>         <C>         <C>         <C>         <C>
                       Tustin Hospital(2)........      19.0%        0.0%        0.0%         (2)         (2)
                       Pacific Gardens............     96.2%       93.8%       94.6%       88.1%         (3)
                    Arizona
                    -------
                       Maryland Gardens ..........     91.9%       96.4%       96.0%       97.0%       92.9%
                       Maryland Gardens II........     95.0%         (3)         (3)         (3)         (3)
                    Massachusetts
                    -------------
                       Riverdale Gardens..........     88.7%       92.9%       87.6%       90.3%       96.3%
                       Chestnut Hill..............     91.2%       89.4%       93.2%       95.3%       96.1%
                       Mary Lyon..................     91.0%       87.0%       93.7%       97.6%       97.6%
                    Washington
                    ----------
                       Pacific Care Center........     89.8%         (3)         (3)         (3)         (3)
</TABLE>
-----------------------------------
1)   Occupancy is on a per-bed or unit basis.
2)   Tustin Hospital (acquired in 1996 and leased in 1997) opened in the first
     quarter of 1998. Tustin Hospital, previously operated as a full service
     community hospital, was closed in March 1996 and subsequently acquired in
     June 1996 from a creditors' committee. Previous operating statistics are
     not available.
3)   Information not available.


                                       23
<PAGE>
 
  The following tables set forth the annualized base rent per bed or unit for
the Senior Care Properties for the past five years.

     Senior Care Properties--Annualized Average Base Rent Per Bed or Unit

<TABLE>
<CAPTION>
                Senior Care Property                    1998       1997        1996       1995       1994
                --------------------                  --------   ---------   --------   --------   --------
Southern California
-------------------
<S>                                                   <C>        <C>         <C>        <C>        <C>
   Tustin Hospital..................................   $ 2,300    $ 2,164         (2)        (2)        (2)
   Pacific Gardens..................................    10,435         (3)        (3)        (3)        (3)
Arizona
-------
   Maryland Gardens(1).............................      4,163      4,163         (2)        (2)        (2)
   Maryland Gardens II..............................     5,050         (3)        (3)        (3)        (3)
Massachusetts
-------------
   Riverdale Gardens................................     4,536      4,536         (2)        (2)        (2)
   Chestnut Hill....................................    11,650     11,650         (2)        (2)        (2)
   Mary Lyon .......................................     5,050      5,050         (2)        (2)        (2)
Washington
----------
   Pacific Care Center..............................     5,455         (3)        (3)        (3)        (3)

         Weighted average...........................   $ 5,805    $ 5,214         --         --         --
</TABLE>
-------------------------------------
1)   On February 1, 1998, the Company signed a new lease with Stefan providing
     for triple net rental payments in the amount of $34,000 per month. The
     lease expired on January 31, 1999. Stefan is currently operating the
     facility on a month-to-month basis.
2)   This facility was previously managed by the owner and was not subject to a
     lease.
3)   Information not available.
 

                                       24
<PAGE>
 
Senior Care Loans


  Lending Operations

   As of December 31, 1998, the Company had ten loans outstanding which total
approximately $15.6 million before reserves of $3.5 million. Two of the ten
loans, which total approximately $12.9 million before reserves, are first deeds
of trust secured by healthcare facilities in California and Maryland.  The ten
loans are described in the following paragraphs.

   On June 17, 1996, the Company funded a $6.1 million loan for the acquisition
of a nursing home facility in Baltimore, Maryland (the "Carroll Manor facility")
by Heritage Care, Inc. ("Heritage Care"), a non-profit corporation. The Company
received a first deed of trust on that facility and Carroll Manor, Inc.
("Carroll Manor"), the seller, received a second deed of trust which secures its
$500,000 loan to Heritage Care. Heritage Care is currently in default under the
$6.1 million loan, which matured on March 31, 1997 (including loan extensions)
and which currently bears interest at a rate of 15.0% per annum (the default
rate). The balance owing on the loan as of December 31, 1998 is $9.3 million. In
addition to the $6.1 million, the Company made additional advances in 1997,
which total $2.6 million, to enable Heritage Care to meet its payroll and other
current expenses necessary to remain in operation and thereby protect the value
of the Company's security interest in the Carroll Manor facility. The additional
advances are secured by the Company's first deed of trust pursuant to the
language thereof and are therefore secured loans, although they are subordinate
in priority to the $500,000 second trust deed in favor of Carroll Manor. The
facility is currently being operated by Future Care, an experienced Maryland
operator of nursing homes. Future Care took over operations on or about June
1997 and has turned around the operations and has substantially increased the
occupancy and therefore the profitability of the facility. As a result, the
Company received $1.0 million in debt service payments from the facility in
1998. During 1998, the Carroll Manor facility was appraised for $11.5 million
and the Company is currently reviewing its exit strategies with respect to the
loan to Heritage Care, which include the possibility of (i) causing the transfer
of the Carroll Manor facility to another non-profit entity that could obtain
long-term financing to replace the existing indebtedness or (ii) taking title to
the facility through foreclosure and subsequently leasing it to an operator or
selling it to a third party.

   In December 1997, the Company funded $4.6 million into an escrow, to be
loaned to Aspen Paso Robles, Inc. ("Aspen") at the close of escrow. This loan
was to be secured by (i) a 59-bed nursing and rehabilitation center in Chico,
California; (ii) a 38-bed skilled nursing facility in Paso Robles, California;
and (iii) a 57-bed intermediate care center in Beaumont, California. The loan
closed on February 25, 1998 although certain funds were held in escrow pending
the close of the Chico and Beaumont facilities. The purchase of the Chico
facility subsequently closed. The funds for the Beaumont facility remained in
escrow until October 1998 at which time the Company secured the return of those
funds and applied them to pay down the loan balance to $3.6 million. The
remaining $3.6 million balance of the loan is currently in default and the two
facilities securing the loan have been closed. The Company is currently
reviewing its options concerning the recovery of this loan, which include (i)
taking title to the facilities through foreclosure and subsequently leasing them
to an operator or selling them to a third party and (ii) pursuing legal action
against the borrower and others based on allegations of fraud and negligent
misrepresentation. Due to the uncertainty surrounding the recovery of the loan,
the Company has increased its loan loss reserves for a portion of the
outstanding loan balance.

   On April 25, 1996, the Company entered into a loan participation agreement
with Iatros to fund two loans secured by third and fifth trust deeds in the
amount of approximately $750,000 and $1.1 million, respectively, to facilitate
the purchase of a nursing home in Olathe, Kansas (the "Crystal Park facility").
Following the acquisition of the Crystal Park facility, the borrower engaged an
affiliate of Iatros to operate the facility. On May 16, 1997, the borrower filed
for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and engaged a new
operator for the Crystal Park facility, which has since closed. As of September
30, 1997, the Company's interest in the third and fifth trust deeds was
approximately $1.3 million, including principal (at face value) and accrued,
unpaid interest. In October 1997, the Company assigned its remaining interest in
the participation agreement and the promissory notes to Iatros in exchange for
an $800,000 note and title to the accounts receivable of the former owner of the
facility which had served as additional collateral for the promissory note. The
Company is still in the process of collecting 

                                       25
<PAGE>
 
these accounts receivable. The $800,000 note is due October 1, 2004 and accrues
interest at 10.0% per annum. Interest payments are due monthly based upon 5.0%
per annum of the outstanding balance. The promissory note is currently in
default and the Company has deemed it appropriate to reserve for this note.

   In addition to the notes on the Carroll Manor and Aspen facilities and the
$800,000 note due from Iatros, the Company had seven other loans outstanding at
December 31, 1998, with an aggregate face value of $1.7 million, excluding
approximately $0.3 million of additional accrued, unpaid interest.  The
following is a summary of the seven other loans as of December 31, 1998:

   .  $150,000 note secured by second deed of trust, interest payable
      semiannually at a rate of 10.0% per annum.

   .  $300,000 unsecured promissory note issued by Iatros due May 31, 1999,
      interest payable quarterly at 9.0% per annum. This note is currently in
      default because no interest payments have been made.

   .  $47,000 unsecured promissory note issued by Iatros due January 23, 1998,
      interest accrues at 14.0% per annum. This note is currently in default.

   .  $300,000 unsecured promissory note due April 1, 2003, interest payable
      quarterly at 8.0% per annum. This note is currently in default and accrues
      interest at the default rate of 12.0% per annum.

   .  $715,000 unsecured promissory notes payable upon demand, interest accrues
      at 12.0% per annum.

   .  $115,000 unsecured credit line due May 31, 1998, interest payable annually
      at 12.0% per annum. Unpaid principal accrues interest at 12.0% per annum
      after maturity date. This amount is currently in default.

   .  $44,000 unsecured promissory note due June 30, 1999, interest payable at
      10.0% per annum.

   Due to uncertainties, related to the Company's portfolio of mortgage loans
and bonds receivable, the Company increased its reserves for doubtful notes
receivable from $0.8 million at the end of 1997 to $3.5 million as of December
31, 1998.  Management believes that $3.5 million is appropriate in relation to
the status of the loans in the Company's portfolio as of March 19, 1999.


  GLN


   GLN was formed with Nomura for the purpose of making short-term loans to
third parties to purchase senior care facilities. GLN funded two loans during
1997, one of which was repaid in February 1998. Also in 1997, GLN purchased the
Company's Series A and B bonds issued by the Massachusetts Industrial Finance
Agency, Inc. that were secured by the Hampden Properties. These bonds were
repaid in late 1997 in full satisfaction of the outstanding balance. Since 1997,
GLN has not funded any additional loans. Due to market conditions and other
financial constraints, it does not appear likely that GLN will be used by the
Company or Nomura to make future loans. Any future lending activities involving
the Company will most likely be performed directly by the Company. As of
December 31, 1998, GLN had one loan outstanding.


   In May 1997, GLN acquired a 50% limited partnership interest in a limited
partnership created to acquire a recreational vehicle (''RV'') park in Florida
for approximately $1.2 million.  In connection with the acquisition of the RV
park, GLN funded a secured loan of approximately $1.5 million to the limited
partnership.  This loan bears interest at a rate of approximately 9.0% per
annum, matures on May 1, 1999, and provides for monthly payments of interest
only.  At maturity, the full $1.5 million will be due.  As of December 31, 1998,
monthly interest payments had not been made since March 1998.  However,
management does anticipate the repayment of this loan along with accrued
interest in 1999.  The RV park is operated by Camper Clubs of America, Inc.,
(''Camper Clubs'') the largest RV park operator in the U.S. and a limited
partner in the limited partnership.

                                       26
<PAGE>
 
Insurance

   The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the MOB Properties and Senior Care
Properties.  There are certain types of losses which 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 Senior Care Properties located in California and
Arizona, which amount represents approximately 23% of the net book value of
these properties.  This coverage is subject to a 10% deductible up to the amount
of insured loss. The Senior Care Properties located in Washington and
Massachusetts do not carry earthquake or flood insurance.  Twenty-four of the 36
properties directly 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 Senior Care
Properties owned by the Company are located in Phoenix, Arizona, in an area with
a history of flood activity.  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.


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

   No matters were submitted to the stockholders of the Company during the
quarter ended December 31, 1998.

                                       27
<PAGE>
 
                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is listed on the New York Stock Exchange under
the symbol GLR.  It has been the Company's policy to declare quarterly
distributions to holders of the Company's Common Stock so as to comply with
applicable sections of the Code governing REITs.  Operating Partnership units
("Units") and shares of Common Stock receive equal distributions.  Distributions
are declared and paid at the discretion of the Company's Board of Directors and
generally depend on the Company's cash flow, its financial condition, capital
requirements, the distribution requirements under the REIT provisions of the
Code and such other factors as the directors of the Company deem relevant.

     The table below sets forth the high and low sales prices of the Company's
stock for each full quarterly period from January 1, 1997 to March 19, 1999 as
reported by the New York Stock Exchange.  The table also includes, on a per
share basis, the quarterly cash distribution declared and paid to holders of the
Company's Common Stock and Units for each of the last two fiscal years and the
current year to date.

<TABLE>
<CAPTION>
                                                         High         Low      Distribution
                                                       ------------------------------------
     <C>       <S>                                     <C>         <C>         <C> 
     1999      First quarter (to March 19, 1999)...     15 3/16      11 7/8       $0.39
 
     1998      Fourth quarter......................    15 15/16      12 7/8        0.39
               Third quarter.......................     17 7/16    14 11/16        0.39
               Second quarter......................      18 1/8     17 3/16        0.39
               First quarter.......................      21 1/2      16 7/8        0.39
 
     1997      Fourth quarter......................      21 1/4      17 3/8        0.39
               Third quarter.......................          19      15 3/4        0.36
               Second quarter......................      17 7/8      15 3/8        0.36
               First quarter.......................          19          16        0.36
</TABLE>
______________________________

     The Company also paid monthly dividends to holders of the Company's Series
A and Series B 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.

     At various times during the year ending December 31, 1998, the Company
repurchased a total of 151,700 shares of the Company's Common Stock at an
average price of approximately $15.41 per share.

     The approximate number of holders of record of the shares of Common Stock
was 154 as of March 19, 1999.  This number does not represent the total number
of beneficial holders of Common Stock.

                                       28
<PAGE>
 
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,
1998, 1997, 1996, 1995 and 1994.  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, 1998, 1997, 1996, 1995 and 1994 and for each
of the years ended December 31, 1998, 1997, 1996, 1995 and 1994 have been
derived from audited financial statements.

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                               ---------------------------------------------------
                                                                 1998       1997       1996       1995       1994
                                                               -------    -------    -------    -------    -------
                                                                    (In thousands, except per share amounts)
<S>                                                            <C>        <C>        <C>        <C>        <C> 
Operating Data:
--------------
Revenues:
  Rental....................................................   $24,639    $20,307    $15,796    $16,801    $14,740
  Tenant reimbursements.....................................       781        707        728        732        587
  Parking...................................................     1,501      1,439      1,251      1,388      1,196
  Interest, loan fees and other.............................     4,517      4,322      6,712      1,835        113
  Other.....................................................       254        274        549        652        650
                                                               -------    -------    -------    -------    -------
    Total revenues..........................................    31,692     27,049     25,036     21,408     17,286
                                                               -------    -------    -------    -------    -------
Expenses:
  Property operations.......................................     6,171      6,280      5,696      5,199      4,317
  Earthquake costs (reimbursements).........................       ---        ---        ---       (133)       635
  Depreciation and amortization.............................     4,597      3,570      2,773      3,433      2,900
  Interest..................................................     8,683      9,088      9,322      6,986      4,422
  General and administrative................................     2,554      2,044      1,787      1,640      1,298
  Provision for doubtful accounts, notes and bonds
   receivable...............................................     5,603        ---        ---        ---        ---
  Loss on disposition of real estate........................       ---        ---      4,874        ---        ---
                                                               -------    -------    -------    -------    -------
    Total expenses..........................................    27,608     20,982     24,452     17,125     13,572
                                                               -------    -------    -------    -------    -------
  Income from operations before minority interests, equity
   in earnings of unconsolidated affiliates and extraordinary
   gains (losses)...........................................     4,084      6,067        584      4,283      3,714
  Equity in earnings of unconsolidated affiliates...........        80      1,195        ---        ---        ---
  Minority interest in consolidated affiliates..............      (225)      (156)      (129)      (131)      (167)
  Minority interest in Operating Partnership................       404       (545)       (65)      (418)      (353)
                                                               -------    -------    -------    -------    -------
  Income before extraordinary gains (losses)................     4,343      6,561        390      3,734      3,194
  Extraordinary gains (losses) (net of minority interest)...       ---        ---      9,311       (393)       ---
                                                               -------    -------    -------    -------    -------
  Net income................................................   $ 4,343    $ 6,561    $ 9,701    $ 3,341    $ 3,194
                                                               =======    =======    =======    =======    =======
Per share data:.............................................
  Basic:
    Before extraordinary (losses) gains.....................   $ (0.70)   $  0.91    $  0.10    $  0.91    $  0.77
    Extraordinary gains (losses)............................       ---        ---       2.29      (0.09)       ---
                                                               -------    -------    -------    -------    -------
    Net (loss) income.......................................   $ (0.70)   $  0.91    $  2.39    $  0.82    $  0.77
                                                               =======    =======    =======    =======    =======
  Fully Diluted:
    Before extraordinary (losses) gains.....................   $ (0.70)   $  0.89    $  0.09    $  0.91    $  0.77
    Extraordinary gains (losses)............................       ---        ---       2.24      (0.09)       ---
                                                               -------    -------    -------    -------    -------
    Net income..............................................   $ (0.70)   $  0.89    $  2.33    $  0.82    $  0.77
                                                               =======    =======    =======    =======    =======
</TABLE>

                                       29
<PAGE>
 
<TABLE>
<CAPTION>
                                                                       At or for the Year ended December 31,
                                                             --------------------------------------------------------
                                                               1998        1997        1996        1995        1994
                                                             --------    --------    --------    --------    --------    
                                                                     (In thousands, except per share amounts)
<S>                                                          <C>         <C>         <C>         <C>         <C> 
Funds From Operations (1):
-------------------------
Operating Partnership funds from operations...............   $    798    $  8,366    $  8,028    $  7,397    $  7,042
Minority interest in consolidated partnership.............         36        (917)       (847)       (747)       (700)
                                                             --------    --------    --------    --------    --------
Funds from operations.....................................   $    834    $  7,449    $  7,181    $  6,650    $  6,342
                                                             ========    ========    ========    ========    ========
Dividends paid............................................   $  6,354    $  5,953    $  5,525    $  5,067    $  6,821
                                                             ========    ========    ========    ========    ========
Payout ratio..............................................      761.9%       79.9%       76.9%       76.2%      107.6%

Dividends/distributions declared per share/unit...........   $   1.56    $   1.47    $   1.36    $   1.24    $   1.64

Cash Flow Data:
--------------
Net cash provided by operating activities.................   $ 12,666    $  9,045    $  5,726    $  7,862    $  7,632
Net cash used in investing activities.....................    (51,094)    (49,534)    (23,413)    (37,037)    (31,552)
Net cash provided by financing activities.................     26,198      53,833      17,283      28,675      21,849

Balance Sheet Data:
------------------
Land, buildings and improvements, net.....................   $186,751    $139,082    $ 93,231    $ 92,147    $ 92,715
Mortgage loans and bonds receivable, net..................     12,101      14,098      34,576      33,634         ---
Total investments.........................................    198,852     153,180     127,807     125,781      92,715
Total assets..............................................    219,499     189,380     135,996     133,347      98,384
Total debt................................................    134,880      95,172     109,025     111,627      74,018
Total stockholders' equity................................     79,584      88,924      22,448      18,267      21,311

Other Data:
----------
Ratio of earnings to fixed charges and preferred
 dividends (2)............................................      0.82x       1.36x       1.59x       1.61x       1.83x
Ratio of funds from operations to fixed
 charges and preferred dividends (3)......................      1.05x       1.77x       1.88x       2.09x       2.66x
Ratio of total debt to total market
 capitalization (4).......................................      50.6%       35.9%       63.8%       77.0%       52.4%
Number of properties......................................         36          25          15          12          12
</TABLE>
______________________________
1)   Funds from operations ("FFO") represents net income (computed in accordance
     with generally accepted accounting principles, consistently applied
     ("GAAP")), excluding gains (or losses) from debt restructuring and sales of
     property, plus depreciation of real property, less preferred stock
     dividends paid to holders of preferred stock during the period and after
     adjustments for consolidated and unconsolidated entities in which the
     Company holds a partial interest. FFO is computed in accordance with the
     definition adopted by the National Association of Real Estate Investment
     Trusts ("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 method of calculating FFO
     effective as of the NAREIT-suggested adoption date of January 1, 1996. FFO
     has been restated for all prior periods under the new method.
2)   For purposes of these computations, earnings consist of net income plus
     fixed charges. Fixed charges and preferred dividends consist of interest
     expense, capitalized interest, amortization of deferred financing costs and
     preferred dividends paid to preferred stockholders during the period.
3)   For purposes of these computations, ratio of funds from operations to fixed
     charges consists of FFO as defined in note (1) plus fixed charges and
     preferred dividends paid to preferred stock holders during the period.
     Fixed charges and preferred dividends consist of interest expense,
     capitalized interest, amortization of deferred financing costs and
     preferred dividends paid to preferred stockholders during the period.
4)   Total market capitalization as of the dates presented is long-term debt
     plus the aggregate market value of the Company's Common Stock and Units not
     owned by the Company, assuming one Unit is equivalent in value to one share
     of Common Stock plus the liquidation value of the Preferred Stock
     outstanding.

                                       30
<PAGE>
 
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.


Results of Operations

Comparison of the Year Ended December 31, 1998 Versus the Year Ended December
31, 1997

   Total revenues increased by $4.6 million, or 17%, from $27.1 million for the
year ended December 31, 1997, to $31.7 million in 1998.  Rents, tenant
reimbursements and parking revenues increased an aggregate $4.5 million, or 20%,
from a combined total of $22.4 million for the year ended December 31, 1997, to
$26.9 million in 1998.  Three million of the aggregate increase in rents, tenant
reimbursements and parking revenues was related to the acquisition of $23.2
million in rental properties and the remaining 19.5% interest in six New Jersey
MOBs since June 30, 1997.  The acquisition of five MOBs located in Valencia,
California in March 1998 accounted for an additional $0.8 million of this
increase and the purchase of two Senior Care Facilities located in Santa Monica,
California and Hoquiam, Washington during 1998 resulted in the remaining $0.7
million increase.  Interest, loan fees and related revenues derived from loans
secured by Senior Care Facilities increased by $0.2 million for the year ended
December 30, 1998 compared to 1997.  Interest and loan fee income increased $1.0
million due to interest and loan fees related to five loans that were originated
in late 1997 or early 1998 and increased $0.3 million due to interest earned on
excess cash from the November 1997 Preferred Stock offering and the April 1998
debt refinancing.  These increases were offset by a decrease of $0.6 million
related to a gain from the sale of bonds on March 31, 1997 and a decrease of
$0.4 million related to the repayment of $4.6 million of notes receivable during
1998.

   Total expenses increased by $6.6 million, or 32%, from $21.0 million for the
year ended December 30, 1997, to $27.6 million in 1998.  The primary reason for
this increase was a $5.6 million increase in the Company's allowance for
doubtful accounts, notes and bonds receivable as of December 31, 1998 (See
Liquidity and Capital Resources).  Excluding this increase in the Company's
allowance during the year ended December 31, 1998, operating expenses increased
by $1.0 million, or 5%, from $21.0 million for the year ended December 31, 1997
to $22.0 million in 1998.

   Property operating expenses decreased $0.1 million, or 2%, from $6.3 million
for the year ended December 31, 1997, to $6.2 million in 1998, despite a $0.4
million increase in operating costs related to the five MOBs acquired in March
1998.  This reduction is part of management's ongoing efforts to reduce property
operating costs and includes a $0.1 million reduction of property taxes as a
result of the Company's successful efforts in appealing the assessed value of
its MOB Properties.  Furthermore, the $18.8 million in MOB Properties and Senior
Care Properties acquired between June 30 and December 31, 1997 and the two
Senior Care Properties acquired during 1998 were leased on a triple-net basis,
thus the Company incurred no operating costs related to these buildings.

                                       31
<PAGE>
 
   Depreciation and amortization increased $1.0 million, or 28%, from $3.6
million for the year ended December 30, 1997 to $4.6 million in 1998.  Of this
increase, $0.7 million was attributable to property acquisitions made by the
Company since June 30, 1997.  The remaining $0.3 million increase consisted of
depreciation on building and tenant improvements, non-real estate assets and the
amortization of leasing commissions.

   Interest expense decreased $0.4 million, or 4%, from $9.1 million for the
year ended December 30, 1997, to $8.7 million in 1998.  This decrease in
interest expense was attributable to the reduction of $40 million of the
Company's notes payable and $19 million of borrowings on a line of credit which
were paid down with the net proceeds of $71.9 million from the two preferred
stock offerings in 1997 resulting in a $1.3 million decrease in interest
expense.  Interest expense also decreased due to the write-off of $0.4 million
in loan costs in 1997 associated with these notes payable and the capitalization
of $0.5 million of interest related to development projects in 1998.  This
decrease was offset by interest incurred of $1.5 million on $66.1 million of new
borrowings in 1998.

   General and administrative expense increased by $0.5 million, or 25%, from
$2.0 million for the year ended December 30, 1997 to $2.5 million in 1998.  This
increase is related to the Company's addition of acquisition, development and
support personnel.

   Net income decreased $2.2 million, or 34%, from $6.5 million for the twelve
months ended December 30, 1997 to $4.3 million in 1998.  This decrease is
primarily due to an increase in the Company's reserves of $5.6 million and a
decrease in equity in earnings from unconsolidated affiliates of $1.1 million
offset by a $4.5 million increase in rental revenues, tenant reimbursements and
parking revenues.


Comparison of the Year Ended December 31, 1997 Versus the Year Ended December
31, 1996

   Revenues increased approximately 8% or $2.0 million from $25.0 million for
the year ended December 31, 1996 to $27.0 million in 1997. This increase in
revenues was the result of a $4.7 million, or 26%, increase in rents, tenant
reimbursements and parking revenues which was partially offset by a $2.4
million, or 36%, decline in interest, loan fees and related revenues.  The $4.7
million increase in rents, tenant reimbursements and parking revenues resulted
from several events, including the addition, on February 28, 1997, of the six
newly acquired New Jersey properties, the commencement on May 1, 1997 of the
Tustin Hospital lease, the leasing, in August 1997, of the Maryland Gardens
facility to a nursing home operator, the acquisition of the Hampden Properties
and a full year of revenues in 1997 from the reacquired property located at 436
North Bedford Drive.

   During 1997, the Company made new investments in short-term secured loans
through GLN, an unconsolidated affiliate.  Interest, loan fees and related
revenues declined $2.4 million from $6.7 million during 1996 to $4.3 million in
1997, reflecting management's decision to make investments in secured trust
deeds through GLN for which the Company reports its pro-rata share of net income
from GLN but no revenues.  The Company accounts for its investments in
unconsolidated affiliates, such as GLN, using the equity method; therefore, the
Company's pro-rata share of net income from investment in such unconsolidated
affiliates is reported after income from operations.  The Company's pro-rata
share of net income from GLN totaled $1.2 million for 1997.

   Excluding the 1996 loss on disposition of rental property of $4.9 million,
operating expenses increased $1.4 million, or 7%, from $19.6 million during 1996
to $21.0 million in 1997.  Property operations increased $0.6 million, or 10%,
from $5.7 million in 1996 to $6.3 million in 1997.  The newly acquired
properties in New Jersey and the Hampden Properties are leased on a net basis
and therefore are not anticipated to add significant operating expense.  The
increased operating costs are the result of the acquisition of the Tustin
Hospital and adjacent MOBs in June 1996 and the reacquisition of the 436 North
Bedford Drive property in August 1996.  The Company also increased earthquake
insurance coverage on its properties located in Southern California which has
partially contributed to the rise in property operations expense.

   Depreciation and amortization expense increased 29% or $0.8 million, from 
$2.8 million in 1996 to $3.6 million in 1997. This increase in depreciation and
amortization expense is the result of depreciation expense related to the six
New Jersey properties, the Tustin Hospital and adjacent MOBs, the Maryland
Gardens facility, the Hampden Properties nursing homes and 436 North Bedford
Drive. Interest expense, which includes amortization

                                       32
<PAGE>
 
of deferred financing costs, declined $0.2 million from $9.3 million in 1996 to
$9.1 million in 1997. The decrease in interest expense resulted from the
reduction of long-term debt retired with the proceeds from the sale of Series A
and Series B Preferred Stock in the second and fourth quarters of 1997,
respectively. The new loans obtained in conjunction with the New Jersey and
Massachusetts acquisitions offset the reduction in debts and interest expense
from the preferred stock offerings.

   The Company's general and administrative expense increased 14%, or $0.3
million, in 1997 compared to 1996. This increase is related to the Company's
addition of acquisition and support personnel. In 1996, general and
administrative expense was $1.8 million representing a cost of 1.3% of total
assets of $136.0 million at December 31, 1996. Although general and
administrative expense increased in 1997 in absolute terms, in relative terms it
declined to 1.1% of total assets of $186.4 million at December 31, 1997.

   Net income declined $3.1 million from $9.7 million for the year ended
December 31, 1996 to $6.6 million in 1997 primarily due to non-recurring gains
and losses resulting from the disposition of one of the Company's properties in
1996. The primary components affecting this decline were the $9.3 million
extraordinary gain on retirement of secured debt which was partially offset by a
$4.9 million loss on disposition of the related rental property.

 
Liquidity and Capital Resources

   The Company's goal is to create wealth through growth in cash flow from its
real estate investments.  The Company believes that this goal is being realized
through its management expertise in the areas of acquisition, development,
financing, leasing and strategic management of the MOB Properties and Senior
Care Properties.  The Company seeks to maximize cash flow from its existing
properties and make new investments that are accretive to cash flow over the
long-term.  The Company's use of leverage is viewed as a means to grow its asset
base without diluting shareholder value.

   As of December 31, 1998, the Company's investment in real estate assets
totaled approximately $193.2 million and consisted of $177.6 million of
properties and $15.6 million of notes (before loan loss reserves of $3.5
million).  Secured debt outstanding at year end totaled $130.3 million of which
6.5% or $8.5 million is floating rate debt.

   During 1998, the Company invested approximately $49.9 million in real estate
investments either directly or through newly formed joint ventures.  Since
January 1, 1998, the Company has completed the following investments:

   .  $6.3 million acquisition of three MOBs in San Pedro, California through
      G&L Grabel San Pedro, LLC, a newly formed joint venture between the
      Operating Partnership and an experienced MOB manager. The Company
      contributed $1.2 million for a 50% equity interest in the newly formed
      joint venture and loaned the venture an additional $5.1 million to
      facilitate the purchase of the property. The $5.1 million loan was repaid
      during 1998 upon financing of the properties.

   .  $4.3 million acquisition of five MOBs in Valencia, California located on
      the Henry Mayo Newhall Hospital Campus. The Company is also constructing a
      43,000 square foot MOB on a parcel of land adjacent to the five MOBs. The
      completed project is anticipated to cost $8.5 million and is expected to
      open in the second quarter of 1999.

   .  $4.0 million acquisition of a Ramada Inn in Rancho Penasquitos, California
      through G&L Penasquitos, LLC, a newly formed joint venture between the
      Operating Partnership and Parsons House, LLC. The Company contributed $1.2
      million for a 50% equity interest in the newly formed joint venture. G&L
      Penasquitos, LLC is converting the Ramada Inn to an 80 unit assisted
      living facility. The total cost of the project including the land and
      building purchase is anticipated to be $7.8 million and is expected to
      open in the second quarter of 1999.

                                       33
<PAGE>
 
   .  $1.0 million acquisition of a 20-unit senior resident apartment complex
      located in Phoenix, Arizona. The property is adjacent to the 98-bed
      skilled nursing facility that the Company owns in Phoenix.

   .  $0.8 million acquisition of a parcel of land in Aliso Viejo, California
      upon which the Company is constructing a 23,000 square foot MOB. The
      building is 73% pre-leased to a major not-for-profit medical provider. The
      completed project is estimated to cost $4.0 million and is expected to be
      completed in the third quarter of 1999.

   .  $11.2 million acquisition of a 92-unit senior care facility in Santa
      Monica, California through GLH Pacific Gardens, LLC, a newly formed joint
      venture between the Operating Partnership and ASL Santa Monica, Inc. The
      Company contributed $3.5 million for a 93% equity interest in the newly
      formed joint venture. The entire facility is leased to GLH Pacific Gardens
      Corp., another joint venture between the Operating Partnership and ASL
      Santa Monica, Inc.

   .  $0.9 million acquisition of a parcel of land in Yorba Linda, California
      which the Company intends to lease to a senior care facility operator for
      construction of a Senior Care Facility.

   .  $3.3 million acquisition of a 110-bed skilled nursing facility located in
      Hoquiam, Washington.  The facility is leased to Stefan.

   .  $7.4 million acquisition of a 49,000 square foot MOB located in Valencia,
      California.

   .  $9.5 million acquisition of a 28,000 square foot office and retail complex
      located in Coronado, California.

   .  $1.2 million acquisition of a parcel of land located in Omaha, Nebraska
      through G&L Parsons House on Eagle Run, LLC, a newly formed joint venture
      between the Operating Partnership and Parsons House, LLC. The Company
      contributed $0.8 million for a 50% equity interest in the newly formed
      joint venture. G&L Parsons House on Eagle Run, LLC intends to build an
      assisted living facility upon the property. The total cost of the project
      including the purchase of the land is anticipated to be $8.0 million and
      is expected to open in the year 2000.


   Due to uncertainties related to the Company's portfolio of mortgage loans and
bonds receivable, the Company increased its allowance for doubtful notes
receivable from $0.8 million at the end of 1997 to $3.5 million as of December
31, 1998.  Management believes that $3.5 million is appropriate in relation to
the status of the loans in the Company's portfolio as of March 19, 1999.

   The Company increased its loss reserves in response to several events that
could adversely affect certain of the Company's real estate assets.  In the
fourth quarter, two unrelated nursing-home operating companies with debt
obligations financed by the Company experienced severe financial setbacks and
are now in default.  At December 31, 1998, these mortgages totaled approximately
$5.8 million.  During 1998, the Company purchased $2.8 million of PHP
Healthcare, Inc. bonds for approximately $1.3 million.  In late November 1998,
PHP declared bankruptcy and, as a result, the Company has established a reserve
against the bonds.  In addition, the Company also increased its reserves for a
portion of delinquent rents related to its MOB Property and Senior Care Property
tenants.  The Company is pursuing all appropriate remedies to protect these
investments, including foreclosure proceedings on properties used to secure the
notes as well as other legal claims.

   At various times during the year ending December 31, 1998, the Company
repurchased a total of 151,700 shares of the Company's Common Stock at an
average price of approximately $15.41 per share.

   The Company obtains its liquidity from multiple internal and external 
sources. Internally, funds are derived from leasing the MOB Properties and
Senior Care Properties and senior care lending activities and primarily consist
of Funds from Operations (''FFO'' - see discussion below of FFO). The Company's
external sources of capital consist of various secured loans and lines of credit
as well as access to public equity markets. The Company's

                                       34
<PAGE>
 
ability to expand its holdings of MOBs and Senior Care Facilities and its senior
care lending operations requires continued access to capital to fund new
investments.

   In general, the Company expects to continue meeting its short-term liquidity
requirements through its working capital, cash flow provided by operations and,
if necessary, from its lines of credit.  The Company considers its ability to
generate cash to be good and expects to continue meeting all operating
requirements as well as providing sufficient funds to maintain stockholder
distributions in accordance with REIT requirements.  Long-term liquidity
requirements such as refinancing mortgages, financing acquisitions and financing
capital improvements will be accomplished through long-term borrowings, the
issuance of debt securities and the offering of additional equity securities.


Debt Structure

   As of December 31, 1998, the Company had fourteen loans approximating $134.9
million, including one floating rate loan for approximately $8.5 million.  The
terms of these fourteen loans are described below.

   In August 1995, the Company borrowed $30.0 million from Nomura for ten years
at a fixed rate of 7.89%.  As of December 31, 1998, the outstanding balance
under this loan was approximately $28.7 million, requiring monthly principal and
interest payments of approximately $229,000 (25-year amortization), and will
have a balance of $24.7 million on August 11, 2005, when the note is due.
Pursuant to the loan agreement, the Company has the option to prepay this loan
at any time upon the payment of a premium which, when added to the remaining
principal amount of the note, will be sufficient to purchase non-callable
obligations of the U.S. government sufficient to provide for the scheduled
payments remaining under the note.  No prepayment premium is required during the
90-day period prior to the note's due date.  The properties located at 405 North
Bedford, 415 North Bedford, 416 North Bedford and 435 North Bedford have been
pledged as security for this note.

   During 1996, the Company borrowed $35.0 million from Nomura for ten years at
a fixed rate of 8.515%. This note had an outstanding balance of approximately
$34.1 million as of December 31, 1998, requires monthly principal and interest
payments of approximately $282,000 (25-year amortization), and will have a
balance of $29.4 million on August 11, 2006, when the note is due.  Pursuant to
this loan agreement, the Company has the option to prepay this loan at any time
after August 30, 1999 upon the payment of a premium which, when added to the
remaining principal amount of the note, will be sufficient to purchase non-
callable obligations of the U.S. government sufficient to provide for the
scheduled payments remaining under this note.  The Sherman Oaks Medical Plaza,
Regents Medical Center, Cigna HealthCare Building and office building at 436
North Bedford Drive have been pledged as security for this note.

   On August 15, 1997, the Company borrowed $16.0 million from Nomura at a fixed
rate of 8.98%, the proceeds of which were used to repay a loan made by PHP in
connection with the purchase of six New Jersey primary care centers.  On October
11, 1997, the Company began making monthly principal and interest payments on
this loan of approximately $155,000 (16  1/2 -year amortization).  This note,
which will have a balance at maturity of $6.9 million, is due March 11, 2014,
however the note may be prepaid, at the option of the Company, at any time after
the third anniversary of the note upon the payment of a premium which, when
added to the remaining principal amount of the note, will be sufficient to
purchase non-callable obligations of the U.S. government sufficient to provide
for the scheduled payments remaining under the note.  The note provides for
certain interest rate increases if the Company chooses to prepay it after
December 11, 2009.  The six New Jersey properties have been pledged as security
for this note which had a balance of $15.5 million at December 31, 1998.

   Concurrently with the $16.0 million loan from Nomura, the Operating
Partnership obtained a new $2.0 million loan from PHP.  The note by its terms is
non-negotiable and provides for a right of offset against payments of interest
and for principal in an amount equal to the obligations of PHP under its
guarantee of the lease related to the New Jersey Properties.  This note, in
effect, acts as a security deposit under the lease.  The loan is unsecured and
requires interest-only payments quarterly at the end of October, January, April
and July at the rate of 8.5% a year.  The full $2.0 million is due on July 31,
2007, but may be prepaid at any time prior to maturity without penalty.

                                       35
<PAGE>
 
  On October 28, 1997, the Company acquired the Hampden Properties for a total
consideration of approximately $20.0 million.  Of this amount, the Company
borrowed $6.0 million from Nomura at an interest rate of 8.62% per annum.  The
three properties were pledged as security for the repayment of this loan.  Under
the terms of the loan agreement, the Company may, at any time during the next
two years, make up to two additional draws of not less than $2.0 million each,
up to an aggregate loan amount of $14.0 million (including the initial draw
under the loan).  In the event the Company makes an additional loan draw, the
interest rate on such draw will be 8.20% per annum, a rate which the Company
locked in during 1998.  The loan agreement with Nomura provides for a term of 12
years and requires monthly interest and principal payments based upon a 27-year
amortization schedule.  At the end of 12 years, all unpaid principal and
interest will be due in full.  The Company has the option to prepay this loan at
any time upon the payment of a premium that, when added to the remaining
principal amount of the note, will be sufficient to purchase non-callable
obligations of the U.S. Government sufficient to provide for the scheduled
payments remaining under the note.  At December 31, 1998, the outstanding
balance due on the note was $6.0 million.  As a condition of the loan, Nomura
has required the Company to place $400,000 into a reserve account which may be
used to fund unspecified maintenance capital reserves.

  On April 22, 1998, 435 North Roxbury Drive, Ltd. (the "Roxbury Partnership"),
of which the Operating Partnership is the sole general partner with an ownership
interest of 61.75%, refinanced the 435 North Roxbury Drive property.  The 435
North Roxbury Drive property was previously pledged as security for a $8.5
million loan from Citibank, N.A. (''Citibank''), which had an outstanding
balance as of December 31, 1997 of $7.7 million.  In April 1998, the Roxbury
Partnership refinanced the property with a new $7.83 million loan from Tokai
Bank of California ("Tokai").  The Roxbury Partnership repaid the remaining
balance on the Citibank loan of $7.5 million with the new loan, which bears
interest at a fixed rate of 7.05% and is due on April 1, 2008.  This loan had an
outstanding balance of $7.77 million as of December 31, 1998, requires monthly
principal and interest payments of approximately $56,000 (25-year amortization),
and will have a balance at maturity of $6.2 million.  The 435 North Roxbury
Drive property has been pledged as security for this loan.

  On April 22, 1998, the Company borrowed an additional $12.7 million from Tokai
at a fixed rate of 7.05%.  On June 1, 1998, the Company began making monthly
principal and interest payments on these loans of approximately $91,000 (25-year
amortization).  These notes, which will have a balance at maturity of $10.0
million, are due on April 1, 2008.  The Holy Cross Medical Plaza, the St.
Joseph's Medical Office Building and the Tustin Medical Plaza have been pledged
as security for these loans.

  On June 30, 1998, the Company, through GLH Pacific Gardens, LLC, a newly
formed joint venture, acquired Pacific Gardens, a 92-unit senior care facility
in Santa Monica, California for $11.2 million.  Of this amount, GLH Pacific
Gardens, LLC borrowed $8.5 million from GMAC at an interest rate of 30-day LIBOR
plus 2.35%.  The note requires monthly interest-only payments until July 1,
1999.  Beginning July 1, 1999, monthly interest and principal payments of
approximately $66,000 (25-year amortization) are due.  The note, which will have
a balance at maturity of $8.3 million, is due on July 1, 2001.  Pacific Gardens
has been pledged as security for this note.

  On August 6, 1998, the Company acquired a 110-bed skilled nursing facility in
Hoquiam, Washington for $3.3 million.  Of this amount, the Company borrowed $2.5
million 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.

  On November 3, 1998, the Company obtained a new $4.6 million unsecured credit
line from Tokai.  The credit line requires monthly interest payments at 30-day
LIBOR plus 2.25% and is due on August 31, 2000.  The Company has the option to
prepay the outstanding balance, or increments thereof, at any time upon not less
than 30 days' notice to Tokai.  As of December 31, 1998, the Company had an
outstanding balance on the credit line of $4.6 million.

  On December 22, 1998, the Company acquired a 49,000 square foot MOB in
Valencia, California for $7.4 million.  Of this amount, the Company borrowed
$5.2 million from The Life Insurance Co. of Virginia at a fixed rate of 6.75%.
On February 1, 1999, the Company began making monthly principal and interest
payments of 

                                       36
<PAGE>
 
approximately $38,000 (25-year amortization). This note, which will have a
balance at maturity of $0.9 million, is due on January 1, 2019. The Lyons Avenue
Medical Building has been pledged as security for this note.

  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.


Capital Commitments

  As of March 19, 1999, the Company is in various stages of negotiations to
acquire, either directly or through joint ventures, approximately $20 million of
MOBs and Senior Care Facilities.  Although there can be no assurance that any of
these transactions will be consummated, the Company is prepared to commit the
needed capital to close these transactions if they can be completed on terms
favorable to the Company.

  The Company expects to continue meeting its short-term liquidity and operating
requirements, as well as providing sufficient funds to maintain stockholder
distributions in accordance with REIT requirements, in the short and long-term,
through its working capital and cash flow provided by operations.  The Company
expects to continue meeting its long-term liquidity requirements, such as
refinancing mortgages, financing acquisitions and funding of major capital
improvement projects, through long-term borrowings, the issuance of debt
securities and the offering of additional equity securities.
 

Distributions

  Distributions on the Company's Common Stock totaled $1.56 per share for 1998.
The Company also paid monthly dividends to holders of the Company's Series A and
Series B 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.  The Company's
undistributed FFO is used internally to fund maintenance and capital
expenditures necessary to maintain the Company's portfolio of properties.
Despite the $5.6 million increase in loss reserves during 1998, the Company
believes it has the ability to maintain the common stock dividend at its current
rate, although no assurance can be given that it will ultimately do so.
Although the impairment of the reserved assets may affect future cash flow, the
increase in the reserves was a non-cash event and did not affect the payment of
distributions.  Furthermore, management expects future cash flow growth based
upon the five development projects that are currently in progress and expected
to begin generating revenue in the next twelve to eighteen months.


Financing Policies

  The Company's ratio of debt to total market capitalization is 50.6% and 51.3%
based upon the closing price of the Common Stock at December 31, 1998 and March
19, 1999, respectively.  Total market capitalization is based on the long-term
debt of the Operating Partnership, plus (i) the aggregate market value of the
Company's Common Stock and Operating Partnership Units not owned by the Company
assuming one Unit is equivalent in value to one share of Common Stock, and (ii)
the aggregate liquidation value of the Series A Preferred Stock and the Series B
Preferred Stock.

  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) or equity
securities or any combination of the above.  If the Board of Directors
determines to raise additional equity capital to fund investments by the
Operating Partnership, the Company will contribute such funds to the Operating
Partnership as a contribution to capital and will purchase  additional interests
in the Operating Partnership.  It is anticipated that borrowings will continue
to be made through 

                                       37
<PAGE>
 
the Operating Partnership or other entities, although the Company may also incur
indebtedness that may be re-borrowed by the Operating 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 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 Pronouncement

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133").  SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and requires all derivatives to be recorded on the
balance sheet at fair value as either assets or liabilities depending on the
rights or obligations under the contract.  SFAS 133 also establishes new
accounting methodologies for the following three classifications of hedges: fair
value, cash flow and net investment in foreign operations.  Management believes
the adoption of SFAS 133 will not have a material impact on the Company's
financial position or results of operations.

Year 2000 Compliance

   The information provided below contains Year 2000 statements and is a Year
2000 Readiness Disclosure pursuant to Pub. L. No. 105-271.

   Many computers, software programs and other equipment which utilize
microprocessors (collectively referred to as "Systems" and individually as a
"System") process date sensitive data in the normal course of operations.  Some
of these Systems use a 2-digit field to designate the year.  As the year 2000
approaches, these Systems may not be capable of distinguishing between events
occurring in the year 1900 and the year 2000, and therefore these Systems may
become inoperable or produce information that is unreliable.


Information Technology Systems

   The Company's critical information technology Systems consist of its Windows
NT operating systems and related Windows software as well as its accounting,
property management and fixed assets software.  The Company relies on third
party vendors for its computer hardware and software.  Based upon management's
communications with the Company's Systems vendors and an outside consultant,
management believes that the Company's hardware and software Systems are, or
will be, Year 2000 compliant by December 31, 1999 and that the Company's
internal computer hardware and software Systems will not be materially impacted
by this issue.  Currently, the Company's accounting and property management
software has not yet been deemed Year 2000 compliant.  However, the Company
plans to upgrade to the next version of this software, which is Year 2000
compliant, during the first six months of 1999.  The Company has obtained the
updated version and will install it in 1999.  The cost of this upgrade is not
expected to be material to the Company.

                                       38
<PAGE>
 
Non-Information Technology Systems

   The Company's critical non-information technology building Systems consist of
utilities, security, and elevators.  The Company has not yet determined whether
all of these systems are Year 2000 compliant.  The Company relies on third party
vendors to service most of these systems and is currently in communication with
these vendors to determine if these building systems are or will be Year 2000
compliant by December 31, 1999.  The Company's property managers have contacted
the Company's vendors and made inquiries about the Year 2000 readiness of these
systems.  Approximately 90% of the Company's vendors have confirmed in writing
that these systems are Year 2000 compliant.  The Company has also received
confirmation in writing from certain vendors that their systems will be Year
2000 compliant by December 31, 1999.  The Company is still following up with
those vendors who have only verbally confirmed Year 2000 compliance or who have
not responded to the Company's inquiries.  In January 1999, the Company made
inquiries of all of its tenants concerning their Year 2000 compliance and what
impact non-compliance would have on the Company.  Through March 19, 1999, the
Company had received approximately 60 responses representing 16% of its tenants.
None of these responses indicated that the Company would suffer any negative
impact due to Year 2000 non-compliance.

Risks

   While the Company does not expect Year 2000 issues related to the Company's
internal systems to have a serious impact on the Company's operations, the
Company receives most of its revenues in the form of rental payments.  If any of
the Company's tenants suffer a severe disruption of their business due to a Year
2000 problem, it could affect the ability of those tenants to pay their rent.
If multiple tenants were to suffer a severe disruption of their business, the
Company can provide no assurance that its operations would not be materially
affected.

Costs

   The cost to the Company to make its internal Systems Year 2000 compliant is
not anticipated to be material to the Company's financial position.  However,
management is not able to adequately assess the extent to which the Company is
vulnerable to System failures of any of its tenants or other companies providing
utilities or other services to its properties.  Management plans to continue
conversations with other companies with which the Company does significant
business to minimize, to the extent possible, the potential impact of Year 2000
compliance failures.  A contingency plan has not been developed for dealing with
the "most reasonably likely worst case scenario" because the Company is unable
at this time to identify such a scenario.  The Company will continue to evaluate
these and other potential areas of risk and develop contingency plans, as
appropriate.


Funds from Operations

   Industry analysts generally consider FFO to be an appropriate measure of the
performance of a REIT. The Company's financial statements use the concept of FFO
as defined by the Board of Governors of NAREIT. FFO is calculated to include the
minority interests' share of income since the Operating Partnership's net income
is allocated proportionately among all owners of Operating Partnership Units.
The number of Operating 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 Units may, at their discretion, convert their Units into
shares of Common Stock on a one-for-one basis.

   The Company believes that, in order to facilitate a clear understanding of
the operating results of the Company, FFO should be examined in conjunction with
the Company's net income as presented in 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, 1998 for the Operating Partnership:

                                       39
<PAGE>
 
                               G&L REALTY CORP. 
                            FUNDS FROM OPERATIONS 
            FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                  1998 Fiscal Quarter                  Year
                                                      -------------------------------------------    --------
                                                        1/st/       2/nd/      3/rd/       4/th/       1998
                                                      --------    --------    -------    --------    --------
                                                               (In thousands, except per share data)
<S>                                                   <C>         <C>         <C>        <C>         <C> 
Funds from Operations (1):
-------------------------
Net income                                            $  2,366    $  2,597    $ 2,434    $ (3,054)   $  4,343
Minority interest in Operating Partnership                  48          95         78        (625)       (404)
                                                      --------    --------    -------    --------    --------
Operating Partnership income (loss)                      2,414       2,692      2,512      (3,679)      3,939
Depreciation of real estate assets                         955         976      1,057       1,076       4,064
Amortization of deferred lease costs                        30          39         42          54         165
Depreciation of real estate assets from
 unconsolidated affiliates                                 ---           6         39          29          74
 
Adjustment for minority interest in
 consolidated affiliates                                    (8)        (15)       (19)        (21)        (63)
Dividends paid on Preferred Stock                       (1,972)     (1,803)    (1,803)     (1,803)     (7,381)
                                                      --------    --------    -------    --------    --------
Operating Partnership funds from operations              1,419       1,895      1,828      (4,344)        798
Minority interest in  Operating Partnership               (153)       (205)      (200)        594          36
                                                      --------    --------    -------    --------    --------
  Funds from operations                               $  1,266    $  1,690    $ 1,628    $ (3,750)   $    834
                                                      ========    ========    =======    ========    ========
 
 
Dividends declared                                    $   0.39    $   0.39    $  0.39    $   0.39    $   1.56
Dividends paid on Common Stock                        $  1,610    $  1,604    $ 1,582    $  1,558    $  6,354
Pay-out ratio                                            127.2%       94.9%      97.2%       N/A        761.9%
 
Weighted average shares/unit  outstanding:
-----------------------------------------
Basic                                                    4,583       4,620      4,588       4,528       4,590
Fully Diluted                                            4,628       4,661      4,623       4,553       4,634
 
Additional Data
---------------
Cash Flows:
----------
  Operating activities                                   2,999       2,935      3,505       3,227      12,666
  Investing activities                                 (13,769)    (12,033)    (6,180)    (19,112)    (51,094)
  Financing activities                                    (242)     17,176     (3,487)     12,751      26,198
 
Capital Expenditures:
--------------------
  Building improvements                                     53          41        236         253         583
  Tenant improvements                                       15         427        224         216         882
  Furniture, fixtures & equipment                            2         113        109          10         234
  Leasing commissions                                       44         245        112          40         441
 
Depreciation and Amortization:
-----------------------------
  Depreciation of real estate assets                       955         976      1,057       1,076       4,064
  Depreciation of non-real estate assets                    75          68        114         111         368
  Amortization of deferred lease costs                      30          39         42          54         165
  Amortization of capitalized financing costs               39          47         53          49         188
                                             
 
Rents:
-----
  Straight-line rent                                  $  5,882    $  6,113    $ 6,386    $  6,258    $ 24,639
  Billed rent                                            5,804       6,013      6,217       6,454      24,488
</TABLE>
______________________________
1)  FFO represents net income (computed in accordance with GAAP, consistently
    applied), excluding gains (or losses) from debt restructuring and sales of
    property, plus depreciation of real property, less preferred stock dividends
    paid to holders of preferred stock during the period and after adjustments
    for consolidated and unconsolidated entities in which the Company holds a
    partial interest. FFO is computed in accordance with the definition adopted
    by NAREIT. FFO should not be considered as an alternative to net income or
    any other indicator developed in compliance with GAAP, including measures of
    liquidity such as cash flows from operations, investing and financing
    activities. FFO is helpful in evaluating the performance of a real estate
    portfolio considering the fact that historical cost accounting assumes that
    the value of real estate diminishes predictably over time. FFO is only one
    of a range of indicators which should be considered in determining a
    company's operating performance. The methods of calculating FFO among
    different companies are subject to variation, and FFO therefore may be an
    invalid measure for purposes of comparing companies. Also, the elimination
    of depreciation and gains and losses on sales of property may not be a true
    indication of an entity's ability to recover its investment in properties.
    The Company implemented the new method of calculating FFO effective as of
    the NAREIT-suggested adoption date of January 1, 1996. FFO has been restated
    for all prior periods under the new method.

                                       40
<PAGE>
 
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.  Approximately 10%
of the Company's notes payable bear interest at a rate indexed to the one-month
LIBOR rate.  The table below provides information as of December 31, 1998 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, 1998.


<TABLE>
<CAPTION>
                                                                                                                   Fair Market 
                                                                PRINCIPAL MATURING IN:                                Value
                                      -------------------------------------------------------------                December 31,
                                       1999      2000       2001      2002      2003     Thereafter     Total          1998
                                      ------    ------    -------    ------    ------    ----------    --------    ------------
                                                                   (in thousands)
<S>                                   <C>       <C>       <C>        <C>       <C>       <C>           <C>         <C> 
Liabilities:
Mortgage debt:
 Fixed rate                           $1,971    $2,089    $ 2,292    $2,483    $2,698     $110,247     $121,780      $121,780
 Average interest rate                  8.04%     8.06%      8.07%     8.07%     8.08%        7.98%        7.99%
 
 Variable rate                            55       117      8,328                                         8,500         8,500
 Average interest rate                  7.41%     7.41%      7.41%                                         7.41%
 
Line of credit:
 Variable rate                                   4,600                                                    4,600         4,600
 Average interest rate                            7.31%                                                    7.31%
                                      ------    ------    -------    ------    ------     --------     --------      --------
                                      $2,026    $6,806    $10,620    $2,483    $2,698     $110,247     $134,880      $134,880
                                      ======    ======    =======    ======    ======     ========     ========      ========
</TABLE>

   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, 1998, a 1% increase in the LIBOR
rate would decrease future earnings and cash flow by $131,000.  A 1% decrease in
the LIBOR rate would increase future earnings and cash flow by $131,000.  A 1%
change in the LIBOR rate would not have a material impact on the fair value of
the Company's debt.

                                       41
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

     See Index to Consolidated Financial Statements and Schedules on Page 37.


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

     None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information required by this item is provided under the captions
"Election of Directors," "Executive Officers" and "Section 16 Reporting" of the
Company's definitive proxy statement for its 1999 annual meeting of stockholders
which will be filed on or before April 30, 1999 and is incorporated herein by
reference.


ITEM 11. EXECUTIVE COMPENSATION

   The information required by this item is provided under the caption of
"Executive Compensation" of the Company's definitive proxy statement for its
1999 annual meeting of stockholders which will be filed on or before April 30,
1999 and is incorporated herein by reference; provided, however, that neither
the Report of the Compensation Committee on executive compensation nor the Stock
Performance Graph set forth therein shall be incorporated by reference herein,
in any of the Company's past or future filings under the Securities Act of 1933,
as amended, or the Securities Act of 1934, as amended, except to the extent the
Company specifically incorporates such report or Stock Performance Graph by
reference therein and should not be otherwise deemed filed under either such
Act.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this item is provided under the captions
"Principal Stockholders," "Information Regarding Nominees and Directors" and
"Executive Officers" of the Company's definitive proxy statement for its 1999
annual meeting of stockholders which will be filed on or before April 30, 1999
and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item is provided under the caption "Certain
Transactions" of the Company's definitive proxy statement for its 1999 annual
meeting of stockholders which will be filed on or before April 30, 1999 and is
incorporated herein by reference.

                                       42
<PAGE>
 
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Index to Consolidated Financial Statements and Schedules:

<TABLE> 
<CAPTION> 
                                                                                      Page
                                                                                   Reference
                                                                                   Form 10-K
                                                                                   ---------
     <S>                                                                           <C> 
     1.   Consolidated Financial Statements:
          Independent Auditors' Report                                                F-1
          Consolidated Balance Sheets as of December 31, 1998 and 1997                F-2
          Consolidated Statements of Income for the Years Ended
            December 31, 1998, 1997 and 1996                                          F-3
          Consolidated Statement of Stockholders' Equity
            for the Years Ended December 31, 1998, 1997 and 1996                      F-4
          Consolidated Statements of Cash Flows for the Years Ended
            December 31, 1998, 1997 and 1996                                       F-5 to 8
          Notes to Consolidated Financial Statements                               F-9 to 34
</TABLE> 

     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

        No reports on Form 8-K have been filed during the quarter ended December
     31, 1998.

                                       43
<PAGE>
 
(c)  Exhibits

<TABLE>
<CAPTION>
  Exhibit No.          Note                                             Description
  -----------          ----   ------------------------------------------------------------------------------------------------------
  <C>                  <C>    <S> 
     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.
    10.1 (c)            (2)   Executive Employment Agreement between G&L Realty Corp. and Daniel M. Gottlieb.
    10.2 (c)            (2)   Executive Employment Agreement between G&L Realty Corp. and Steven D. Lebowitz.
    10.3                (2)   Agreement of Limited Partnership of G&L Realty Partnership, L.P.
    10.4 (c)            (1)   1993 Employee Stock Incentive Plan
    10.5                (1)   Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.
    10.8.2              (2)   Option Notice with respect to Sherman Oaks Medical Plaza.
    10.9.2              (1)   Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.)
                              between the Selling Partner (as defined therein) and G&L Development, dated as of October 29, 1993.
    10.11               (1)   Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and
                              Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29, 1993.
    10.12               (1)   Nomura Commitment Letter with respect to the Acquisition Facility.
    10.12.2             (3)   Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L Financing
                              Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of New York.
    10.16               (1)   Investment Banking and Financial Advisory Agreement between G&L Development and Gruntal & Co.,
                              Incorporated.
    10.17               (1)   Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
                              and Milner Investment Corporation.
    10.18               (2)   Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
                              and Reese L. Milner, II.
    10.19               (2)   Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
                              and Reese L. Milner, II.
    10.20               (2)   Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
                              and Reese L. Milner, II, Helen Milner and John Milner, as Trustees of the Milner Trust.
    10.21               (2)   Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D. Lebowitz
                              and Reese L. Milner, II.
    10.22               (4)   Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing Partnership II, L.P.,
                              as Borrower, and Nomura Asset Capital Corporation, as Lender, dated as of October 31, 1995.
</TABLE>

                                       44
<PAGE>
 
(c)  Exhibits - (continued from previous page)

<TABLE>
<CAPTION>
  Exhibit No.          Note                                             Description
  -----------          ----   ------------------------------------------------------------------------------------------------------
  <C>                  <C>    <S> 
    10.24               (4)   Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner, and G&L
                              Realty Partnership, L.P., as agent, made August 10, 1995
    10.25               (5)   Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital Corporation, dated as
                              of September 29, 1995.
    10.30               (6)   Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership, L.P. as
                              Borrower and Nomura Asset Capital Corporation as Lender.
    10.38               (7)   Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware limited
                              partnership, and Property Acquisition Trust I, a Delaware business trust, for the purpose of creating
                              a Limited Liability Company to be named GLN Capital Co., LLC, dated as of November 25, 1996.
    10.39               (7)   Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware limited
                              partnership, and PHP Healthcare Corporation, a Delaware corporation, for the purpose of creating a
                              Limited Liability Company to be named GL/PHP, LLC, dated as of February 26, 1997.
    10.40               (7)   First Amendment To Limited Liability Company Agreement entered into as of March 31, 1997 by and
                              between G&L Realty Partnership, L.P., a Delaware limited partnership, and Property Acquisition Trust
                              I, a Delaware business trust, for the purpose of amending that certain Limited Liability Company
                              Agreement of GLN Capital Co., LLC dated as of November 25, 1996.
    10.41               (7)   Bond Purchase Agreement dated as of March 31, 1997 by and between GLN Capital Co., LLC (as Buyer) and
                              G&L Realty Partnership, L.P. (as Seller).
    10.42               (8)   Option Agreement, dated February 28, 1997, by and among G&L Realty Partnership, L.P., GLN Capital Co.,
                              LLC and PHP Healthcare Corporation
    10.44               (9)   Loan and Security Agreement by GLN Capital Co., LLC, a Delaware limited liability Company, and G&L
                              Realty Partnership, L.P., a Delaware limited partnership, dated as of June 1, 1997.
    10.45              (10)   First Amendment to GL/PHP, LLC Limited Liability Company Agreement by and among G&L Realty
                              Partnership, L.P., a Delaware limited partnership (the "Retiring Manager"), G&L Realty Partnership,
                              L.P., a Delaware limited partnership ("G&L Member"), and G&L Management Delaware Corp., a Delaware
                              corporation ("Manager Member"), made as of August 15, 1997.
    10.46              (10)   Lease Agreement between GL/PHP, a Delaware limited liability company (the "Landlord") and Pinnacle
                              Health Enterprises, LLC, a Delaware limited liability company wholly owned by PHP Healthcare
                              Corporation, a Delaware corporation (the "Tenant"), dated August 15, 1997
    10.47              (10)   Guaranty of Lease by PHP Healthcare Corporation, a Delaware corporation (the "Guarantor"), dated
                              February 15, 1997.
</TABLE>

                                       45
<PAGE>
 
(c)  Exhibits - (continued from previous page)

<TABLE>
<CAPTION>
  Exhibit No.          Note                                             Description
  -----------          ----   ------------------------------------------------------------------------------------------------------
  <C>                  <C>    <S> 
    10.48              (10)   Non-Negotiable 8.5% Note Due July 31, 2007 in which G&L Realty Partnership, L.P., a Delaware limited
                              partnership (the "Maker"), promises to pay to PHP Healthcare Corporation (the "Payee") the principal
                              sum of $2,000,000.00, dated August 15, 1997.
    10.49              (10)   Mortgage Note in which GL/PHP, LLC a Delaware limited liability company (the "Maker") promises to pay
                              to the order of Nomura Asset Capital Corporation, a Delaware corporation, the principal sum of
                              $16,000,000.00, dated August 15, 1997.
    10.50              (10)   Mortgage, Assignment of Leases and Rents and Security Agreement by GL/PHP, LLC a Delaware limited
                              liability company (the "Mortgagor") to Nomura Asset Capital Corporation, a Delaware corporation (the
                              "Mortgagee"), dated August 15, 1997.
    10.51              (10)   Assignment of Leases and Rents by GL/PHP, LLC a Delaware limited liability company (the "Assignor") to
                              Nomura Asset Capital Corporation, a Delaware corporation (the "Assignee"), dated August 15, 1997.
    10.52              (10)   Environmental and Hazardous Substance Indemnification Agreement by GL/PHP, LLC a Delaware limited
                              liability company (the "Borrower") to Nomura Asset Capital Corporation, a Delaware corporation (the
                              "Lender"), dated August 15, 1997.
    10.53              (11)   Purchase and Sale Agreement, dated October 1, 1997, by and between Hampden Nursing Homes, Inc. and G&L
                              Senior Care, LLC.
    10.54              (11)   Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Holding Group,
                              Inc.
    10.55              (11)   Loan Commitment, dated October 23, 1997, by and between G&L Realty Partnership, L.P. and Iatros Health
                              Network, Inc.
    10.56              (11)   Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Nursing Homes,
                              Inc.
    10.57              (11)   Guaranty of Lease, dated October 1, 1997, by Iatros Health Network, Inc.
    10.58              (11)   Limited Liability Company Agreement of G&L Hampden, LLC.
    10.59              (11)   Loan Agreement by and between Nomura Asset Capital Corporation and G&L Hampden, LLC.
    10.60              (11)   Promissory Note in the amount of $6,000,000.00 given by G&L Hampden, LLC in favor of Nomura Asset
                              Capital Corporation.
    10.61              (11)   Form of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing for each of the 3 Hampden
                              Properties.
    10.62              (12)   Operating Agreement of AV Medical Associates, LLC, dated as of September 25, 1997.
    10.63              (12)   Real Estate Lease by and between AV Medical Associates, LLC and Hoag Memorial Hospital Presbyterian.
</TABLE>

                                       46
<PAGE>
 
(c)  Exhibits - (continued from previous page)

<TABLE>
<CAPTION>
  Exhibit No.          Note                                             Description
  -----------          ----   ------------------------------------------------------------------------------------------------------
  <C>                  <C>    <S> 
    10.64              (12)   Assignment of Purchase Agreement and Development Management Agreement by and between G&L Realty
                              Partnership, L.P., Centrium Associates LLC and M&Z Aliso Associates, LLC.
    10.68              (12)   Promissory Note in the Amount of $2,799,490.00 given by Valley Convalescent, LLC in favor of G&L
                              Realty Partnership, L.P.
    10.69              (12)   Deed of Trust, Security Agreement, Fixture Filing with Assignment of Rents and Agreements, dated as of
                              August 29, 1997, by and between Valley Convalescent, LLC and G&L Realty Partnership, L.P.
    10.70              (12)   Assignment of Leases and Rents, dated as of August 29, 1997, by and between Valley Convalescent, LLC
                              and G&L Realty Partnership, L.P.
    10.77                     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                     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                     Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively "Guarantor") in
                              favor of G&L Coronado, LLC ("Landlord").
    11                        Computation of Per Share Earnings
    12                        Computation of Ratio of Earnings to Fixed Charges
    21                        Subsidiaries of the registrant.
    27                        Financial Data Schedule
</TABLE>

                                       47
<PAGE>
 
1)  Previously filed as an exhibit of like number to the Registrant's
    Registration Statement on Form S-11 and amendments thereto (File No. 33-
    68984) and incorporated herein by reference.

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

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

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

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

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

7)  Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
    ended December 31, 1996 and incorporated herein by reference.

8)  Filed as an exhibit to the Company's Registration Statement on Form S-11 and
    amendments thereto (File No. 333-24911) and incorporated herein by
    reference.

9)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
    quarter ended June 30, 1997 and incorporated herein by reference.

10) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as
    of August 15, 1997) and incorporated herein by reference.

11) 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.

12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed as
    of November 5, 1997) for the quarter ended September 30, 1997 and
    incorporated herein by reference.

c)  Management contract or compensatory plan or arrangement.

                                       48
<PAGE>
 
                          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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998.  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 generally accepted auditing
standards.  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 the Company as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.



/s/  Deloitte & Touche LLP

Los Angeles, California
March 5, 1999

                                      F-1
<PAGE>
 
                                G&L REALTY CORP.

                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)
                                        
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                  1998                  1997
                                                                          ------------------------------------------
<S>                                                                            <C>                   <C>
                                                  ASSETS
                                                  ------
Rental properties (Notes 3, 18 and 20):
   Land                                                                         $ 35,059              $ 27,470
   Building and improvements, net                                                142,531               111,312
   Projects under development                                                      9,161                   300
                                                                                --------              --------
     Total rental properties                                                     186,751               139,082
Cash and cash equivalents (Note 2)                                                 1,379                13,609
Restricted cash (Note 2)                                                           4,007                 7,745
Tenant rent and reimbursements receivable, net (Note 4)                            2,050                 1,333
Unbilled rent receivable, net (Note 5)                                             1,892                 1,815
Other receivables, net (Note 6)                                                      208                   972
Mortgage loans and bonds receivable, net (Notes 2 and 7)                          12,101                14,098
Investments in unconsolidated affiliates (Note 8)                                  7,469                 8,591
Investments in marketable securities, net (Note 9)                                   ---                   ---
Deferred charges and other assets, net (Note 10)                                   3,642                 2,135
                                                                                --------              --------
 TOTAL ASSETS                                                                   $219,499              $189,380
                                                                                ========              ========
 
                                     LIABILITIES AND STOCKHOLDERS' EQUITY
                                     ------------------------------------
LIABILITIES:
   Notes payable (Notes 2 and 11)                                               $134,880              $ 95,172
   Accounts payable and other liabilities                                          2,296                 1,920
   Distributions payable                                                           1,768                 1,801
   Tenant security deposits                                                        1,270                 1,046
                                                                                --------              --------
     Total liabilities                                                           140,214                99,939
 
Commitments and Contingencies (Note 12)
 
Minority interest in consolidated affiliates                                      (2,033)               (2,399)
Minority interest in Operating Partnership                                         1,734                 2,916
 
STOCKHOLDERS' EQUITY (Notes 13 and 14):
   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, 1998 and 1997                                                  15                    15
    .  Series B Preferred - 1,380,000 shares issued and outstanding as
       of December 31, 1998 and 1997                                                  14                    14
   Common shares - $.01 par value, 50,000,000 shares authorized,
    3,995,000 and 4,120,000 shares issued and outstanding as of
    December 31, 1998 and 1997, respectively                                          40                    41
   Additional paid-in capital                                                     91,709                91,656
   Distributions in excess of net income                                         (12,194)               (2,802)
                                                                                --------              --------
     Total stockholders' equity                                                   79,584                88,924
                                                                                --------              --------
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $219,499              $189,380
                                                                                ========              ========
</TABLE>

          See accompanying notes to Consolidated Financial Statements

                                      F-2
<PAGE>
 
                                G&L REALTY CORP.

                       CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                   1998                 1997                 1996
                                                                ----------------------------------------------------
<S>                                                               <C>                  <C>                  <C>
REVENUES:
   Rent (Notes 5 and 15)                                           $24,639              $20,307              $15,796
   Tenant reimbursements                                               781                  707                  728
   Parking                                                           1,501                1,439                1,251
   Interest, loan fees and other                                     4,517                4,322                6,712
   Other                                                               254                  274                  549
                                                                   -------              -------              -------
     Total revenues                                                 31,692               27,049               25,036
                                                                   -------              -------              -------
EXPENSES:
   Property operations                                               6,171                6,280                5,696
   Depreciation and amortization                                     4,597                3,570                2,773
   Interest                                                          8,683                9,088                9,322
   General and administrative                                        2,554                2,044                1,787
   Provision for doubtful accounts, notes and bonds  
    receivable (Notes 4,6,7 and 9)                                   5,603                  ---                  ---
   Loss on disposition of real estate (Note 17)                        ---                  ---                4,874
                                                                   -------              -------              -------
     Total expenses                                                 27,608               20,982               24,452
                                                                   -------              -------              -------
Income from operations before minority interests,
 equity in earnings of unconsolidated affiliates and                 4,084                6,067                  584
 extraordinary gain
Equity in earnings of unconsolidated affiliates                         80                1,195
Minority interest in consolidated affiliates                          (225)                (156)                (129)
Minority interest in Operating Partnership                             404                 (545)                 (65)
                                                                   -------              -------              -------
Income before extraordinary gain                                     4,343                6,561                  390
Extraordinary gain on retirement of debt
 (net of minority interest) (Note 17)                                  ---                  ---                9,311
                                                                   -------              -------              -------
Net income                                                         $ 4,343              $ 6,561              $ 9,701
                                                                   =======              =======              =======
Per share data (Note 13):
   Basic:                                     
     (Loss) income before extraordinary gain                       $ (0.70)             $  0.91              $  0.10
     Extraordinary gain                                                ---                  ---                 2.29
                                                                   -------              -------              -------
     Net (loss) income                                             $ (0.70)             $  0.91              $  2.39
                                                                   =======              =======              =======
   Fully diluted:                             
     Income before extraordinary gain                              $ (0.70)             $  0.89              $  0.09
     Extraordinary gain                                                ---                  ---                 2.24
                                                                   -------              -------              -------
     Net income                                                    $ (0.70)             $  0.89              $  2.33
                                                                   =======              =======              =======
Weighted average outstanding shares:
     Basic                                                           4,092                4,049                4,063
     Fully diluted                                                   4,135                4,129                4,172
</TABLE>

                                      F-3
<PAGE>
 
                                G&L REALTY CORP.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                                        Distributions
                                    Preferred Stock   Preferred Stock                       Additional    in excess       Total
                                       Series A          Series B         Common Stock       Paid - in       of        stockholders'
                                    Shares   Amount   Shares   Amount   Shares    Amount      Capital    net income      equity
                                   ------------------------------------------------------------------------------------------------
<S>                                <C>      <C>      <C>      <C>      <C>       <C>       <C>          <C>            <C>
BALANCE JANUARY 1, 1996              ---      ---      ---      ---    4,062       $41       $23,705      $ (5,479)     $ 18,267
Stock options exercised                                                            ---             5                           5
Net income                                                                                                   9,701         9,701
Distributions declared                                                                                      (5,525)       (5,525)
                                   -----      ---    -----      ---    -----       ---       -------      --------      --------
BALANCE DECEMBER 31, 1996            ---      ---      ---      ---    4,062        41        23,710        (1,303)       22,448
Repurchase of common stock                                               (76)       (1)       (1,277)                     (1,278)
Stock options exercised                                                  134         1         1,288                       1,289
Series A Preferred Stock issued    1,495      $15                                             35,383                      35,398
Series B Preferred Stock issued                      1,380      $14                           32,552                      32,566
Net Income                                                                                                   6,561         6,561
Distributions declared                                                                                      (8,060)       (8,060)
                                   -----      ---    -----      ---    -----       ---       -------      --------      --------
BALANCE DECEMBER 31, 1997          1,495       15    1,380       14    4,120        41        91,656        (2,802)       88,924
Repurchase of common stock                                              (152)       (1)       (2,336)                     (2,337)
Stock options exercised                                                   27                     389                         389
Issuance of common stock                                                                       2,000                       2,000
Net Income                                                                                                   4,343         4,343
Distributions declared                                                                                     (13,735)      (13,735)
                                   -----      ---    -----      ---    -----       ---       -------      --------      --------
BALANCE DECEMBER 31, 1998          1,495      $15    1,380      $14    3,995       $40       $91,709      $(12,194)     $ 79,584
                                   =====      ===    =====      ===    =====       ===       =======      ========      ========
</TABLE>

                                      F-4
<PAGE>
 
                                G&L REALTY CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                    1998                1997                1996
                                                                                --------------------------------------------------
<S>                                                                              <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                                                       $  4,343            $  6,561            $  9,701
 Adjustments to reconcile net income to net cash provided by operating
  activities:
   Extraordinary gain on retirement of debt                                            ---                 ---              (9,311)
   Loss on disposition of rental property                                              ---                 ---               4,874
   Depreciation and amortization                                                     4,597               3,570               2,773
   Amortization of deferred interest costs                                             188                 252                 503
   Amortization of discount on marketable securities                                  (152)                ---                 ---
   Minority interests                                                                 (179)                701                 194
   Unbilled rent receivable                                                            (77)               (400)                 (5)
   Equity in earnings of unconsolidated affiliates                                     (80)             (1,195)                ---
   Provision for doubtful accounts, notes and bonds receivables                      5,603                 339                 876
   (Increase) decrease in:
     Prepaid expense and other assets                                                 (204)                 16                (153)
     Other receivables                                                                 489                 231                (891)
     Tenant rent and reimbursements receivable                                      (1,594)               (112)               (842)
     Accrued interest receivable and loan fees                                        (875)             (1,488)             (1,102)
   Increase (decrease) in:
     Accounts payable and other liabilities                                            383                 558                (893)
     Tenant security deposits                                                          224                  12                   2
                                                                                  --------            --------            --------
 Net cash provided by operating activities                                          12,666               9,045               5,726
                                                                                  --------            --------            --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to rental properties                                                     (1,699)               (987)             (2,220)
 Purchases of real estate assets                                                   (37,790)            (26,440)            (21,550)
 Construction in progress                                                           (4,990)               (300)                ---
 Disposition (acquisition) of assets available for sale                                ---               3,944                (307)
 Pre-acquisition costs, net                                                            (49)                ---               1,001
 Contributions to unconsolidated affiliates                                        (11,996)            (11,386)                ---
 Distributions from unconsolidated affiliates                                        7,553               3,990                 ---
 Investment in marketable securities                                                (1,154)                ---                 ---
 Leasing commissions                                                                  (441)               (174)               (149)
 Investments in notes and bonds receivable                                          (5,573)            (19,822)            (14,755)
 Principal payments received from notes and bonds receivable                         5,045               1,641              14,567
                                                                                  --------            --------            --------
 Net cash used in investing activities                                             (51,094)            (49,534)            (23,413)
                                                                                  --------            --------            --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Notes payable proceeds                                                             48,832              47,300              47,000
 Repayment of notes payable                                                         (9,124)            (47,153)            (21,018)
 Payment of deferred loan costs                                                       (896)                (41)             (1,398)
 Decrease/(Increase) in restricted cash                                              3,738              (5,778)             (1,356)
 Sale of preferred stock                                                               ---              67,964                 ---
 Minority interest equity contribution                                                 195                 226                 ---
 Purchase of common stock and partnership units                                     (2,337)             (1,277)                ---
 Exercise of common stock options                                                      389               1,288                   5
 Distributions                                                                     (14,599)             (8,696)             (5,950)
                                                                                  --------            --------            --------
 Net cash provided by financing activities                                          26,198              53,833              17,283
                                                                                  --------            --------            --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                               (12,230)             13,344                (404)
BEGINNING CASH AND CASH EQUIVALENTS                                                 13,609                 265                 669
                                                                                  --------            --------            --------
ENDING CASH AND CASH EQUIVALENTS                                                  $  1,379            $ 13,609            $    265
                                                                                  ========            ========            ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest                                            $  9,028            $  8,709            $  8,874
                                                                                  ========            ========            ========
</TABLE>

          See accompanying notes to Consolidated Financial Statements

                                      F-5
<PAGE>
 
                                G&L REALTY CORP.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
      SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                            1998            1997             1996
                                                                           ---------------------------------------
<S>                                                                        <C>             <C>             <C> 
NONCASH INVESTING ACTIVITIES:
 
    Net cost of assets transferred to Company (Note 18):
        Accounts receivable                                                $  295
        Land                                                                1,751
        Construction in progress                                            3,871
        Deferred leasing costs                                                250
        Deferred loan costs                                                    20
        Note receivable                                                        44
        Accounts payable                                                        8
                                                                           ------  
                                                                           $6,239
                                                                           ======
                                                                           
    Net cost of assets transferred from Company (Note 18):                 
        Investment in unconsolidated affiliates                            $5,645
        Note receivable                                                       594
                                                                           ------  
                                                                           $6,239
                                                                           ======
                                                                           
    Property acquired in satisfaction of note receivable                                   $ 4,650
                                                                                           =======
    The Company exchanged its interest Series A and B Bonds                
    for the following noncash consideration (Note 18):                     
        Assignment of note payable                                                         $14,000
        Investment in affiliate, net of deferred gain                                        2,653
                                                                                           ------- 
                                                                                           $16,653
                                                                                           =======
    The Company acquired an interest in three Massachusetts                
    nursing homes for the following noncash consideration                  
    (Note 18):                                                             
        Note Receivable                                                                    $14,000
        Investment in affiliate, net of deferred gain                                        2,653
                                                                                           ------- 
                                                                                           $16,653
                                                                                           =======
    Property acquired in exchange for partnership units                    
    (Note 18)                                                              $2,000                          $   549
                                                                           ======                          =======
NONCASH FINANCING ACTIVITIES:                                              

Net cost of assets transferred to lien holder (Note 17):                   
    Land                                                                                                   $ 2,047
    Buildings and improvements                                                                              21,601
    Tenant improvements                                                                                        477
        Accumulated depreciation                                                                            (3,557)
                                                                                                           ------- 
            Total rental property                                                                           20,568
    Unbilled rent receivable, net                                                                            1,109
    Other receivables, net                                                                                      91
    Tenant rent and reimbursements receivable, net                                                             250
    Deferred charges and other assets                                                                          267
    Accounts payable and other liabilities                                                                     589
                                                                                                           ------- 
Net cost of assets transferred to lien holder                                                               22,874
Nonrecourse debt extinguished                                                                               28,500
                                                                                                           ------- 
Excess of nonrecourse debt over net cost of assets surrendered                                             $ 5,626
                                                                                                           =======
Noncash gain from transfer of property to lien holder:                                                     
    Extraordinary gain on retirement of debt                                                               $ 9,311
    Minority interest share of extraordinary gain                                                            1,055
                                                                                                           ------- 
    Extraordinary gain on retirement of debt                                                                10,366
    Extraordinary loss related to other refinancing transactions                                               134
                                                                                                           ------- 
    Extraordinary gain on transfer of property to lien holder                                               10,500
    Loss on disposition of rental property                                                                  (4,874)
                                                                                                           ------- 
Noncash gain from transfer of property to lien holder                                                      $ 5,626
                                                                                                           =======
Preferred distribution due to minority partner                             $   17              ---             ---
                                                                           ======          =======         =======
Distributions declared not yet paid                                        $1,751          $ 2,370         $ 1,463
                                                                           ======          =======         =======
</TABLE>

                                      F-6
<PAGE>
 
                                G&L REALTY CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE THREE YEARS ENDING DECEMBER 31, 1998

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 Realty Financing Partnership II, L.P., a Delaware limited 
           partnership (the "Realty Financing 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")
         GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
         G&L Hampden, LLC, a Delaware limited liability company ("Hampden")*
         G&L Valencia, LLC, a California limited liability company ("Valencia")
         G&L Holy Cross, LLC, a California limited liability company ("Holy 
           Cross")*
         G&L Burbank, LLC, a California limited liability company ("Burbank")*
         G&L Tustin, LLC, a California limited liability company ("Tustin")*
         GLH Pacific Gardens, LLC, a California limited liability company 
           ("Pacific Gardens")
         G&L Hoquiam, LLC, a California limited liability company ("Hoquiam")
         G&L Lyons, LLC, a California limited liability company ("Lyons")
         G&L Coronado (1998), LLC, a California limited liability company 
           ("Coronado")

   * The Realty Financing Partnership, the Medical Partnership, Maryland
     Gardens, GL/PHP, 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 86%
ownership interest, controls the Operating 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% 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 is owned by the Operating Partnership, acting as sole limited partner or
member.  Financing Entities in which a Subsidiary owns no interest are 100%
owned by the Operating 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 Subsidiaries, the Financing
Entities, the Roxbury Partnership (in which the Operating Partnership owns a
61.75% partnership interest and is the sole general partner), Valencia (in which
the Operating Partnership owns an 80% membership interest and is the sole
managing member), Pacific Gardens (in which the Operating Partnership owns a 93%
membership interest and is a co-managing member) and Hoquiam, Lyons and Coronado
(in which the Operating Partnership owns a 100% interest).

                                      F-7
<PAGE>
 
   The Company also owns interests in various unconsolidated affiliates.
Although the Company's investment represents a significant portion of the
capital of such affiliates and the Company exercises significant 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 affiliates in the consolidated financial statements of the Company.   The
Company has unconsolidated financial interests in the following entities:

   .   GLN Capital Co., LLC ("GLN"), a Delaware limited liability company formed
       in 1996. GLN, an unconsolidated affiliate, is owned 49.9% by the
       Operating Partnership and 50.1% by an affiliate of Nomura Asset Capital
       Corp. ("Nomura"). The purpose of GLN is to fund loans to the senior care
       industry.

   .   Valley Convalescent, LLC ("Valley Convalescent") is a California limited
       liability company formed by the Company, through the Operating
       Partnership, and Continuum Health Incorporated, a Delaware corporation
       ("Continuum"), who each hold a 50% ownership interest. Continuum is the
       managing member of Valley Convalescent which was formed for the purpose
       of acquiring Valley Convalescent Center located in El Centro, California.

   .   G&L Grabel San Pedro, LLC ("San Pedro") is a California limited liability
       company, formed on March 10, 1998 by the Company through the Operating
       Partnership, and Gary Grabel, an experienced MOB manager. Both the
       Operating Partnership and Gary Grabel, who is the managing member, hold a
       50% interest in San Pedro. San Pedro was formed for the purpose of
       acquiring three MOBs located at 1360 West 6th street in San Pedro,
       California.

   .   G&L Penasquitos, LLC ("Penasquitos LLC") is a California limited
       liability company, formed by the Company on April 24, 1998, through the
       Operating Partnership, and Parsons House, LLC, a California limited
       liability company ("Parsons"). The Company and Parsons contributed to
       Penasquitos LLC 75% and 25% of the equity, respectively. However, the
       initial ownership interests of the parties will be adjusted to 50% as
       each partner receives a return of its initial capital contribution
       through preferred distributions. Penasquitos LLC was formed for the
       purpose of acquiring and converting a building located in Rancho
       Penasquitos, California into a senior care facility.

   .   G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
       formed on April 21, 1998 by the Company, through the Operating
       Partnership, and Parsons. The Company owns 75% of the total equity in
       Penasquitos Inc. in the form of non-voting preferred stock. Parsons holds
       25% of the total equity and all of the voting common stock. Penasquitos
       Inc. was formed for the purpose of operating a senior care facility to be
       built in Rancho Penasquitos, California.

   .   GLH Pacific Gardens Corp. ("Pacific Gardens Corp.") is a California
       corporation formed on June 25, 1998 by the Company, through the Operating
       Partnership, and ASL Santa Monica, Inc., a California corporation
       ("ASL"). The Company owns 93% of the total equity in Pacific Gardens
       Corp. in the form of non-voting preferred stock. ASL holds 7% of the
       total equity in the form of common stock. Pacific Gardens Corp. was
       formed for the purpose of operating a senior care facility located in
       Santa Monica, California, which was purchased by the Company.

   .   G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California limited
       liability company, formed on December 29, 1998, through the Operating
       Partnership and Parsons. The Company and Parsons each contributed 50% of
       the total equity in Eagle Run. Eagle Run was formed for the purpose of
       acquiring a vacant piece of land in Omaha, Nebraska upon which the
       members intend to develop an senior care facility.

   GLN, Valley Convalescent, San Pedro, Penasquitos LLC, Penasquitos Inc.,
Pacific Gardens Corp. and Eagle Run are herein defined collectively as the
"Unconsolidated Affiliates" and individually as "Unconsolidated Affiliate".

                                      F-8
<PAGE>
 
2.  Summary of Significant Accounting Policies

   Business-- The Company is a growth-oriented health care Real Estate
Investment Trust ("REIT") with two major areas of operation:  (a) the Property
Investments Division, which owns, develops and manages high-quality,
strategically located medical office buildings and senior care facilities, and
(b) the Senior Care Division, which provides loan funds to facilitate the sale
of skilled nursing and assisted living facilities to various entities throughout
the United States.

   Basis of presentation-- The accompanying consolidated financial statements
include the accounts of the Company, the Operating Partnership, the Realty
Financing Partnership, the Medical Partnership, Maryland Gardens, the Roxbury
Partnership, GL/PHP, Hampden, Valencia, Holy Cross, Burbank, Tustin, Pacific
Gardens, Hoquiam, Lyons and Coronado.  The interests in the Operating
Partnership, the Roxbury Partnership, Valencia and Pacific Gardens not owned by
the Company have been reflected in minority interests.  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 Realty Financing Partnership, the
Medical Partnership, Maryland Gardens, the Roxbury Partnership, GL/PHP, Hampden,
Valencia, Holy Cross, Burbank, Tustin, Pacific Gardens, Hoquiam, Lyons and
Coronado own a 100% fee simple interest in all of the properties.

   Income taxes-- The Company qualified and elected to be taxed as a REIT for
Federal income tax purposes.  Such qualification and taxation as a REIT depends
upon the Company's ability to meet, on a continuing basis, various REIT
qualification requirements.  As a REIT, the Company is eligible for a deduction
for dividends paid to shareholders.  For the years ended December 31, 1998, 1997
and 1996, the Company paid dividends to its stockholders in excess of its
earnings and profits (See Note 13).  Therefore, no provisions for Federal income
taxes are included in the accompanying financial statements.

   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:


<TABLE>
       <S>                                                     <C>
       Buildings and improvements............................  40 years
       Tenant improvements...................................  Life of lease
       Furniture, fixtures and equipment.....................  5 years
</TABLE>

   Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$4,432,000, $3,484,000 and $2,668,000 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 which is included in unbilled rent receivable (Note 5).

   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.
The Company invests its excess cash balances in commercial paper and auction
notes issued by companies with investment grade ratings.  Throughout the year,
the Company also 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, tenant security deposits, property taxes, insurance premiums
and property improvements.

   Marketable Securities--Effective January 1, 1994, the Company adopted
Financial Accounting Standards Board (FASB) Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."  The Company determines 

                                      F-9
<PAGE>
 
the appropriate classification at the time of purchase. Securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at cost, adjusted for amortization of premiums and discounts to maturity.
Marketable securities not classified as held-to-maturity are classified as
available-for-sale or trading securities. As of December 31, 1998, the Company
has no securities classified as available-for-sale or trading. Interest and
amortization of premiums and discounts for all securities are included in
interest income.

   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 over the
terms of the respective agreements.  Expenses incurred to obtain financing are
capitalized and amortized over the term of the related loan as a yield
adjustment.  Interest rate protection agreement fees are capitalized and
amortized over the term of the agreements.

   Minority interest in consolidated affiliates-- The Operating Partnership, as
sole general partner, has a 61.75% 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 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 Operating Partnership, as sole general partner, also owns an 80%
interest in Valencia and a 93% interest in Pacific Gardens.

   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 a value equal to the net present value of
the expected future cash flows and an impairment loss will be recognized.
Management believes that the expected future cash flows of its long-lived assets
exceeded the related book values as of December 31, 1998 and 1997.

   Per share data-- Earnings per share are computed based upon the weighted
average number of shares of the Company's Common Stock, $.01 par value (the
"Common Stock") outstanding during the period.  The treasury stock method is
used to determine the number of incremental common equivalent shares resulting
from options granted under the Company's stock incentive plan.  Computation of
the number of shares is included in Note 14.

   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 Cash, cash equivalents, tenant rent
and other accounts receivable, accounts payable and other liabilities are
carried at book value as the amount of these instruments approximates fair value
due to their short-term maturities.  The carrying amount of the Company's notes
payable approximate fair value because the interest rates are comparable to
rates currently being offered to the Company.  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.  There are no realized or unrealized gains or losses included
in the accompanying financial statements.

   Comprehensive income-- The Company does not have any items which meet the
definition of other comprehensive income as defined in Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income."

   Use of estimates-- The preparation of financial statements in conformity with
generally accepted accounting principles 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.

                                      F-10
<PAGE>
 
   Recent accounting pronouncements-- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133").
SFAS 133 is effective for fiscal years beginning after June 15, 1999 and
requires all derivatives to be recorded on the balance sheet at fair value as
either assets or liabilities depending on the rights or obligations under the
contract.  SFAS 133 also establishes new accounting methodologies for the
following three classifications of hedges: fair value, cash flow and net
investment in foreign operations.  Management believes the adoption of SFAS 133
will not have a material impact on the Company's financial position or results
of operations.

3.  Buildings and Improvements

   Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
                                                                       December 31,
                                                                  1998              1997
                                                             -------------------------------
                                                                      (in thousands)
              <S>                                            <C>               <C>
              Buildings and improvements                        $152,618          $118,799
              Tenant improvements                                  5,846             4,946
              Furniture, fixtures and equipment                    2,560             1,628
                                                                --------          --------
                                                                 161,024           125,373
              Less accumulated depreciation
              And amortization                                   (18,493)          (14,061)
                                                                --------          --------
              Total                                             $142,531          $111,312
                                                                ========          ========
</TABLE>

4.  Tenant Rent and Reimbursements Receivable

   Tenant rent and reimbursements receivable are net of an allowance for
uncollectible amounts of $1,261,000 and $88,000 as of December 31, 1998 and
1997, respectively.  The activity in the allowance for uncollectible tenant
accounts for the three years ending December 31, 1998, was as follows:


<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                   1998              1997              1996
                                                               -----------------------------------------------
                                                                                (in thousands)
              <S>                                              <C>               <C>               <C>
              Balance, beginning of year                          $   88             $ 261             $   8
              Additions                                            1,210               150               499
              Charge-offs                                            (37)             (323)             (246)
                                                                  ------             -----             -----
              Balance, end of year                                $1,261             $  88             $ 261
                                                                  ======             =====             =====
</TABLE>

   During the year ended December 31, 1998, the Company increased its allowance
for uncollectible amounts by $1.21 million.  This increase was mainly related to
delinquent rents due from the operators of the Company's skilled nursing
facilities.  The remaining balance represents increases for the Company's MOB
tenants incurred through the normal course of business.


5.  Unbilled Rent

   The Company has operating leases with tenants that expire at various dates
through 2011.  The minimum rents due under these leases are subject to either
scheduled fixed increases or adjustments based on the Consumer Price Index.  In
general, the retail leases require tenants to pay their pro-rata share of
property taxes, insurance and common area operating 

                                      F-11
<PAGE>
 
costs, while the medical office leases require tenants to reimburse the Company
for annual increases in property taxes, insurance and specified operating
expenses over a base year amount.

   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:

<TABLE>
<CAPTION>
              Year Ending December 31,        Future Minimum       Straight-line       Unbilled Rent
                                                   Rent                 Rent            Receivable
            ------------------------------------------------------------------------------------------
                                                                   (in thousands)
            <S>                               <C>                  <C>                 <C>
               1999......................         $ 19,326            $ 19,618             $ (292)
               2000......................           17,385              17,426                (41)
               2001......................           14,993              14,853                140
               2002......................           12,040              11,828                212
               2003......................            9,767               9,541                226
               Thereafter................           33,764              31,643              2,121
                                                  --------            --------             ------
            Total........................         $107,275            $104,909             $2,366
                                                  ========            ========             ======
</TABLE>

   The activity in the allowance for unbilled rent, recorded as a reduction of
rental revenue for the three years ending December 31, 1998, consisted of the
following:


<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                   1998              1997             1996
                                                                 -------------------------------------------
                                                                                (in thousands)
              <S>                                                <C>               <C>              <C>
              Balance, beginning of year                           $ 476             $ 414            $ 967
              Additions                                               12                62              ---
              Charge-offs                                            (14)              ---             (553)
                                                                   -----             -----            -----
              Balance, end of year                                 $ 474             $ 476            $ 414
                                                                   =====             =====            =====
</TABLE>

6.  Other Receivables

   Other receivables consist of all outstanding balances due to the Company
other than amounts due from current tenants and are net of the allowance for
uncollectible amounts of $330,000 and $248,000 as of December 31, 1998 and 1997.
The activity in the allowance for uncollectible accounts for the three years
ending December 31, 1998, is as follows:

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                    1998              1997             1996
                                                                 ---------------------------------------------
                                                                               (in thousands)
              <S>                                                <C>               <C>              <C>
              Balance, beginning of year                           $ 248              $248             $---
              Additions                                              282               ---              248
              Charge-offs                                           (200)              ---              ---
                                                                   -----              ----             ----
              Balance, end of year                                 $ 330              $248             $248
                                                                   =====              ====             ====
</TABLE>

                                      F-12
<PAGE>
 
7.  Mortgage Loans and Bonds Receivable

   Mortgage loans and bonds receivable consist of the following:

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                        1998                 1997
                                                                                    --------------------------------
                                                                                              (in thousands)
<S>                                                                                 <C>                  <C>
Note due June 30, 1997, collateralized by deed of trust, interest
  payable monthly at 12% per annum, (This note is currently in default
  and accrues interest at 15% per annum, the default rate).........................   $ 6,825              $ 6,825
Secured Note due April 1, 2008, interest payable semiannually at 10%
  per annum (This note is currently in default)....................................       150                  150
Unsecured promissory note receivable due October 1, 2004, interest
  accrues monthly at 10.0% per annum.  Payments are due monthly based on
  5.0% per annum of the outstanding balance (This note is currently in
  default).........................................................................       800                  800
Unsecured promissory note receivable due May 31, 1999 interest payable
  quarterly at 9.0% per annum (This note is currently in default)..................       300                  300
Unsecured promissory note receivable due January 23, 1998, no payments
  are required until maturity.  Interest accrues monthly at 14% per
  annum (This note is currently in default)........................................        47                   47
Unsecured promissory note receivable due April 1, 2003, interest
  payable quarterly at 8.0% per annum (This note is currently in default
  and accrues interest at 12% per annum, the default rate).........................       300                  ---
Unsecured promissory notes receivable payable upon demand, interest
  accrues monthly at 12% per annum.................................................       715                  ---
Unsecured credit line receivable due May 31, 1998, interest payable
  annually at 12.0% per annum. Unpaid principal accrues interest at
  12.0% annually after maturity date (Amount is currently in default)..............       115                  300
Secured promissory note due August 25, 1998, interest payable at 12%
  per annum (This note is currently in default)....................................     3,589                  ---
Unsecured promissory note receivable due June 30, 1999, interest
  payable at 10.0% per annum.......................................................        44                  ---
Unsecured subordinated notes receivable due February 1, 2006, interest
  payable semiannually at 12.0% per annum..........................................       ---                    7
Unsecured promissory note receivable due December 31, 1997, interest
  payable annually at 5.25% per annum.  Unpaid principal accrues
  interest at 8.0% annually after maturity date....................................       ---                  500
Secured promissory note due February 1, 1998, interest payable monthly
  at 30-day LIBOR plus 6.5%  per annum.............................................       ---                1,934
Secured promissory note due April 1, 1998, interest payable monthly at
  30-day LIBOR plus 6.5%  per annum................................................       ---                  870
Secured promissory note due April 1, 1998, interest payable monthly at
  30-day LIBOR plus 6.5% per annum.................................................       ---                  115
Secured promissory note due October 15, 1998, no payments are required
  until maturity.  Interest accrues monthly at 18% per annum.......................       ---                  270
Secured promissory note due December 31, 1999, no payments are
  required until maturity.  Interest accrues monthly at 10% per annum..............       ---                  540
Unsecured promissory notes receivable due July 7, 1997, interest
  payable monthly  at the greater of 11.0% per annum or 30-day LIBOR
  plus 5.25%.  Commencing July 7, 1997, borrower may at its option, pay
  a fee equal to 1% of the outstanding balance of the loan to extend the
  loan for additional 3-month periods..............................................       ---                  250
                                                                                      -------              -------
Face value of mortgage loans and bonds receivable..................................    12,885               12,908

Accrued interest...................................................................     2,733                1,815
Reimbursable loan fees and costs advanced..........................................       ---                  200
Allowance for uncollectible amounts................................................    (3,517)                (825)
                                                                                      -------              -------
Total mortgage loans and bonds interest receivable.................................   $12,101              $14,098
                                                                                      =======              =======
</TABLE>

                                      F-13
<PAGE>
 
   As of December 31, 1998, the principal balance on all notes receivable of
$12,885 was either past due, currently due as a result of default or due within
the next twelve months.

   The activity in the allowance for uncollectible notes receivable for the
three years ending December 31, 1998, is as follows:

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                    1998              1997             1996
                                                                  --------------------------------------------
                                                                                (in thousands)
              <S>                                                 <C>               <C>              <C>
              Balance, beginning of year                          $  825             $ 375            $ ---
              Additions                                            2,792               450              375
              Charge-offs                                           (100)              ---              ---
                                                                  ------             -----            -----
              Balance, end of year                                $3,517             $ 825            $ 375
                                                                  ======             =====            =====
</TABLE>

                                      F-14
<PAGE>
 
8.  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 Company's investment
in each of these entities as of December 31, 1998 and 1997 (in thousands).

<TABLE>
<CAPTION>
                                                                   As of December 31, 1998                 
                                           -----------------------------------------------------------------------
                                                             Valley                            Aliso                  
                                           GLN Capital    Convalescent       AV Medical       Partners   San Pedro      
                                           -----------------------------------------------------------------------
<S>                                        <C>            <C>                <C>              <C>        <C> 
Opening balance at beginning of year         $ 2,730         $  311            $ 600           $ 550      $   ---      
Equity in earnings of affiliates                  91             83              ---             ---           78      
Contributions                                    ---            ---              ---             ---        6,300      
Distributions                                 (2,113)          (318)            (600)           (550)      (5,213)     
                                             -------         ------            -----           -----      -------
Equity, net of inter-company          
 transactions                                    708             76              ---             ---        1,165      
Intercompany receivable (payable), net            58          3,116              ---             ---          (16)     
                                             -------         ------            -----           -----      -------
Investment in unconsolidated affiliates      $   766         $3,192            $ ---           $ ---      $ 1,149      
                                             =======         ======            =====           =====      =======
<CAPTION> 
                                                                   As of December 31, 1998
                                            ----------------------------------------------------------------------
                                            Penasquitos   Penasquitos    Pacific Gardens      Parsons
                                                LLC          Inc.             Corp.            House        Total
                                            ----------------------------------------------------------------------
<S>                                         <C>           <C>            <C>                  <C>           <C>
Opening balance at beginning of year          $  ---         $---            $ ---             $---        $ 4,191
Equity in earnings of affiliates                 ---          ---             (172)             ---             80
Contributions                                  1,229          270               23              800          8,622
Distributions                                    ---          ---              ---              ---         (8,794)
                                              ------          ---            -----             ----        -------
Equity, net of inter-company
 transactions                                  1,229          270             (149)             800          4,099
Intercompany receivable (payable), net           170          ---               42              ---          3,370
                                              ------          ---            -----             ----        -------
Investment in unconsolidated affiliates       $1,399         $270            $(107)            $800        $ 7,469
                                              ======         ====            =====             ====        =======
</TABLE>  

<TABLE>
<CAPTION>
                                                               As of December 31, 1997
                                           --------------------------------------------------------------
                                                             Valley                     Aliso
                                           GLN Capital    Convalescent   AV Medical   Partners     Total
                                           --------------------------------------------------------------
<S>                                        <C>            <C>            <C>          <C>         <C>
Opening balance at beginning of year        $   ---          $  ---        $  ---      $ ---      $   ---
Equity in earnings of affiliates              1,184              11           ---        ---        1,195
Contributions                                 6,123             300           600        550        7,573
Distributions                                (4,577)            ---           ---        ---       (4,577)
                                            -------          ------        ------      -----      -------
Equity, net of inter-company
 transactions                                 2,730             311           600        550        4,191
Intercompany receivable (payable), net           64           2,622         1,999       (285)       4,400
                                            -------          ------        ------      -----      -------
Investment in unconsolidated affiliates     $ 2,794          $2,933        $2,599      $ 265      $ 8,591
                                            =======          ======        ======      =====      =======
</TABLE>

                                      F-15
<PAGE>
 
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the years ended December 31, 1998 (in
thousands).

<TABLE>
<CAPTION>
                             ---------------------------------------------------------------------------
                                                  Valley                           Aliso 
                             GLN Capital       Convalescent      AV Medical      Partners      San Pedro
                             ---------------------------------------------------------------------------
<S>                          <C>               <C>               <C>            <C>            <C>
Financial Position:
-------------------
  Land                            $  ---         $   382         $     ---      $     ---       $ 1,882
  Buildings                          ---           2,690               ---            ---         4,334
  Notes and bonds
    receivable, net                1,473             ---               ---            ---           ---
  Other Assets                        31             310               ---            ---           434
  Notes payable                      ---          (2,799)              ---            ---        (4,899)
  Other liabilities                  (90)           (146)              ---            ---          (299)
                                  ------         -------         ---------      ---------       -------
Net assets                        $1,414         $   437         $     ---      $     ---       $ 1,452
                                  ======         =======         =========      =========       =======

Partner's equity:
-----------------
  G&L Realty Partnership, L.P.    $  708         $    76         $     ---      $     ---       $ 1,165
  Others                             706             361               ---            ---           287
                                  ------         -------         ---------      ---------       -------
Total Equity                      $1,414         $   437         $     ---      $     ---       $ 1,452
                                  ======         =======         =========      =========       =======

<CAPTION> 
                              ------------------------------------------------------------------
                                                               Pacific
                              Penasquitos    Penasquitos       Gardens       Parsons
                                  LLC            Inc.           Corp.         House       Total
                              ------------------------------------------------------------------
<S>                           <C>            <C>               <C>           <C>        <C>
Financial Position:
-------------------
  Land                         $   ---          $---            $ ---        $   ---    $  2,264
  Buildings                        ---           ---              ---            ---       7,024
  Notes and bonds
    receivable, net                ---           ---              ---            ---       1,473
  Other Assets                   6,878           411              157          1,709       9,930
  Notes payable                 (4,800)          ---              ---            ---     (12,498)
  Other liabilities               (440)          (51)            (317)          (109)     (1,452)
                               -------          ----            -----         ------    --------
Net assets                     $ 1,638          $360            $(160)        $1,600    $  6,741
                               =======          ====            =====         ======    ========

Partner's equity:
-----------------
  G&L Realty Partnership, L.P. $ 1,229          $270            $(149)        $  800    $  4,099
  Others                           409            90              (11)           800       2,642
                               -------          ----            -----         ------    --------
Total Equity                   $ 1,638          $360            $(160)        $1,600    $  6,741
                               =======          ====            =====         ======    ========
</TABLE>

<TABLE>
<CAPTION>
                          -------------------------------------------------------------------
                                             Valley                       Aliso                
                          GLN Capital     Convalescent    AV Medical    Partners    San Pedro  
                          -------------------------------------------------------------------
<S>                       <C>             <C>             <C>           <C>         <C> 
Operations:
-----------
  Revenues                   $352             $603         $   ---      $   ---       $948     
  Expenses                    170              437             ---          ---        792     
                             ----             ----         -------      -------       ----
Net income                   $182             $166         $   ---      $   ---       $156
                             ====             ====         =======      =======       ====

Allocation of  net income:
--------------------------
  G&L Realty 
   Partnership, L.P.         $ 91             $ 83         $   ---      $   ---       $ 78     
  Others                       91               83             ---          ---         78     
                             ----             ----         -------      -------       ----
                             $182             $166         $   ---      $   ---       $156     
                             ====             ====         =======      =======       ====

<CAPTION> 
                         --------------------------------------------------------------
                                                         Pacific
                         Penasquitos   Penasquitos       Gardens     Parsons 
                             LLC           Inc.           Corp.       House       Total
                         --------------------------------------------------------------
<S>                      <C>           <C>               <C>         <C>         <C> 
Operations:
-----------
  Revenues                $   ---        $   ---         $1,185      $  ---      $3,088
  Expenses                    ---            ---          1,369         ---       2,768
                          -------        -------         ------      ------      ------
Net income                $   ---        $   ---         $ (184)     $  ---      $  320
                          =======        =======         ======      ======      ======

Allocation of net income:
------------------------
  G&L Realty 
   Partnership, L.P.      $   ---        $   ---         $ (172)     $  ---      $   80
  Others                      ---            ---            (12)        ---         240
                          -------        -------         ------      ------      ------
                          $   ---        $   ---         $ (184)     $  ---      $  320
                          =======        =======         ======      ======      ======
</TABLE>

                                      F-16
<PAGE>
 
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the years ended December 31, 1997 (in
thousands).

<TABLE>
<CAPTION>
                                           -----------------------------------------------------------------
                                                               Valley                      Aliso
                                             GLN Capital    Convalescent    AV Medical   Partners     Total
                                           -----------------------------------------------------------------
<S>                                        <C>            <C>             <C>           <C>         <C>
Financial Position:
-------------------
  Land                                                         $   382       $ 1,738     $ 3,107    $  5,227
  Buildings                                                      2,721                                 2,721
  Notes and bonds receivable, net              $ 8,900                                                 8,900
  Other Assets                                   1,081             402         1,080       1,229       3,792
  Notes payable                                 (4,134)         (2,799)       (1,989)     (3,236)    (12,158)
  Other liabilities                               (483)            (41)          (29)                   (553)
                                               -------         -------       -------     -------    --------
Net assets                                     $ 5,364         $   665       $   800     $ 1,100    $  7,929
                                               =======         =======       =======     =======    ========
 
Partner's equity:
-----------------
  G&L Realty Partnership, L.P.                 $ 2,730         $   311       $   600     $   550    $  4,191
  Others                                         2,634             354           200         550       3,738
                                               -------         -------       -------     -------    --------
Total Equity                                   $ 5,364         $   665       $   800     $ 1,100    $  7,929
                                               =======         =======       =======     =======    ========
</TABLE>

<TABLE>
<CAPTION>
                                            ---------------------------------------------------------------------
                                                                Valley                     Aliso
                                             GLN Capital     Convalescent    AV Medical   Partners         Total
                                            ---------------------------------------------------------------------
<S>                                          <C>             <C>             <C>          <C>             <C>
Operations:
-----------
  Revenues                                     $ 4,179           $ 142        $  ---        $  ---        $ 4,321
  Expenses                                      (1,872)           (120)                                    (1,992)
                                               -------           -----        ------        ------        -------
Net income                                     $ 2,307           $  22        $  ---        $  ---        $ 2,329
                                               =======           =====        ======        ======        =======

Allocation of net income:
-------------------------
  G&L Realty Partnership, L.P.                 $ 1,184           $  11        $  ---        $  ---        $ 1,195
  Others                                         1,123              11                                      1,134
                                               -------           -----        ------        ------        -------
                                               $ 2,307           $  22        $  ---        $  ---        $ 2,329
                                               =======           =====        ======        ======        =======
</TABLE>

                                      F-17
<PAGE>
 
9.  Marketable Securities

    Marketable securities consist of the following:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                 1998              1997
                                                               --------------------------
              <S>                                              <C>               <C>
                                                                    (in thousands)
              PHP Healthcare Corporation subordinated
               debentures, $2,800,000 face value,
               interest at 6.50%, due December 15,              
               2002, at cost                                   $ 1,154           $    ---
              Accrued interest                                      58                ---
              Amortized discount                                   152                ---
                                                               -------           --------
                                                                 1,364                ---
              Less reserve for uncollectible amounts            (1,364)               ---
                                                               -------           --------
              Total                                            $   ---           $    ---
                                                               =======           ======== 
</TABLE>

        See Footnote 15 for additional discussion of marketable securities.
 
10.  Deferred Charges and Other Assets

     Deferred charges and other assets consist of the following:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                   1998              1997
                                                                  ------------------------
              <S>                                                 <C>               <C>
                                                                       (in thousands)
              Deferred financing costs                            $2,558            $1,669
              Leasing commissions                                  1,272               581
              Prepaid expense and other assets                       527               273
                                                                  ------            ------
                                                                   4,357             2,523
              Less accumulated amortization                         (715)             (388)
                                                                  ------            ------
              Total                                               $3,642            $2,135
                                                                  ======            ======
</TABLE>

                                      F-18
<PAGE>
 
11.  Notes Payable

     Notes payable consist of the following:
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                    1998               1997
                                                                                  ---------------------------
<S>                                                                               <C>                 <C>
                                                                                         (in thousands)
$9,000,000 Note due May 31, 1999, collateralized by deed of trust, interest
 payable monthly at 30-day LIBOR plus 1.50% per annum, note requires monthly
 principle payments of $35,000 plus semiannual payments equal to excess cash
 flow, as defined in the loan extension agreement..............................   $    ---            $ 7,650
$7,831,000 Note due April 1, 2008 collateralized by deed of trust, monthly
 payments of $56,000 of principal and interest, interest at 7.05% per annum.         7,766                ---
$7,500,000 Note due  January 10, 2009, collateralized by deed of trust,
 monthly payments of $50,000 of principal and interest, interest at 6.90% per 
 annum.                                                                              7,500                ---
$8,500,000 Note due July 1, 2001, collateralized by deed of trust, interest
 payable monthly at 30-day LIBOR plus 2.35% until July 1, 1999; beginning July
 1, 1999, monthly payments of $65,708 of principal and interest................      8,500                ---
$4,600,000 Unsecured credit line due August 31, 2000, interest payable monthly
 at LIBOR plus 2.25% per annum.                                                      4,600                ---
$8,100,000 Note due April 1, 2008, collateralized by deed of trust, monthly
 payments of $58,000 of principal and interest, interest at 7.05% per annum.         8,032                ---
$2,475,000 Note due September 1, 2008 collateralized by deed of trust, monthly
 payments of $18,000 of principal and interest, interest at 7.49% per annum.         2,466                ---
$3,267,000 Note due April 1, 2008 collateralized by deed of trust, monthly
 payments of $23,000 of principal and interest, interest at 7.05% per annum.         3,240                ---
$5,225,000 Note due January 1, 2019 collateralized by deed of trust, monthly
 payments of $38,209 of principal and interest, interest at 6.75% per annum.         5,225                ---
$1,333,125 Note due April 1, 2008 collateralized by deed of trust, monthly
 payments of $9,554 of principal and interest, interest at 7.05% per annum.          1,322                ---
$35,000,000 Note due August 11, 2006, collateralized by deed of trust, monthly
 payments of $282,000 of principal and interest, interest at 8.515% per annum.      34,092             34,516
$30,000,000 Note due August 11, 2005, collateralized by deed of trust, monthly
 payments of $229,000 of principal and interest, interest at 7.89% per annum...     28,669             29,109
$16,000,000 Note due March 11, 2014, collateralized by deed of trust, monthly
 payments of $155,000 of principal and interest, interest at 8.98% per annum...     15,468             15,897
$14,000,000 Note due November 11, 2009, collateralized by deed of trust with
 interest only payable monthly at the rate of 8.62% per annum.  The Company
 has the option to draw an additional $8.0 million, up to a maximum loan
 amount of $14.0 million during the first two years of the note.  The interest
 rate on the additional loan draws will bear interest at the ten-year treasury
 rate plus 2.5%.   After the initial two year period, the loan terms will be
 amended to require principal and interest payments based upon a 27-year
 amortization period.  The interest rate will be a weighted average based upon
 the rate set at the time of each of the loan draws.  Currently, interest is
 payable at a rate of $44,000 per month........................................      6,000              6,000
$2,000,000 Unsecured note due July 31, 2007, quarterly payments of $43,000
 interest only (based upon an interest rate of 8.5% per annum).................      2,000              2,000
                                                                                  --------            -------
Total..........................................................................   $134,880            $95,172
                                                                                  ========            =======
</TABLE>

   As of December 31, 1998, 30-day LIBOR was 5.064%.

                                      F-19
<PAGE>
 
   Aggregate future principal payments as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
     Year Ending December 31
     -----------------------
          (in thousands)
     <S>                                <C>
     1999.............................  $  2,026
     2000.............................     6,806
     2001.............................    10,620
     2002.............................     2,483
     2003.............................     2,698
     Thereafter.......................   110,247
                                        --------
      Total...........................  $134,880
                                        ========
</TABLE>

   As of December 31, 1998, the Company had a $200,000 letter of credit
outstanding in favor of a secured lender.  The letter of credit is held as
additional collateral for tenant security deposits outstanding in the event of a
default on the secured loan.

   During 1998 and 1997, the Company capitalized interest relating to
development projects, either directly owned by the Company or through joint
ventures, of $545,000 and $84,000, respectively.  The Company capitalized no
interest in 1996.

12. Commitments and Contingencies

   Neither the Company, the Operating Partnership, the Financing Entities, the
Subsidiaries, Maryland Gardens, the Roxbury Partnership, Valencia, Pacific
Gardens, Hoquiam, Lyons, Coronado, 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.

13. 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 after June 1, 2001 and January 1, 2002,
respectively.  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.

   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 95% of its annual taxable income.
In reporting periods for which distributions exceed net income, stockholders'
equity will be reduced by the excess of distributions over net income.
Conversely, net income in excess of distributions increases stockholders'
equity.

                                      F-20
<PAGE>
 
   The following table reconciles distributions in excess of net income for the
years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                                   1998              1997
                                                                ---------------------------
              <S>                                               <C>               <C>
                                                                       (in thousands)
               Distributions in excess of net income
                 at beginning of year                            $ (2,802)          $(1,303)
               Net income during the year                           4,343             6,561
               Distributions declared                             (13,735)           (8,060)
                                                                 --------           -------
               Distributions in excess of net income
                 at end of year                                  $(12,194)          $(2,802)
                                                                 ========           =======
</TABLE>

   For years ended December 31, 1998 and 1997, 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 1998,
18.55% of the Company's dividend was taxable as ordinary income and 81.45% was
considered a return of capital to Common shareholders. For 1997, 30.83% of the
dividend was taxable as ordinary income, 21.66% was capital gains, taxable at a
maximum 28% federal tax rate, and the remaining 47.51% represented a return of
capital.  Dividends paid to holders of the Company's Preferred Stock are fully
taxable as ordinary income.

   Earnings per share-- Basic earnings per share is computed by dividing net
income less preferred stock dividends by the weighted average number of common
shares outstanding during each year.  Fully diluted earnings per share is
computed by dividing net income less preferred stock dividends by the weighted
average number of common shares outstanding during each year plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock options.  In 1998, the incremental shares that would have been
outstanding upon the assumed exercise of stock options would have been anti-
dilutive and, therefore, were not considered in the computation of fully diluted
earnings per share.  The following table reconciles the numerator and
denominator of the basic and fully diluted per-share computations for net income
for the years ended December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                              1998            1997          1996
                                                            -------------------------------------
             <S>                                            <C>             <C>            <C>
                                                                      (in thousands)
             Numerator:
             ----------
               Net income                                   $ 4,343         $ 6,561        $9,701
               Preferred stock dividends                     (7,212)         (2,875)
                                                            -------         -------        ------
               Net (loss) income available to
                 common stockholders                        $(2,869)        $ 3,686        $9,701
                                                            =======         =======        ======
             Denominator:
             ------------
               Weighted average shares - basic                4,092           4,049         4,063
               Dilutive effect of stock options                  43              80           109
                                                            -------         -------        ------
               Weighted average shares - fully
                 diluted                                      4,135           4,129         4,172
                                                            =======         =======        ======
             Per share:
             ----------
               Basic                                        $ (0.70)        $  0.91        $ 2.39
               Dilutive effect of stock options                 ---           (0.02)        (0.06)
                                                            -------         -------        ------
               Fully diluted                                $ (0.70)        $  0.89        $ 2.33
                                                            =======         =======        ======
</TABLE>

                                      F-21
<PAGE>
 
  The Company declared a quarterly distribution for the first quarter of 1999 in
the amount of $0.39 per Common share to be paid on April 15, 1999 to holders of
the Company's Common Stock on March 31, 1999.  This quarterly dividend is equal
to an annualized distribution of $1.56 per share.

14. Stock Incentive Plan

  As of December 31, 1998, the Company had a stock incentive plan under which an
aggregate of 505,500 shares of the Company's Common Stock are reserved for
issuance.  Options are granted at per share amounts not less than fair market
value at the date of grant and expire ten years thereafter.  Granted options
vest in even increments over a two or three year period beginning one year from
the grant date.  The Company does not charge the estimated compensation cost of
options granted against income.  Compensation cost is estimated to be the fair
value of all options granted based on the Binary option-pricing model.  Based
upon the closing stock price at the end of the year, the costs associated with
options granted in each of the years ending December 31, 1998, 1997, and 1996
are $77,000, $143,000, and $124,000, respectively.  If the compensation costs
had been charged against income at the time of vesting, adjusted for shares
exercised and canceled during the period, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                  1998              1997             1996
                                                ------------------------------------------
         <S>                                     <C>               <C>              <C>
                                                  (in thousands, except per share amounts)
         Net Income:
           As reported                           $4,343            $6,561           $9,701
           Pro forma                             $4,266            $6,418           $9,577
                                   
         Earnings per share:       
           As reported:            
             Basic                               $(0.70)           $ 0.91           $ 2.39
             Fully diluted                       $(0.70)           $ 0.89           $ 2.33   
                                               
           Pro forma:              
             Basic                               $(0.72)           $ 0.87           $ 2.36
             Fully diluted                       $(0.72)           $ 0.86           $ 2.30
</TABLE>

  In December 1995, the Company canceled outstanding options for 218,800 shares
of Common Stock which were originally issued at the time of the Company's
initial public offering at an average exercise price of $18.25 per share.
Concurrently, the Company issued new unvested options for the same aggregate
amount with exercise prices of $9.625 per share, the market price on the date
the new options were granted.

  A summary of the status of the Company's stock incentive plan as of December
31, 1998, 1997, 1996, and changes during the years ending on those dates is
presented in the following table.  The average price presented below represents
the weighted average exercise price based upon the market value at the grant
date.

<TABLE>
<CAPTION>
                                               1998                        1997                         1996
                                      --------------------------   ------------------------   -------------------------
                                                     Average                     Average                      Average
                                        Shares        Price         Shares        Price         Shares         Price
                                      ---------------------------------------------------------------------------------
          <S>                         <C>             <C>           <C>          <C>            <C>           <C>
          Outstanding,                    
               Beginning of year         244,000        $14.25       367,000        $11.95        257,000        $10.10
            Granted                       49,000         17.34        60,000         18.75        143,000         15.00
            Exercised                    (27,000)        14.66      (134,000)         9.65         (1,000)         9.15
            Forfeited or canceled        (52,000)        16.09       (49,000)        15.00        (32,000)        10.70
                                      ----------        ------      --------        ------       ---------       ------
          Outstanding,  
               end of year               214,000        $14.49       244,000        $14.25        367,000        $11.95
                                      ==========        ======       =======        ======       ========        ======
          Options exercisable
               at year-end               123,667        $12.34        57,000        $14.60         89,000        $10.80
          Weighted-average fair
               value of options
               granted during                                              
               the year                    $2.44                       $2.25                        $2.50
    
</TABLE>

                                      F-22
<PAGE>
 
  The following table summarizes information relating to the Company's stock
incentive plan as of December 31, 1998:

<TABLE>
<CAPTION>
                                  Options Outstanding
                          ---------------------------------
                                                Average
                                            Remaining life        Number
     Exercise Price         Number           (in months)      Exercisable
 ---------------------------------------------------------------------------
     <S>                    <C>             <C>               <C>
        $ 9.125              1,000                77             1,000
          9.625             72,000                84            72,000
         10.375              3,000                83             3,000
         12.917              2,000               120               ---
         13.099              1,000                20               ---
         13.625             22,000                88            14,667
         15.750              1,000                01               333
         16.750             22,000               101             7,333
         17.000             10,000                96             6,667
         17.375             20,000               111               ---
         17.500             11,000               113               ---
         17.563              5,000               112               ---
         17.625              9,000                60             9,000
         18.125              6,000               111               ---
         20.125             29,000               108             9,667
                        ----------                          ----------
                           214,000                             123,667
                        ==========                          ==========
</TABLE>
                                                          
  Fair value of the plan- The Company estimated the fair value of the options
granted in 1998, 1997 and 1996 based on the following assumptions:           

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                1998       1997       1996  
                                             ---------   --------  ---------
     <S>                                     <C>         <C>       <C>
     Risk-free interest rate...............     5.01%       5.77%       6.43%
     Expected life of the option...........  3 years     3 years     3 years
     Expected volatility of stock..........    24.00%      21.00%      25.12%
     Expected dividends....................   $ 1.56      $ 1.56      $ 1.44
</TABLE>

  The Company assumes that the equivalent risk-free interest rate is the closing
market rate, on the last trading day of the year, for three-year treasury bills.

  The Company's stock incentive plan was introduced in conjunction with its
initial public offering on December 16, 1993.  Based upon the number of options
exercised and cancelled since the inception of the plan, the Company assumes the
estimated life of the outstanding option agreements, to be three years.

                                      F-23
<PAGE>
 
  The Company uses the treasury stock method for purposes of determining the
number of shares to be issued to in conjunction with the Company's stock
incentive plan.  Based upon the number and amounts of vested and unvested
options outstanding, the dilutive effect on the Company's outstanding shares for
the years ended December 31, 1998, 1997 and 1996 is 43,000, 80,000 and 109,000
shares, respectively.
 
15. 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.

  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.

  A portion of the Company's assets are invested in debt instruments secured by
long-term senior care or skilled nursing facilities.  The ability of the
facility owners to pay their obligations as they come due, as well as their
ability to obtain other permanent financing through the sale of bonds or other
forms of long-term financing is dependent upon their ability to attract patients
who are able to pay for the services they require.  These facilities have
complex licensing requirements as do the professionals they employ.  The
majority of the services rendered are paid by various federal, state and local
agencies.  Each of these facilities function in a complex environment of
changing government regulations which have a significant impact on economic
viability.

  The Company leased the six New Jersey primary care facilities to one tenant, a
subsidiary of PHP Healthcare Corporation, a NYSE listed company ("PHP"), the
obligations of which were guaranteed by PHP.  The annualized rent paid to the
Company by the subsidiary of PHP was approximately $2.7 million or 10.8% of the
$24.6 million in rental revenues recognized by the Company in 1998.  In November
1998, PHP and the subsidiary filed Chapter 7 petitions under the U.S. Bankruptcy
Code.  The facilities were being operated by HIP of New Jersey, Inc. ("HIP").
HIP's operations were taken over by the Commissioner of the New Jersey
Department of Banking and Insurance (the "Commissioner") on or about December 2,
1998.  The State of New Jersey continued to occupy and lease the buildings
through March 5, 1999.  By the end of March 1999, the Commissioner had vacated
the buildings.  The Company holds a $2.0 million security deposit in the form of
a $2.0 million note payable to PHP.  The Company is actively seeking to re-lease
the buildings.  However, the financial position of the Company, and its ability
to make expected distributions to shareholders, may be adversely affected if the
Company is unable to re-lease the buildings in a timely manner.

  In conjunction with the Company's acquisition of the three nursing home
properties in Massachusetts on October 28, 1997, the Company entered into a 15-
year net operating lease with Iatros Health Network, Inc. ("Iatros").  During
1998, Iatros endured financial difficulties and was unable to meet its rental
obligations in a timely manner.  On October 8, 1998, Lenox Healthcare, Inc.
("Lenox") replaced Iatros as the operator of the nursing homes.   Although
Iatros was the operator of these Massachusetts nursing homes, the licenses
necessary to operate the facilities are currently held by Hampden Nursing Homes,
Inc., ("Hampden") the former owner.  Iatros had applied for state authorization
to operate the facilities without the participation of Hampden.  In order for
Lenox to operate the facilities, Lenox entered into a consulting services
agreement with Iatros for an initial term expiring on March 31, 1999.  The
Company and Lenox are currently negotiating an extension until December 31,
1999.  Lenox has applied for state authorization to operate the facilities.
Until such time as Lenox receives its licenses, the Company has leased the
facilities to Hampden.  The lease between the Company and Hampden

                                      F-24
<PAGE>
 
requires monthly payments of $225,000 net of property taxes, insurance and costs
to maintain the facilities and will expire upon transfer of the lease to Lenox.
The consulting services agreement between the Company and Lenox requires annual
net rental payments of $2.7 million to be paid in arrears in twelve equal
monthly installments. Rents from the three Massachusetts nursing homes represent
approximately 11.0% of the $24.6 million in rental revenues recognized by the
Company in 1998. The Company believes that Lenox will receive approval for
operating licenses in a timely manner. Not withstanding management's belief,
however, there can be no assurances that Lenox will receive the licenses. The
Company's management also believes that the current management of Lenox is
experienced and that Lenox will be able to pay the lease obligations under the
lease as they become due; however, the financial position of the Company, and
its ability to make expected distributions to shareholders, may be adversely
affected in the event that Lenox experiences financial difficulties or if Lenox
fails to secure the appropriate licenses to operate the facilities.

  In addition to the nursing homes in Massachusetts, the Company owns other
senior care facilities that it leases to operators.  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.  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.


16. Segment Information

  The Company's business currently consists of investments in healthcare
properties and in debt obligations secured by healthcare properties.
Investments in healthcare property consists of acquisitions, made either
directly or indirectly through joint ventures, in MOBs or Senior Care Facilities
which are leased to healthcare providers.  The Company's lending activities
consist of providing short-term secured loans to facilitate third party
acquisitions either directly or through GLN, an unconsolidated operating venture
with Nomura Asset Capital Corporation.  The following table reconciles the
Company's income and expense activity for the year ending December 31, 1998 and
balance sheet data as of December 31, 1998.

             1998 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
                                                  Property         Debt
                                                Investments    Obligations      Other     Total
                                                -------------------------------------------------
                                                            (Amounts in thousands)
<S>                                             <C>            <C>            <C>         <C>
Revenue:                                                                              
  Rents, tenant reimbursements and parking.....   $26,921                                 $26,921
  Interest, loan fees and related revenues.....       523         $3,002      $    992      4,517
  Other........................................       250                            4        254
                                                  -------         ------      --------    -------
     Total revenues............................    27,694          3,002           996     31,692
                                                  -------         ------      --------    -------
Expenses:                                                                                    
  Property operations..........................     6,171                                   6,171
  Depreciation and amortization................     4,229                          368      4,597
  Interest.....................................                                  8,683      8,683
  General and administrative...................                                  2,554      2,554
  Reserves.....................................     1,447          2,792         1,364      5,603
                                                  -------         ------      --------    -------
     Total expenses............................    11,847          2,792        12,969     27,608
                                                  -------         ------      --------    -------
Income (loss) from operations before                                                         
  minority interests...........................   $15,847         $  210      $(11,973)   $ 4,084
                                                  =======         ======      ========    =======
</TABLE>

                                      F-25
<PAGE>
 
      1998 Reconciliation of Reportable Segment Information - (Continued)
<TABLE>
<CAPTION>
                                                     Property         Debt
                                                   Investments    Obligations       Other          Total
                                                   -------------------------------------------------------
                                                                 (Amounts in thousands)
     <S>                                            <C>           <C>             <C>           <C>
     Rental properties...........................   $186,751                                     $186,751
     Mortgage loans and bonds receivable, net....                   $12,101                        12,101
     Other Assets................................     16,185            766        $3,696          20,647
                                                    --------        -------        ------        --------
         Total assets............................   $202,936        $12,867        $3,696        $219,499
                                                    ========        =======        ======        ========
     Other Assets:
       Cash and cash equivalents.................                                  $1,379        $  1,379
       Restricted cash...........................   $  4,007                                        4,007
       Tenant rent and reimbursements
        receivable, net..........................      2,050                                        2,050

       Unbilled rent receivable, net.............      1,892                                        1,892
       Other receivables, net....................        121                           87             208
       Investment in unconsolidated affiliates...      6,703        $   766                         7,469
       Investment in marketable securities, net..                                     ---             ---
       Deferred financing costs, net.............                                   2,179           2,179
       Deferred lease costs, net.................        937                                          937
       Prepaid expense and other.................        475                           51             526
                                                    --------        -------        ------        --------
         Total  other  assets....................   $ 16,185        $   766        $3,696        $ 20,647
                                                    ========        =======        ======        ========
     Capital Expenditures
     --------------------
       Purchases of real estate assets...........   $ 37,790                                     $ 37,790
       Additions to rental properties............      1,559                       $  140           1,699
                                                    --------                       ------        --------
         Total capital expenditures..............   $ 39,349                       $  140        $ 39,489
                                                    ========                       ======        ========
</TABLE>

  The following table reconciles the Company's income and expense activity for
the year ending December 31, 1997 and balance sheet data as of December 31,
1997.

             1997 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
                                                    Property         Debt
                                                  Investments    Obligations       Other           Total
                                                  ----------------------------------------------------------
                                                                  (Amounts in thousands)
   <S>                                            <C>            <C>            <C>               <C>
   Revenue:
     Rents, tenant reimbursements and parking...    $ 22,453                                      $ 22,453
     Interest, loan fees and related revenues...         161        $ 3,999      $    162            4,322
     Other......................................         240                           34              274
                                                    --------        -------      --------         --------
       Total revenues...........................      22,854          3,999           196           27,049
                                                    --------        -------      --------         --------
   Expenses:
     Property operations........................       6,043            237                          6,280
     Depreciation and amortization..............       3,443                          127            3,570
     Interest...................................                                    9,088            9,088
     General and administrative.................                                    2,044            2,044
                                                    --------        -------      --------         --------
       Total expenses...........................       9,486            237        11,259           20,982
                                                    --------        -------      --------         --------
   Income (loss) from operations before
    minority interests..........................    $ 13,368        $ 3,762      $(11,063)        $  6,067
                                                    ========        =======      ========         ========

   Rental properties............................    $139,082                                      $139,082
   Mortgage loans and bonds receivable, net.....                    $14,098                         14,098
   Other Assets.................................      13,073          8,006      $ 15,121           36,200
                                                    --------        -------      --------         --------
     Total assets...............................    $152,155        $22,104      $ 15,121         $189,380
                                                    ========        =======      ========         ========
</TABLE>

                                      F-26
<PAGE>
 
      1997 Reconciliation of Reportable Segment Information - (Continued)
<TABLE>
<CAPTION>
                                                    Property         Debt
                                                  Investments    Obligations       Other          Total
                                                  ---------------------------------------------------------
                                                                  (Amounts in thousands)
   <S>                                             <C>            <C>             <C>             <C>
   Other Assets:
     Cash and cash equivalents....................                                $13,609         $13,609
     Restricted cash..............................   $ 3,050         $4,695                         7,745
     Tenant rent and reimbursements
     receivable, net..............................     1,333                                        1,333
     Unbilled rent receivable, net................     1,815                                        1,815
     Other receivables, net.......................       417            516            39             972
     Investment in unconsolidated affiliates......     5,797          2,794                         8,591
     Deferred financing costs, net................                                  1,452           1,452
     Deferred lease costs, net....................       410                                          410
     Prepaid expense and other....................       251              1            21             273
                                                     -------         ------       -------         -------
       Total  other  assets.......................   $13,073         $8,006       $15,121         $36,200
                                                     =======         ======       =======         =======

   Capital Expenditures
   --------------------
     Purchases of real estate assets..............   $26,440                                      $26,440
     Additions to rental properties...............       958                      $    29             987
                                                     -------                      -------         -------
       Total capital expenditures.................   $27,398                      $    29         $27,427
                                                     =======                      =======         =======
</TABLE>

  The following table reconciles the Company's income and expense activity for
the year ending December 31, 1996.

             1996 Reconciliation of Reportable Segment Information
<TABLE>
<CAPTION>
                                                     Property         Debt
                                                   Investments    Obligations       Other           Total
                                                   ----------------------------------------------------------
                                                                     (Amounts in thousands)
   <S>                                             <C>            <C>            <C>               <C>
   Revenue:
     Rents, tenant reimbursements and parking.....   $17,775                                       $17,775
     Interest, loan fees and related revenues.....        74         $6,594      $     44            6,712
     Other........................................       411                          138              549
                                                     -------         ------      --------          -------
       Total revenues.............................    18,260          6,594           182           25,036
                                                     -------         ------      --------          -------
   Expenses:
     Property operations..........................     5,578            118                          5,696
     Depreciation and amortization................     2,726                           47            2,773
     Interest.....................................                                  9,322            9,322
     General and administrative...................                                  1,787            1,787
     Loss on disposition of real estate...........     4,874                                         4,874
                                                     -------         ------      --------          -------
       Total expenses.............................    13,178            118        11,156           24,452
                                                     -------         ------      --------          -------
     Income (loss) from operations before
      minority interests..........................   $ 5,082         $6,476      $(10,974)         $   584
                                                     =======         ======      ========          =======
</TABLE>

17. Loss on Disposition of Real Property and Extraordinary Gain

  In May 1996, the Company transferred ownership of the property located at 436
North Bedford Drive in Beverly Hills, California (the "Bedford Property") to the
holder of the $28.5 million non-recourse loan in satisfaction of the debt (the

                                      F-27
<PAGE>
 
"deed-in-lieu transaction").  In August, the Medical Partnership reacquired the
Bedford Property for approximately $18.1 million which was funded by a $15.2
million loan from Nomura and $2.9 million in cash.

  As a result of the deed-in-lieu transaction, the Company recorded a $4,874,000
loss on disposition of the property (the difference between book value and
market value) and a $10.5 million extraordinary gain from retirement of the
related $28.5 million loan.

  During 1996, the Company refinanced three properties and obtained a new $19.8
million loan from Nomura.  The properties, pledged as collateral for the new
loan, were subsequently transferred to the Medical Partnership along with the
related $19.8 million loan.  In conjunction with the refinancing transaction,
the Company negotiated a $350,000 discount on one note, and incurred other costs
and prepayment penalties totaling $484,000.  In conjunction with the $19.8
million refinancing, the Company incurred a net extraordinary loss of $134,000.
The net extraordinary gain was adjusted to $9.3 million to reflect the portion
of the gain attributable to the minority interest.


18. Related Party Transactions

  In 1995, the Company acquired all of the outstanding 1989 Series A and B
Health Care Revenue (the "Bonds") issued by the Massachusetts Industrial Finance
Agency for $19.9 million.  At the time of acquisition, the Series A and B Bonds
had face values of $21.0 million and $5.0 million, respectively.  The Bonds were
backed by mortgages on three nursing homes owned by Hampden.  Principal and
interest payments due on these Bonds were paid by the bond trustee out of the
debt service payments received from Hampden.

  In March 1997, the Company sold the Bonds to GLN, a joint venture between the
Company and Nomura Asset Capital Corporation ("Nomura"), for total consideration
of $21.7 million.  The Bonds, which had a book value of $20.7 million, had a
combined outstanding balance of $27.7 million, including principal and accrued
interest at the time of the sale.  The Bonds were sold for $7.7 million and an
assumption of $14.0 million in indebtedness owed to GMAC Commercial Mortgage
Corporation ("GMAC-CM").  The $7.7 million amount consisted of a cash payment of
$4.5 million and $3.2 million which was deemed a capital contribution to GLN.
In June 1997, the Company loaned $14.0 million to GLN, which was used by GLN to
retire the $14.0 million loan due to GMAC-CM.

  The Operating Partnership's gain on sale of the Bonds to GLN was approximately
$1.0 million, of which the Operating Partnership recognized approximately
$500,000 during the first quarter of 1997 and deferred recognition of the
remaining $500,000.

  In October 1997, the Company acquired the three Massachusetts nursing homes
from Hampden for a total aggregate consideration of approximately $20.0 million.
Of this amount, the Company borrowed $6.0 million from Nomura at an interest
rate of 8.62% per annum.  The Massachusetts nursing homes were pledged as
security for the repayment of this loan.

  On June 14, 1996, the Company and 445 Bedford, LLC, a California limited
liability company ("445 LLC"), acquired undivided tenant-in-common interests in
a hospital facility, two MOBs and a parcel of vacant land in Tustin, California
(the "Tustin Properties").  The Tustin Properties were acquired for a sum of
$4.6 million, of which $1.4 million was contributed in cash by 445 LLC.  Daniel
M. Gottlieb and Steven D. Lebowitz, both directors and officers of the Company,
and Reese L. Milner II, a director of G&L Realty, have financial interests in
445 LLC.

  The Partnership acquired Mr. Milner's interest in 445 LLC for $808,000, after
which 445 LLC redeemed the Partnership's interest in 445 LLC for an increased
interest in the Tustin Properties.  On June 28, 1996, 445 LLC contributed its
remaining interest in the Tustin Properties to the Partnership in exchange for
39,215 newly issued Partnership Units, valued at $549,000.  The newly issued
Partnership Units are convertible into G&L Realty Common Stock one year from the
date of issuance on a one-for-one basis.  These new units were issued at an
effective rate of $14.00 per unit which included a premium over the $13.00
closing price of G&L Realty's Common Stock on May 1, 1996, the commitment date.

                                      F-28
<PAGE>
 
  The funds contributed by 445 LLC toward the purchase of the Tustin Property
were obtained as part of a tax deferred exchange involving the sale of real
estate previously held by 445 LLC to an unrelated third party.

  On June 30, 1998, Pacific Gardens, a joint venture between the Company and
American Senior Care, Inc., purchased a 92-unit senior care facility located in
Santa Monica, California.  Upon acquisition, this facility was leased to Pacific
Corp., an unconsolidated joint venture of the Company's in which the Company
owns 93% of the equity in the form of non-voting preferred stock.  During 1998,
Pacific Gardens Corp. made lease payments of $420,000 to the Company.

  During 1998, the Company owned 50% of the equity in AV Medical, LLC ("AV
Medical") and G&L/M&Z Aliso Partners ("G&L/M&Z"), unconsolidated joint ventures
formed in 1997 with M&Z Aliso Associates, LLC ("M&Z") for the purposes of buying
undeveloped parcels of land in Aliso Viejo and building a 33,000 square foot MOB
and a retail complex, respectively.  In December 1998, the Company exchanged its
50% interest in G&L/M&Z Aliso Partners for M&Z's 50% interest in AV Medical,
LLC.  This transaction was treated as a non-taxable exchange of like-kind real
estate assets under Section 1031 of the Code.  As part of the exchange, M&Z paid
the Company $295,000 in accrued distributions and accrued interest due on loans
made by the Company to AV Medical and G&L/M&Z and signed a $44,000 promissory
note due on June 30, 1999 for the remaining balance owed.  Upon closing the
exchange, AV Medical was dissolved and the property previously owned by AV
Medical was owned 100% by the Operating Partnership.

     On December 31, 1998, the Company acquired a 40,000 square foot office and
retail complex located in Coronado, California.  The property was acquired from
a limited liability company (the "LLC") owned by Daniel M. Gottlieb and Steven
D. Lebowitz, both directors and officers of the Company, who held interests in
the LLC of 30% and 70%, respectively.  The property was acquired for an
aggregate purchase price of $9.5 million.  The Company assumed $7.5 million in
long-term debt and issued 134,499 Partnership Units valued at $2,000,000.  These
new units were issued at an effective rate of $14.87 per unit, a 15.5% premium
over the $12.875 closing price of the Company's stock on December 31, 1998, the
closing date of the transaction, effectively reducing the number of units issued
to Messrs. Gottlieb and Lebowitz.  In connection with the purchase of the
property, G&L Coronado Managers Corp. ("Coronado Corp."), an entity owned 30%
and 70% by Messrs. Gottlieb and Lebowitz, respectively, signed a lease (the
"Master Lease Agreement") for the entire third floor of the building with the
Company.   Under the terms of the Master Lease Agreement, Coronado Corp. will
operate the Executive Suites located on the third floor of the building on
behalf of the Company for lease payments of $19,000 per month until November 30,
2010.


19. Unaudited Consolidated Quarterly Information

     Unaudited consolidated quarterly financial information for the periods as
follows:

<TABLE>
<CAPTION>
                                                                  1998 Fiscal Quarter
                                                      ---------------------------------------------
                                                      1/st/        2/nd/        3/rd/        4/th/
                                                      ------       ------       ------      -------
                                                         (In thousands, except per share amounts)
      <S>                                             <C>          <C>          <C>          <C>
      Revenue:
        Rental.................................       $5,882       $6,113       $6,386      $ 6,258
        Tenant reimbursements..................          129          209          219          224
        Parking................................          359          374          378          390
        Interest, loan fees and other..........        1,056        1,267        1,095        1,099
        Other..................................           58          113           33           50
                                                      ------       ------       ------      -------
          Total revenues.......................        7,484        8,076        8,111        8,021
                                                      ------       ------       ------      -------
      Expenses:
        Property operations....................        1,411        1,506        1,628        1,626
        Depreciation and amortization..........        1,060        1,083        1,213        1,241
        Interest...............................        1,916        2,093        2,210        2,464
        General and administrative.............          689          734          545          586
        Provision for doubtful accounts, notes
         and bonds receivable..................          ---          ---          ---        5,603
                                                      ------       ------       ------      ------- 
          Total expenses.......................        5,076        5,416        5,596       11,520
                                                      ------       ------       ------      -------
        Income from operations before minority         
        interests..............................        2,408        2,660        2,515       (3,499)
        Equity in earnings of unconsolidated              
        affiliates.............................           52          101           43         (116)
        Minority interest in consolidated                
        affiliates.............................          (46)         (69)         (46)         (64)
        Minority interest in Operating         
         Partnership...........................          (48)         (95)         (78)         625
                                                      ------       ------       ------      -------
        Net income (loss)......................       $2,366       $2,597       $2,434      $(3,054)
                                                      ======       ======       ======      =======
      Per share data:
        Basic..................................       $ 0.14       $ 0.19       $ 0.15      $ (1.21)
        Fully Diluted..........................       $ 0.13       $ 0.19       $ 0.15      $ (1.21)
      Weighted average shares outstanding:
        Basic..................................        4,129        4,122        4,090        4,030
        Fully Diluted..........................        4,174        4,163        4,125        4,053
</TABLE>

                                      F-29
<PAGE>
 
<TABLE>
<CAPTION>
                                                                 1997 Fiscal Quarter
                                                    ---------------------------------------------
                                                    1/st/        2/nd/        3/rd/        4/th/
                                                    ------       ------       ------      -------
                                                      (In thousands, except per share amounts)
      <S>                                           <C>          <C>          <C>         <C>
      Revenue:
        Rental.................................      $4,510       $4,903       $5,201       $5,693
        Tenant reimbursements..................         249          146          189          123
        Parking................................         360          358          330          391
        Interest, loan fees and other..........       1,575          810        1,059          878
        Other..................................         109           29           84           52
                                                     ------       ------       ------       ------
          Total revenues.......................       6,803        6,246        6,863        7,137
                                                     ------       ------       ------       ------
      Expenses:
        Property operations....................       1,666        1,501        1,490        1,623
        Depreciation and amortization..........         785          830          890        1,065
        Interest...............................       2,635        2,442        2,115        1,896
        General and administrative.............         477          529          502          536
                                                     ------       ------       ------       ------
          Total expenses.......................       5,563        5,302        4,997        5,120
                                                     ------       ------       ------       ------
        Income from operations before minority
         interests.............................       1,240          944        1,866        2,017
        Equity in earnings of unconsolidated   
         affiliates............................          52          520          294          329
        Minority interest in consolidated      
         affiliates............................         (49)         (46)         (40)         (21)
        Minority interest in Operating         
         Partnership...........................        (136)        (136)        (129)        (144)
                                                     ------       ------       ------       ------
        Net income.............................      $1,107       $1,282       $1,991       $2,181
                                                     ======       ======       ======       ======
      Per share data:
        Basic..................................      $ 0.27       $ 0.19       $ 0.26       $ 0.19
        Fully Diluted..........................      $ 0.27       $ 0.19       $ 0.25       $ 0.18

      Weighted average shares outstanding:
        Basic..................................       4,063        4,006        4,006        4,120
        Fully Diluted..........................       4,175        4,102        4,128        4,111
</TABLE>

                                      F-30
<PAGE>
 
20.   SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF 
      DECEMBER 31, 1998.  (In Thousands).

<TABLE>
<CAPTION>
                                                                 Cost Capitalized
                                              Initial Cost           Subsequent             Gross amount at which carried
                                               to Company          to Acquisition           at close of Period (See Note G)
                                          --------------------  --------------------  ------------------------------------------

                           Encumbrances           Building and          Building and          Building and          Accumulated
      Description          (See Notes)      Land  Improvements   Land   Improvement     Land  Improvements   Total  Depreciation
-------------------------  ------------   ------- ------------  ------  ------------  ------- ------------ -------- ------------
<S>                        <C>            <C>     <C>           <C>     <C>           <C>     <C>          <C>      <C>
Medical Office Buildings
California Properties:
----------------------
405 North Bedford Drive    (See Note A)   $ 2,186     $  4,076    $452       $ 9,691  $ 2,638     $ 13,767 $ 16,405      $ 3,612
415 North Bedford Drive    (See Note A)       292          573    ---            591      292        1,164    1,456          521
416 North Bedford Drive    (See Note A)       427          247    ---          2,386      427        2,633    3,060          892
435 North Bedford Drive    (See Note A)     1,144        2,853    ---          2,559    1,144        5,412    6,556        2,466
435 North Roxbury Drive    $     7,766        162          390      39         2,462      201        2,852    3,053        1,107
436 North Bedford Drive    (See Note B)     2,675       15,317    ---            327    2,675       15,644   18,319          987
439 North Bedford Drive           ---        ---           109    ---            444     ---           553      553          217
Holy Cross Medical Plaza         8,032      2,556       10,256    ---            979    2,556       11,235   13,791        1,733
St. Joseph's Professional
 Building.                       3,240      1,300        3,936    ---            146    1,300        4,082    5,382          555
Sherman Oaks Medical
 Plaza                     (See Note B)     1,454        8,278    ---          1,927    1,454       10,205   11,659        1,739
Regents Medical Center     (See Note B)     1,470        8,390    ---          1,198    1,470        9,588   11,058        1,481
Cigna HealthCare Bldg.     (See Note B)     1,260        7,282    ---             48    1,260        7,330    8,590          805
1095 Irvine Boulevard            1,322        474          663    ---            453      474        1,116    1,591          204
14662 Newport Avenue                          645        1,900    ---             57      645        1,957    2,602          121
14591 Newport Avenue                          160           36    ---             62      160           98      258            6
14642 Newport Avenue                          400        1,033    ---            408      400        1,441    1,841          151
1101 Sycamore Avenue                          280                    8                    288         ---       288         ---
15225 Aliso Creek Road                        585                 ---          1,225      585        1,225    1,810            6
23861 McBean Parkway                         ---         4,164    ---            371     ---         4,535    4,535           89
24355 Lyons Avenue               5,225        623        6,752    ---                     623        6,752    7,375            7
1330 Orange Avenue               7,500        809        8,753    ---                     809        8,753    9,562         ---
5 Journey Road                                822                 ---                     822         ---       822         ---
26671 Aliso Creek Road                      1,751                 ---                   1,751         ---     1,751         ---
4792 Lakeview Avenue                          947                 ---                     947         ---       947         ---

New Jersey Properties:
----------------------
2103 Mt. Holly Road        (See Note C)       775        2,904    ---              3      775        2,907    3,682          137
150 Century Parkway        (See Note C)       600        2,708    ---              3      600        2,711    3,311          130
274 Highway 35, South             ---       1,200        2,867    ---              3    1,200        2,870    4,070          138
80 Eisenhower Drive        (See Note C)       975        2,591    ---              3      975        2,594    3,569          127
16 Commerce Drive          (See Note C)     1,240        2,932    ---           ---     1,240        2,932    4,172          122
4622 Black Horse Pike      (See Note C)       850        2,849    ---           ---       850        2,849    3,699          118

Senior Care Facilities
Arizona Properties:
-------------------
31 West Maryland Avenue                       800        3,847    ---             54      800        3,901    4,701          202
39 West Maryland Avenue                       172          835    ---             24      172          859    1,031           15

California Properties:
----------------------
1437 Seventh Street               8,500     2,357        8,427    ---            428    2,357        8,855   11,212          118

Massachusetts Properties:
-------------------------
42 Prospect Avenue          (See Note D)    1,048        4,609    ---              1    1,048        4,610    5,658          233
32 Chestnut Street          (See Note D)    1,319        9,307    ---              6    1,319        9,313   10,632          256
34 Main Street              (See Note D)      702         3,04    ---           ---       702        3,040    3,742          152

Washington Properties:
----------------------
3035 Cherry Street                2,466       100        3,216    ---             25      100        3,241    3,341           46
                           ------------   ------- ------------  ------  ------------  ------- ------------ -------- ------------
        Total............      $ 44,051   $34,560     $135,140    $499        25,884  $35,059     $161,024 $196,083      $18,493
                           ============   ======= ============  ======  ============  ======= ============ ======== ============
Realty Financing Partnership
 (See Note A)                    28,669
Medical Partnership (See
 Note B)                         34,092
GL/PHP, LLC (See Note C)         15,468
G&L Hampden, LLC
 (See Note D)                     6,000
Per Above                        44,051
                           ------------
Total encumbrances             $128,280
                           ============
</TABLE>

<TABLE>
<CAPTION>
                                                        Date of
                                      Acquisition    Construction or
       Description                        Date       Rehabilitation
-------------------------             -----------    ---------------
<S>                                   <C>            <C>
Medical Office Buildings
California Properties:
----------------------
405 North Bedford Drive                  1993             1947/1987
415 North Bedford Drive                  1993                  1955
416 North Bedford Drive                  1993             1946/1986
435 North Bedford Drive                  1993        1950/1963/1984
435 North Roxbury Drive                  1993             1956/1983
436 North Bedford Drive                  1990                  1980
439 North Bedford Drive                  1993             1956/1983
Holy Cross Medical Plaza                 1994                  1985
St. Joseph's Professional
 Building.                               1993                  1987
Sherman Oaks Medical
 Plaza                                   1994             1969/1993
Regents Medical Center                   1994                  1989
Cigna HealthCare Bldg.                   1994                  1992
1095 Irvine Boulevard                    1994             1994/1995
14662 Newport Avenue                     1996             1969/1974
14591 Newport Avenue                     1996                  1969
14642 Newport Avenue                     1996                  1985
1101 Sycamore Avenue                     1996                   N/A
15225 Aliso Creek Road                   1997                  1998
23861 McBean Parkway                     1998                  1981
24355 Lyons Avenue                       1998                  1990
1330 Orange Avenue                       1998             1977/1985
5 Journey Road                           1998             1998/1999
26671 Aliso Creek Road                   1997             1998/1999
4792 Lakeview Avenue                     1998                   N/A

New Jersey Properties:
----------------------
2103 Mt. Holly Road                      1997                  1994
150 Century Parkway                      1997                  1995
274 Highway 35, South                    1997                  1995
80 Eisenhower Drive                      1997                  1994
16 Commerce Drive                        1997                  1963
4622 Black Horse Pike                    1997                  1994

Senior Care Facilities
Arizona Properties:
-------------------
31 West Maryland Avenue                  1997             1951-1957
39 West Maryland Avenue                  1998                  1968

California Properties:
----------------------
1437 Seventh Street                      1998                  1990

Massachusetts Properties:
-------------------------
42 Prospect Avenue                       1997         1957/65/78/85
32 Chestnut Street                       1997                  1985
34 Main Street                           1997             1965/1985

Washington Properties:
----------------------
3035 Cherry Street                       1998                  1954
</TABLE>

                                      F-31
<PAGE>
 
The changes in total real estate assets and accumulated depreciation for the
years ended December 31 are as follows:
                            
<TABLE>
<CAPTION>
                                    Total Real Estate Assets                                        Accumulated Depreciation
                               ---------------------------------                                -------------------------------
                                 1998        1997         1996                                    1998       1997        1996
                               ---------------------------------                                -------------------------------
                                        (in thousands)                                                  (in thousands)
<S>                            <C>         <C>          <C>           <C>                       <C>        <C>         <C>
Balance at beginning of year   $151,214    $103,481     $103,351      Balance at beg. of year   $13,808    $10,500     $11,450
Improvements and acquisitions    44,869      47,963       24,257      Depreciation                4,685      3,343       2,606
Dispositions                       ---         (230)     (24,127)     Dispositions                  ---        (35)     (3,556)
                               --------    --------     --------                                -------    -------     -------
Balance at end of year         $196,083    $151,214     $103,481      Balance at end of year    $18,493    $13,808     $10,500
                               ========    ========     ========                                =======    =======     =======
</TABLE> 
_______________________     
Note A:  The Realty Financing Partnership owns the following properties which
         are security for a blanket first trust deed: 405 North Bedford, 415
         North Bedford, 416 North Bedford and 435 North Bedford.
Note B:  The Medical Partnership owns the following properties, which are each
         security for a blanket first trust deed: Sherman Oaks Medical Plaza,
         Cigna HealthCare Building, Regents Medical Center and 436 North Bedford
         Drive.
Note C:  GL/PHP, LLC owns the following properties which are security for a
         blanket first trust deed: 2103 Mt. Holly Road, 150 Century Parkway, 274
         Highway 35, South, 80 Eisenhower Drive, 16 Commerce Drive, and 4622
         Black Horse Pike.
Note D:  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 E:  The aggregate costs for Federal income tax purposes were $220,736,000
         as of December 31, 1998.


                                      F-32
<PAGE>
 
                                  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:  April 9, 1999                By:      /s/ David Hamer
                                       ---------------------------
                                         David 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. Gottlieb        Chief Executive Officer,        April 9, 1999
------------------------------   Co-Chairman of the Board and
   Daniel M. Gottlieb            Director (Principal Executive
                                 Officer)

   /s/ Steven D. Lebowitz        President, Co-Chairman of the   April 9, 1999
------------------------------   Board and Director
   Steven D. Lebowitz

   /s/ Richard L. Lesher         Director                        April 9, 1999
------------------------------
   Richard L. Lesher

   /s/ Leslie D. Michelson       Director                        April 9, 1999
------------------------------
   Leslie D. Michelson

   /s/ Reese L. Milner II        Director                        April 9, 1999
------------------------------
   Reese L. Milner II

   /s/ Charles P. Reilly         Director                        April 9, 1999
------------------------------
   Charles P. Reilly

   /s/ S. Craig Tompkins         Director                        April 9, 1999
------------------------------
   S. Craig Tompkins

                                      F-33