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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

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



For the fiscal year ended December 31, 2004



OR



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



For the transition period from  to



Commission file number 1-12566



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G & L REALTY CORP.

(Exact name of Registrant as specified in its charter)



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



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



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



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



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



None



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



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



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



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



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



As of March 31, 2005, 710,199 shares of common stock of G&L Realty Corp. were outstanding.



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ANNUAL REPORT ON FORM 10-K



FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2004



|         |  |                                                                                                              |  |   
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I   |  |                                                                                                             
|         |  |                                                                                                             
|ITEM 1.  |  | BUSINESS                                                                                                     |  | 1 
|ITEM 2.  |  | PROPERTIES                                                                                                   |  | 4 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  | 9 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 10
|         | 
|PART II  |  |                                                                                                             
|         |  |                                                                                                             
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 10
|ITEM 6.  |  | CONSOLIDATED SELECTED FINANCIAL DATA                                                                         |  | 11
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 12
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 24
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                                                                   |  | 24
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 24
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  | 25
|ITEM 9B. |  | OTHER INFORMATION                                                                                            |  | 25
|         | 
|PART III |  |                                                                                                             
|         |  |                                                                                                             
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                           |  | 25
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  | 28
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 29
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 31
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 32
|         | 
|PART IV  |  |                                                                                                             
|         |  |                                                                                                             
|ITEM 15. |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |  | 33



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PART I



ITEM 1. BUSINESS



General



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



Recent Developments



On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record on
November 1, 2004. Messrs. Gottlieb and Lebowitz are the sole common stockholders of the Company. In total, skilled nursing and assisted living assets having a net equity of $9.03 million, derived from current independent property appraisals less the
existing property debt, have been spun-off to these stockholders. At the time of the spin-off, these assets were held by the Companys consolidated subsidiary, G&L Senior Care Properties, LLC, and the spin-off was effectuated by a
distribution of the Companys membership interests in G&L Senior Care Properties, LLC. In addition to these skilled nursing facility and assisted living facility assets, G&L Senior Care Properties, LLC had cash of approximately $2
million, and indebtedness to the Company of $6 million as of the effective date of the spin-off. Accordingly, G&L Senior Care Properties, LLC at the time of the spin-off, had a net asset value (based on fair market valuations of its skilled
nursing and assisted living facilities) of approximately $5.03 million.



Following the spin-off, G&L Senior Care Properties, LLC is now owned and managed primarily by Daniel Gottlieb and Steven Lebowitz, the CEO and President, respectively, of the Company. Due to the substantial management overlap between
the Company and G&L Senior Care Properties, LLC, the two companies have entered into a cost sharing agreement to allocate between them each year the general and administrative costs of the two companies. Management estimates that, at the current
time, the skilled nursing facility and the assisted care living facility assets now owned by G&L Senior Care Properties, LLC, account for approximately 65% of the general and administrative costs of the two companies.



The Company continues to hold two promissory notes issued by G&L Senior
Care Properties, LLC, a short term promissory note in the amount of $2 million and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum, and will for some time continue to be a creditor of
G&L Senior Care Properties, LLC. The short term promissory note has a term of six months, interest only payable monthly, and is unsecured. The long term promissory note has a term of 12 years, provides for flat monthly payments of interest and
principal on a 25 year amortization basis, with a balloon payment of $3.32 million at the end of the term, and is secured by the interests of G&L Senior Care Properties, LLC in the various special purpose entities through which it holds its
interest in its skilled nursing facility and assisted care living facility assets.



Description of Business



The Companys
MOB business strategy is to acquire, develop, manage and lease a portfolio of medical office buildings. The Company currently seeks growth opportunities mainly in Southern California through acquisition and development of additional MOBs directly or
through strategic joint ventures. The MOB portfolio currently consists of approximately 785,000 rentable square feet. The Company directly owns 17 high quality MOBs, an adjacent parking facility and one office and retail facility. In addition, the
Company owns four additional MOBs through joint ventures (collectively, the MOB Properties). All of the MOB Properties are located in California. Several of the MOB Properties include retail space on the ground level. As of January 31,
2005, the MOB Properties were 97.8% leased.



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



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



The Company has determined to sell certain of its properties and, in 2004, sold an 80-unit assisted living facility located in Tarzana, California; a
48,000 square foot research and development building located in Irwindale, California which was originally an MOB that the Company converted to a research and development building when the MOB tenant vacated the building; a 10,000 square foot MOB
located in Tustin, California; a 59-bed SNF located in Chico, California; and an 80-unit assisted living facility located in Yorba Linda, California. On March 24, 2005, the Company sold a 47,000 square foot office and retail center located in
Coronado, California. The proceeds from these sales may be used to acquire or develop additional healthcare properties, retire debt or preferred stock, for general corporate purposes and/or to make distributions to common stockholders.



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



Property Management



The Company provides a full range of management services for the operation of MOBs. The ability of the Company to manage MOBs to meet the unique needs of medical practitioners has been critical to its success. The Company has experienced
lease renewal rates of approximately 88.4%, 79.7% and 85.9% for the years ended December 31, 2004, 2003 and 2002, respectively, in the MOB Properties. Developing and managing MOBs differs from developing and managing general office properties due to
the special requirements of the tenants and their patients. MOBs generally have higher maintenance requirements, increased plumbing and electrical capacity requirements and are subject to expanded environmental regulations due to stringent
restrictions on the disposal of medical waste. The management of MOBs also generally requires experience in specialized tenant improvements and higher levels of responsiveness required by medical practitioners. Additional important management
functions include the placement of tenants within MOBs to accommodate increased space needs and managing the tenant mix at properties in order to facilitate referrals by practitioners with different specialties within the building. The Company
stresses meeting these and other special demands of medical property tenants.



Tax Status



The Company believes that it has
operated in such a manner as to qualify for taxation as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code), commencing with its taxable year ended December 31, 1993, and the Company intends
to continue to operate in such a manner. As long as the Company qualifies for taxation as a REIT under the Code, the Company generally will not be taxed at the corporate level. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income



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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 31, 2005, the Company employed 28 persons, 12 of whom are on-site building employees who provide maintenance services for the MOB Properties
and 5 of whom are professional employees engaged in leasing, asset management and administration.



Dependence on Key Tenants



The tenant mix at the Companys MOBs typically consist of several smaller tenancies rather than one or two large tenancies. As of December 31, 2004, no MOB tenant accounted for more than 2% of the Companys total revenues.
Although no MOB tenant accounts for more than 2% of the Companys total revenues, the risks associated with smaller tenants include (i) less creditworthiness, (ii) greater potential tenant turnover and (iii) increased property management needs.



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 have been subject to Phase I environmental assessments (which involve inspection of the subject property, but no soil sampling or groundwater analysis) by
independent environmental consultants. Although restricted in scope, these independent assessments revealed no material evidence of existing environmental liability, and the Company has not been notified by any governmental authority of any
noncompliance by, liability for, or other claim against the Company in connection with environmental matters related to the MOB Properties. While the Company is not aware of any environmental liability that it believes would have a material adverse
effect on its business, assets or results of operations, no assurance can be given that the environmental assessments revealed all potential environmental liabilities or that a prior owner did not create any material environmental condition not
known to the Company or that future uses or conditions (including changes in applicable environmental laws and regulations) will not result in imposition of environmental liability.



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



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



Healthcare
Industry Regulation.Physicians 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 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



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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 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.



ITEM 2. PROPERTIES



The MOB
Properties consist of 17 high quality MOBs directly owned by the Company, four MOBs indirectly-owned by the Company through joint ventures, an adjacent parking facility and an office and retail facility. As of January 31, 2005, the MOB Properties
were 97.8% leased to 418 tenants. The Companys MOB tenants are primarily established medical practitioners representing a cross section of medical practices.



Description of the MOB Properties



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



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The following tables set forth certain information regarding each of the MOB Properties as of January 31,
2005. All of the MOB Properties are held in fee by the Company or, in the case of jointly-owned properties, by a joint venture partnership or limited liability company. Except as noted below, the Company owns 100% of each property.



MOB PropertiesSummary Data



|                                                                        |  |                   |  |                                   |  |                         |  |                       |  |              |   |  |                          |            |                          |   |      
|----------------------------------------------------------------------- |  | ----------------- |  | --------------------------------- |  | ----------------------- |  | --------------------- |  | ------------ | - |  | ------------------------ | ---------- | ------------------------ | - | -----
|Property                                                                |  | NumberofBuildings |  | Year Constructed or Rehabilitated |  | Rentable Square Feet(1) |  | Rented Square Feet(2) |  | Occupancy(2) |   |  | Total Annualized Rent(3) |            | Average Rent per Sq. Ft.
|405 N. Bedford, Beverly Hills,                                          |  | 1                 |  | 1947/1987                         |  | 45,318                  |  | 45,318                |  | 100.0        | % |  | $                        | 2,123,000  |                          | $ | 46.85
|415 N. Bedford, Beverly Hills (4)                                       |  | 1                 |  | 1955                              |  | 5,720                   |  | 5,720                 |  | 100.0        |   |  |                          | 318,000    |                          |   | 55.59
|416 N. Bedford, Beverly Hills                                           |  | 1                 |  | 1946/1986                         |  | 40,206                  |  | 40,206                |  | 100.0        |   |  |                          | 1,753,000  |                          |   | 43.60
|435 N. Bedford, Beverly Hills                                           |  | 1                 |  | 1950/63/84                        |  | 53,924                  |  | 53,924                |  | 100.0        |   |  |                          | 2,314,000  |                          |   | 42.91
|435 N. Roxbury, Beverly Hills (5)                                       |  | 1                 |  | 1956/1983                         |  | 40,865                  |  | 39,964                |  | 97.8         |   |  |                          | 1,693,000  |                          |   | 42.36
|436 N. Bedford, Beverly Hills                                           |  | 1                 |  | 1987                              |  | 74,285                  |  | 74,285                |  | 100.0        |   |  |                          | 3,706,000  |                          |   | 49.89
|Sherman Oaks Medical Plaza 4955 Van Nuys Blvd. Sherman Oaks             |  | 1                 |  | 1969/1993                         |  | 67,653                  |  | 61,822                |  | 91.4         |   |  |                          | 1,598,000  |                          |   | 25.85
|Coronado Plaza (6) 1330 Orange Ave, Coronado                            |  | 1                 |  | 1977/1985                         |  | 47,099                  |  | 45,822                |  | 97.3         |   |  |                          | 1,323,000  |                          |   | 28.94
|Holy Cross Medical Plaza 11550 Indian Hills Road Mission Hills          |  | 1                 |  | 1985                              |  | 72,476                  |  | 72,476                |  | 100.0        |   |  |                          | 2,159,000  |                          |   | 29.79
|Lyons Avenue Medical Building 24355 Lyons Avenue, Santa Clarita         |  | 1                 |  | 1990                              |  | 49,185                  |  | 49,185                |  | 100.0        |   |  |                          | 1,160,000  |                          |   | 23.58
|TustinMedical Office I 14591 Newport Avenue, Tustin                    |  | 1                 |  | 1969                              |  | 18,092                  |  | 18,092                |  | 100.0        |   |  |                          | 379,000    |                          |   | 20.95
|TustinMedical Office II 14642 Newport Avenue, Tustin                   |  | 1                 |  | 1985                              |  | 48,445                  |  | 48,445                |  | 100.0        |   |  |                          | 1,225,000  |                          |   | 25.29
|Regents Medical Center 4150 Regents Park Row, La Jolla                  |  | 1                 |  | 1989                              |  | 66,216                  |  | 61,370                |  | 92.7         |   |  |                          | 1,914,000  |                          |   | 31.19
|San Pedro Medical Plaza (7) 1360 West 6thStreet, San Pedro              |  | 3                 |  | 1963/1979                         |  | 60,436                  |  | 55,883                |  | 92.5         |   |  |                          | 1,301,000  |                          |   | 23.28
|Santa Clarita Valley Medical Center 23861 McBean Pkwy, Santa Clarita    |  | 5                 |  | 1981                              |  | 42,206                  |  | 42,206                |  | 100.0        |   |  |                          | 1,055,000  |                          |   | 25.00
|Santa Clarita Valley Medical Center, F 23929 McBean Pkwy, Santa Clarita |  | 1                 |  | 1999                              |  | 43,912                  |  | 43,912                |  | 100.0        |   |  |                          | 1,221,000  |                          |   | 27.81
|Santa Clarita Valley Foundation Bldg 23871 McBean Pkwy, Santa Clarita   |  | 1                 |  | 1981                              |  | 8,025                   |  | 8,025                 |  | 100.0        |   |  |                          | 130,000    |                          |   | 16.20
|                                                                        |  |                   |  |                                   |  |                         |  |                       |  |              |   |  |                          |            |                          |   |      
|Total/Weighted average of all MOB Properties                            |  | 23                |  |                                   |  | 784,063                 |  | 766,655               |  | 97.8         |   |  | $                        | 25,372,000 |                          |   | 33.10
|                                                                        |  |                   |  |                                   |  |                         |  |                       |  |              |   |  |                          |            |                          |   |      

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

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

|3) | Rent is based on third-party leased space billed in January 2005.
|-- | -----------------------------------------------------------------

|4) | This building is a parking structure that contains seven retail tenants.
|-- | ------------------------------------------------------------------------

|5) | The Company is the general partner and owns 32.8% of the partnership that owns this property.
|-- | ---------------------------------------------------------------------------------------------

|6) | This building is an office and retail building that the Company sold on March 24, 2005.
|-- | ---------------------------------------------------------------------------------------

|7) | The Company owns 50% of this property.
|-- | --------------------------------------



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MOB Properties



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



405 North Bedford Drive



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



415 North Bedford Drive



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



416
North Bedford Drive



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



435 North Bedford Drive



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



435 North Roxbury Drive



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



436 North Bedford Drive



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



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Sherman Oaks Medical Plaza



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



Coronado Plaza



Coronado Plaza is a
three-story, approximately 47,000 rentable square foot office and retail complex located in Coronado, California. The building is located on the beach across the street from the Hotel Del Coronado and the majority of the second and third floor
suites have unobstructed ocean views. The building has subterranean parking for 96 vehicles plus street parking surrounding the entire property. The property was sold on March 24, 2005.



Holy Cross Medical Plaza



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



Lyons Avenue Medical Building



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



TustinMOB I



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



TustinMOB II



The
14642 Newport Avenue building in Tustin, California is a four-story, approximately 48,000 rentable square foot MOB, developed in 1985, that features a surgery center with three operating rooms, a pharmacy, and an industrial clinic on the first
floor. Medical offices are located on all of the other floors.



Regents Medical Center



The Regents Medical
Center is a three-story, approximately 66,000 rentable square foot MOB situated on approximately 2.6 acres in the University Town Center area of San Diego, near the University of California, San Diego. The building, which was constructed in 1989,
has ground level retail spaces, two upper floors of medical offices, and subterranean and ground level parking that can accommodate a total of 285 vehicles.



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San Pedro Medical Plaza



The San Pedro Medical Plaza in San Pedro, California is an approximately 60,000 usable 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.



Santa Clarita Valley Medical Center



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



Santa
Clarita Valley Medical Center, Bldg F



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



Santa Clarita Valley Foundation Building



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



Leases



As of January
31, 2005, the MOB Properties were approximately 97.8% leased. New leases and extensions are normally granted for a minimum of three to five years and provide for annual rent increases. Office tenants generally have gross leases whereby rents may be
adjusted for a tenants proportionate share of any increases in the cost of operating the building. However, the Company has recently been leasing office space with provisions for the tenants to pay all utility costs directly. Most retail
tenants have net leases and pay their share of all operating expenses including property taxes and insurance. The following is a lease expiration table setting forth the number, square feet and associated annual rent for those leases expiring in
future years.



MOB PropertiesLease Expirations



|                         |  |                               |  |                                          |  |             |            |                        |       |  
|------------------------ |  | ----------------------------- |  | ---------------------------------------- |  | ----------- | ---------- | ---------------------- | ----- | -
|Year of Lease Expiration |  | Number of Leases Expiring (1) |  | Approximate Total Rented Square Feet (1) |  | Annual Rent |            | % of Total Annual Rent |      
|2005                     |  | 78                            |  | 120,546                                  |  | $           | 3,854,000  |                        | 16.0  | %
|2006                     |  | 84                            |  | 149,162                                  |  |             | 5,372,000  |                        | 22.3  | %
|2007                     |  | 67                            |  | 131,182                                  |  |             | 4,636,000  |                        | 19.2  | %
|2008                     |  | 55                            |  | 118,291                                  |  |             | 3,776,000  |                        | 15.7  | %
|2009                     |  | 53                            |  | 105,693                                  |  |             | 3,509,000  |                        | 14.5  | %
|2010                     |  | 16                            |  | 36,818                                   |  |             | 1,110,000  |                        | 4.6   | %
|2011                     |  | 7                             |  | 13,571                                   |  |             | 540,000    |                        | 2.2   | %
|2012                     |  | 7                             |  | 13,981                                   |  |             | 399,000    |                        | 1.7   | %
|2013                     |  | 6                             |  | 11,876                                   |  |             | 351,000    |                        | 1.5   | %
|2014                     |  | 5                             |  | 8,605                                    |  |             | 341,000    |                        | 1.4   | %
|2015 or later            |  | 2                             |  | 5,176                                    |  |             | 227,000    |                        | 0.9   | %
|                         |  |                               |  |                                          |  |             |            |                        |       |  
|Total                    |  | 380                           |  | 714,901                                  |  | $           | 24,115,000 |                        | 100.0 | %
|                         |  |                               |  |                                          |  |             |            |                        |       |  

---

|1) | Does not include month-to-month leases or vacant space. There are 38 month-to-month tenants who occupy approximately 52,000 square feet of space and pay approximately $105,000
per month in rent.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The Company has generally enjoyed strong lease renewals, achieving a weighted average renewal rate of
approximately 88.4% on MOB leases that expired during 2004. Although there can be no assurance that this renewal level will be maintained, the Company believes this high renewal rate is due in part to the tendency of medical practitioners to
continue to practice in the same space over a number of years. Also, the Companys tenants frequently invest large sums of money in equipment and fixtures for their offices. Furthermore, relocating a doctors office can be disruptive to
the patients who are familiar with the doctors office location.



Senior Care Loans



From 1995 through 1999, the
Company was in the business of originating loans secured by healthcare properties. Since 1999, the Company has made no secured loans and has exited the business of originating loans. As of December 31, 2004, the Company had nine loans outstanding
that total approximately $10.2 million before reserves of $2.9 million. Management believes that $2.9 million is appropriate in relation to the status of the loans in the Companys portfolio as of March 31, 2005.



Notes Receivable from Stockholders



The Company holds two unsecured promissory notes originally totaling $5.24
million payable by Daniel M. Gottlieb and Steven D. Lebowitz, the Companys chief executive officer and president, respectively, and the owners of 100% of the Companys outstanding common stock. As of December 31, 2004, all accrued
interest had been paid and the outstanding principal balance on the notes was $5.11 million.



Insurance



The Company
carries comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to the MOB Properties. There are certain types of losses that may either be uninsurable or not economically insurable; moreover, there can be no
assurance that policies maintained by the Company will be adequate in the event of a loss. The Company carries earthquake and flood insurance for coverage of losses up to $50 million on the MOB Properties, which amount represents approximately 53%
of the net book value of these properties. This coverage is subject to a 10% deductible up to the amount of insured loss. All of the properties directly or indirectly owned by the Company are located in Southern California, which has a history of
seismic activity, including the 1994 Northridge earthquake that damaged the Holy Cross Medical Plaza property. Should an uninsured loss occur, the Company could lose its investment in, and anticipated earnings and cash flow from, a property.



ITEM 3. LEGAL PROCEEDINGS



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



There were a number of common stockholder class actions pending against the Company and its directors that arose out of the proposal by Daniel M. Gottlieb, the Chief Executive Officer of the Company, and Steven D.
Lebowitz, the President of the Company, to acquire all of the outstanding shares of the Companys common stock not then owned by them. The first suit, Lukoff v. G & L Realty Corp. et al., case number BC 241251, was filed in the Superior
Court for the State of California, County of Los Angeles, on December 4, 2000. A second suit, Abrons v. G & L Realty Corp. et al., case number 24-C-00-006109, was filed in the Circuit Court for Baltimore City, Maryland, on December 14, 2000.
This suit was voluntarily dismissed without prejudice on June 7, 2001, and refiled



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in the Superior Court for the State of California, County of Los Angeles, case number BC 251479, on May 31, 2001. Morse v. G & L Realty Corp. et al.,
case number 221719-V, was filed in the Circuit Court for Montgomery County, Maryland, on May 17, 2001. Another suit, Harbor Finance Partners v. Daniel M. Gottlieb et al., case number BC 251593, was filed in the Superior Court for the State of
California, County of Los Angeles, on June 1, 2001. All these actions asserted claims for breach of fiduciary duty and seek compensatory damages and other relief. The Lukoff, Abrons and Harbor Finance actions were consolidated for all purposes, with
Lukoff designated as the lead action. The Morse action was stayed pending the conclusion of the California class actions.



In addition, on April 4, 2002, a group of four former common stockholders of the Company filed an individual suit against the Company and its directors
arising from the same conduct alleged in the putative class actions and the merger proposals made by those four stockholders in 2001. Lyle Weisman, et al. v. G & L Realty Corp., et al., case number BC 271401, asserted claims against the
individual directors for breach of fiduciary duty, fraud and violations of the California Corporations Code, sections 25400-25403 and 25500-25502. The fourth amended complaint also asserted a claim for unjust enrichment against Messrs. Gottlieb and
Lebowitz and a claim for unfair competition under Business and Professions Code sections 17200 et seq. against Messrs. Gottlieb and Lebowitz and the Company. The Court previously dismissed with prejudice Plaintiffs claims for negligent and
intentional interference with prospective economic advantage. The Weisman suit was consolidated with the Lukoff class actions for purposes of discovery.



The Company and the director defendants reached a settlement of the California class actions in June 2004 providing for a class settlement and release of
claims and entry of judgment dismissing the action with prejudice. The Company and the director defendants, in June 2004, also reached a settlement of the Weisman suit also providing for a release of claims and entry of judgment dismissing
the action with prejudice. The total payment in settlement of these suits was $1.25 million, of which approximately $1 million was paid from insurance.



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



None.



PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Until October 29, 2001, the Companys Common Stock was listed on the New York Stock Exchange under the symbol GLR. On October 29, 2001, the Company
completed a merger with G & L Acquisition, LLC, a Maryland limited liability company, substantially on the terms provided for in the Agreement of Plan and Merger, dated as of May 10, 2001, as amended, by and between the Company and G & L
Acquisition, LLC (the Merger). G & L Acquisition, LLC is owned by Daniel M. Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President, respectively, of the Company. Upon completion of the Merger, each outstanding share
of the Companys Common Stock, other than a portion of the shares held by Messrs. Gottlieb and Lebowitz, was converted into the right to receive $13.00 in cash, without interest. After completion of the Merger, the Companys Common Stock
was delisted from the New York Stock Exchange. There is no established public trading market for the Companys common stock. As of March 31, 2005, the Company had two holders of its Common Stock.



In September 2004, the Companys board of directors classified and
designated 200,000 authorized but unissued shares of Preferred Stock as Series C Cumulative Preferred Stock having the same rights, privileges and preferences as the Companys currently outstanding Series A Preferred Stock and 200,000
authorized but unissued shares of Preferred Stock as Series D Cumulative Preferred Stock having the same rights, privileges and preferences as the Companys currently outstanding Series B Preferred Stock. The board of directors then authorized
the exchange of the 90,797 shares of Series A Preferred Stock and 102,290 shares of Series B Preferred Stock owned by Messrs. Gottlieb and Lebowitz for 90,797 shares of Series C Preferred Stock and 102,290 shares of Series D Preferred Stock,
respectively. On December 30, 2004, the Board of Directors approved the repurchase by the



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##### Table of Contents

Company of the 90,797 shares of Series C Preferred Stock and the 102,290 shares of Series D Preferred Stock owned by Messrs. Gottlieb and Lebowitz for $4.44
million. The purchase price of $23.00 a share represented a 13% and 9% discount, respectively, to the market price of the Companys Series A and Series B Preferred Stock at the time. The Series C and Series D Preferred Stock rank on a parity
with the Series A and Series B Preferred Stock and share pari passu in dividends and at liquidation. The Company completed the repurchase on December 30, 2004.



During 2004, the Company hired an investment banking firm to advise it on the possible issuance of a new series of preferred
stock, the proceeds of which would have been used, in significant part, to redeem the Companys outstanding Series A Preferred Stock and Series B Preferred Stock. On November 29, 2004, the Company issued a press release announcing the
termination of its efforts to refinance its outstanding preferred stock because the front end costs of such a refinancing would have outweighed the potential benefits derived. Although the Company terminated its effort to refinance its currently
outstanding preferred stock, the Company is constantly seeking to reduce its overall cost of capital and may revive such efforts in the future.



During 2004 and 2003, the Company paid cash common stock dividends of $3.0 million in the third quarter of 2004, $0.8 million in the second quarter of
2003 and $4.5 million in the fourth quarter of 2003. The Company also paid a property common stock dividend valued at $3.1 million for tax purposes in the fourth quarter of 2004 in connection with the spin off of its senior care properties.



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



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, 2004, 2003, 2002, 2001 and 2000. 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, 2004, 2003, 2002, 2001 and 2000 and for each of the years ended December 31, 2004, 2003, 2002, 2001 and 2000 have been
derived from audited financial statements. See Recent Developments under Managements Discussion and Analysis of Financial Condition and Results of Operations for a description of the Companys spin-off of its
senior care properties on November 1, 2004.



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|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                                               |  | Year ended December 31,                  |        
|                                                                                                                                                               |  | 2004                                     |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                                                                                                                               |  | (In thousands, except per share amounts) |        
|Operating Data:                                                                                                                                                |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenues:                                                                                                                                                      |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Rental                                                                                                                                                         |  | $                                        | 26,598  |   |      | $ | 23,016  |      |  | $ | 23,164  |   |  | $    | 21,494  |   |  | $ | 19,972  |  
|Patient revenues                                                                                                                                               |  |                                          | 6,736   |   |      |   | 26,129  |      |  |   | 24,261  |   |  |      | 21,057  |   |  |   | 17,820  |  
|Tenant reimbursements                                                                                                                                          |  |                                          | 3,381   |   |      |   | 3,055   |      |  |   | 2,497   |   |  |      | 1,606   |   |  |   | 1,189   |  
|Parking                                                                                                                                                        |  |                                          | 1,722   |   |      |   | 1,644   |      |  |   | 1,472   |   |  |      | 1,439   |   |  |   | 1,199   |  
|Interest and loan fees                                                                                                                                         |  |                                          | 1,905   |   |      |   | 787     |      |  |   | 2,459   |   |  |      | 2,801   |   |  |   | 2,532   |  
|Other income                                                                                                                                                   |  |                                          | 1,529   |   |      |   | 2,563   |      |  |   | 1,413   |   |  |      | 1,790   |   |  |   | 556     |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenues                                                                                                                                                 |  |                                          | 41,871  |   |      |   | 57,194  |      |  |   | 55,266  |   |  |      | 50,187  |   |  |   | 43,268  |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Expenses:                                                                                                                                                      |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Property operations                                                                                                                                            |  |                                          | 7,747   |   |      |   | 7,748   |      |  |   | 7,329   |   |  |      | 7,428   |   |  |   | 6,935   |  
|Skilled nursing operations                                                                                                                                     |  |                                          | 6,287   |   |      |   | 23,901  |      |  |   | 21,421  |   |  |      | 19,004  |   |  |   | 16,548  |  
|Depreciation and amortization                                                                                                                                  |  |                                          | 4,544   |   |      |   | 4,876   |      |  |   | 4,908   |   |  |      | 4,792   |   |  |   | 4,843   |  
|Interest                                                                                                                                                       |  |                                          | 10,592  |   |      |   | 25,122  |      |  |   | 13,606  |   |  |      | 10,490  |   |  |   | 10,892  |  
|Loss on sale of bonds receivable                                                                                                                               |  |                                          |        |   |      |   | 120     |      |  |   |        |   |  |      |        |   |  |   |        |  
|General and administrative                                                                                                                                     |  |                                          | 5,641   |   |      |   | 4,551   |      |  |   | 3,280   |   |  |      | 3,953   |   |  |   | 2,892   |  
|Provision for doubtful accounts, notes and bonds receivable                                                                                                    |  |                                          | 1,401   |   |      |   | 975     |      |  |   | 1,542   |   |  |      | 1,004   |   |  |   | 2,288   |  
|Impairment of assets                                                                                                                                           |  |                                          | 8,139   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total expenses                                                                                                                                                 |  |                                          | 44,351  |   |      |   | 67,293  |      |  |   | 52,086  |   |  |      | 46,671  |   |  |   | 44,398  |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|(Loss) income from operations before minority interests, equity in earnings (loss) of unconsolidated affiliates and (loss) income from
discontinued operations |  |                                          | (2,480  | ) |      |   | (10,099 | )    |  |   | 3,180   |   |  |      | 3,516   |   |  |   | (1,130  | )
|Equity in earnings (loss) of unconsolidated affiliates                                                                                                         |  |                                          | 9       |   |      |   | 3,743   |      |  |   | (140    | ) |  |      | 205     |   |  |   | (417    | )
|Minority interest in consolidated affiliates                                                                                                                   |  |                                          | (564    | ) |      |   | (150    | )    |  |   | (285    | ) |  |      | (302    | ) |  |   | (182    | )
|Corporate income tax expense                                                                                                                                   |  |                                          |        |   |      |   | (136    | )    |  |   | (295    | ) |  |      | (85     | ) |  |   |        |  
|Minority interest in Operating Partnership                                                                                                                     |  |                                          |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 460     |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|(Loss) income from operations before discontinued operations                                                                                                   |  |                                          | (3,035  | ) |      |   | (6,642  | )    |  |   | 2,460   |   |  |      | 3,334   |   |  |   | (1,269  | )
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net (loss) income from discontinued operations                                                                                                                 |  |                                          | (718    | ) |      |   | (185    | )    |  |   | (291    | ) |  |      | 2,796   |   |  |   | 1,155   |  
|Gain from sale of discontinued operations                                                                                                                      |  |                                          | 2,536   |   |      |   | 7,347   |      |  |   | 2,320   |   |  |      |        |   |  |   | 1,263   |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total income from discontinued operations                                                                                                                      |  |                                          | 1,818   |   |      |   | 7,162   |      |  |   | 2,029   |   |  |      | 2,796   |   |  |   | 2,418   |  
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net (loss) income                                                                                                                                              |  |                                          | (1,217  | ) |      |   | 520     |      |  |   | 4,489   |   |  |      | 6,130   |   |  |   | 1,149   |  
|Dividends on preferred stock                                                                                                                                   |  |                                          | (7,162  | ) |      |   | (7,162  | )    |  |   | (7,162  | ) |  |      | (7,162  | ) |  |   | (7,164  | )
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net (loss) to common stockholders                                                                                                                              |  | $                                        | (8,379  | ) |      | $ | (6,642  | )    |  | $ | (2,673  | ) |  | $    | (1,032  | ) |  | $ | (6,015  | )
|                                                                                                                                                               |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                                                                                                               | 
|                                                                                                                                                               |  | At or for the Year ended December 31,    |        
|                                                                                                                                                               |  | 2004                                     |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                                                                                                                               |  | (In thousands, except per share amounts) |        
|Cash Flow Data:                                                                                                                                                |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net cash provided by (used in) operating activities                                                                                                            |  | $                                        | 11,277  |   |      | $ | (936    | )    |  | $ | 3,871   |   |  | $    | 15,482  |   |  | $ | 7,332   |  
|Net cash provided by (used in) investing activities                                                                                                            |  |                                          | 188     |   |      |   | 22,549  |      |  |   | 11,612  |   |  |      | (2,809  | ) |  |   | (373    | )
|Net cash used in financing activities                                                                                                                          |  |                                          | (12,907 | ) |      |   | (12,029 | )    |  |   | (15,156 | ) |  |      | (13,425 | ) |  |   | (11,713 | )
|                                                                                                                                                               |  |                                          |         |   |     
|Balance Sheet Data:                                                                                                                                            |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Land, buildings and improvements, net                                                                                                                          |  | $                                        | 86,096  |   |      | $ | 125,718 |      |  | $ | 123,645 |   |  | $    | 118,594 |   |  | $ | 120,714 |  
|Assets held for sale                                                                                                                                           |  |                                          | 10,410  |   |      |   | 30,337  |      |  |   | 50,695  |   |  |      | 50,009  |   |  |   | 50,611  |  
|Mortgage loans and bonds receivable, net                                                                                                                       |  |                                          | 7,658   |   |      |   | 764     |      |  |   | 1,829   |   |  |      | 11,976  |   |  |   | 11,244  |  
|Total investments                                                                                                                                              |  |                                          | 104,164 |   |      |   | 156,819 |      |  |   | 176,169 |   |  |      | 180,579 |   |  |   | 182,569 |  
|Total assets                                                                                                                                                   |  |                                          | 125,722 |   |      |   | 188,217 |      |  |   | 198,008 |   |  |      | 205,024 |   |  |   | 205,466 |  
|Total debt                                                                                                                                                     |  |                                          | 157,690 |   |      |   | 196,327 |      |  |   | 194,092 |   |  |      | 192,698 |   |  |   | 158,942 |  
|Total stockholders (deficit) equity                                                                                                                           |  |                                          | (35,144 | ) |      |   | (14,293 | )    |  |   | (2,272  | ) |  |      | 901     |   |  |   | 39,891  |  



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



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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.



Recent Developments



On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record on
November 1, 2004. Messrs. Gottlieb and Lebowitz are the sole common stockholders of the Company. In total, skilled nursing and assisted living assets having a net equity of $9.03 million, derived from current independent property appraisals less the
existing property debt, have been spun-off to these stockholders. At the time of the spin-off, these assets were held by the Companys consolidated subsidiary, G&L Senior Care Properties, LLC, and the spin-off was effectuated by a
distribution of the Companys membership interests in G&L Senior Care Properties, LLC. In addition to these skilled nursing facility and assisted living facility assets, G&L Senior Care Properties, LLC had cash of approximately $2
million, and indebtedness to the Company of $6 million as of the effective date of the spin-off. Accordingly, G&L Senior Care Properties, LLC at the time of the spin-off, had a net asset value (based on fair market valuations of its skilled
nursing and assisted living facilities) of approximately $5.03 million.



Following the spin-off, G&L Senior Care Properties, LLC is now owned and managed primarily by Daniel Gottlieb and Steven Lebowitz, the CEO and President, respectively, of the Company. Due to the substantial management overlap between
the Company and G&L Senior Care Properties, LLC, the two companies have entered into a cost sharing agreement to allocate between them each year the general and administrative costs of the two companies. Management estimates that, at the current
time, the skilled nursing facility and the assisted care living facility assets now owned by G&L Senior Care Properties, LLC, account for approximately 65% of the general and administrative costs of the two companies.



The Company continues to hold two promissory notes issued by G&L Senior
Care Properties, LLC, a short term promissory note in the amount of $2 million and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum, and will for some time continue to be a creditor of
G&L Senior Care Properties, LLC. The short term promissory note has a term of six months, interest only payable monthly, and is unsecured. The long term promissory note has a term of 12 years, provides for flat monthly payments of interest and
principal on a 25 year amortization basis, with a balloon payment of $3.32 million at the end of the term, and is secured by the interests of G&L Senior Care Properties, LLC in the various special purpose entities through which it holds its
interest in its skilled nursing facility and assisted care living facility assets.



Critical Accounting Policies



Revenue recognition. The majority of the Companys revenues results from rents from operating leases. Base rental income is recognized on a straight-line basis over the term of the lease regardless of when payments are due.
Certain leases include rent concessions and escalation clauses creating an effective rent that is included in unbilled rent receivable. The remaining source of the Companys revenue is from patient revenue derived from its operation of three
skilled nursing facilities (SNFs) located in Massachusetts. Patient revenue is reported at the estimated net realizable amount from patients, third party payors and others for services rendered, net of contractual adjustments. Since
April 1, 2004, the Company no longer holds the operating licenses for the three SNFs located in Massachusetts and no longer derives any revenue from patients.



Allowances for doubtful accounts, notes and bonds receivable. Tenant rents and reimbursements receivable, unbilled rent receivable and mortgage
loans and bonds receivable are carried net of the allowances for doubtful accounts, notes and bonds receivable. Managements determination of the adequacy of these allowances requires significant judgments and estimates. Tenant rents and
reimbursements receivable consist of amounts due for contractual lease payments and reimbursements for common area maintenance, property taxes, insurance and other expenses due from tenants. Management regularly reviews its tenant receivables and
adjusts the allowance based on specific identification, in managements opinion, of an individual tenants ability to pay its obligations under the terms of its lease. Unbilled rent receivable consists of the cumulative straight-line
rental income recorded to date



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that exceeds the actual amounts billed to date under the Companys lease agreements. Based on historical loss experience, management has typically
maintained a reserve for unbilled rent receivable equal to approximately 10% of the unbilled rent receivable balance. Mortgage loans and bonds receivable consist of the Companys investment in loans secured by real property along with certain
unsecured notes. Management regularly evaluates its loan portfolio and adjusts the allowance based on the specific identification, in managements opinion, of a borrowers ability to pay its obligations under the terms of the loan.



Long-lived assets.The Companys assets
consist mainly of investments in real property. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that an assets book value exceeds the undiscounted expected future cash flows to be
derived from that asset. Whenever undiscounted expected future cash flows are less than the book value, the asset will be reduced to estimated fair value and an impairment loss will be recognized. The Company recorded an impairment loss of $8.1
million associated with the senior care spin-off in 2004. The Company recorded no impairment losses in 2003 and 2002.



Results of Operations



Comparison of the Year Ended December 31, 2004 Versus the Year Ended December 31, 2003



Total revenues decreased by $15.3 million, or 27%, from $57.2 million for the year ended December 31, 2003, to $41.9 million for the same period in 2004.
The decrease was due to $19.4 million decrease in patient revenues along with a decrease in other income of $1.1 million. These decreases were offset by a $4.0 million increase in rents, tenant reimbursements and parking revenues as well as a $1.1
million increase in interest and loan fee income.



Patient
revenues decreased by $19.4 million, or 74%, from $26.1 million for the year ended December 31, 2003, to $6.7 million for the same period in 2004. On April 1, 2004, the licenses to operate the three SNFs owned by the Company in Massachusetts were
transferred to the manager of the facilities. Upon the transfer of these licenses, the Company no longer reflected the assets, liabilities, revenues and expenses related to the operations of these three SNFs in its consolidated financial statements.
As of April 1, 2004, the Company recorded rental income per the terms of the leases it entered into with the new owners of the operating licenses. On November 1, 2004, the Company spun off all of its senior care assets to its common stockholders
including the three facilities located in Massachusetts.



Rents, tenant reimbursements and parking revenues increased by $4.0 million, or 15%, from a combined total of $27.7 million for the year ended December 31, 2003, to $31.7 million in 2004. $2.2 million of this increase was due to an increase
in rental revenue at the Companys three SNFs located in Massachusetts. Subsequent to the transfer of the operating licenses mentioned above, the Company recorded rental income per the terms of the new leases entered into with the manager of
these facilities. An additional $0.5 million of the increase in rental revenues was due to the June 2004 acquisition of a 155-bed SNF located in Goodyear, Arizona. Also, a new rental agreement with the operator of the Companys SNF located in
Hyattsville, Maryland accounted for an additional $0.3 million in rental revenues. The remaining $1.0 million increase consisted of a $0.7 million increase in rental revenue due to increased occupancy and rental rates at the Companys MOB
properties as well as a $0.3 million increase in tenant reimbursements for building operating expenses. Tenant reimbursements have increased because the Company has been obtaining higher reimbursements of operating expenses from its tenants under
new and renewed lease agreements.



Interest and loan fee income
increased $1.1 million, or 137%, from $0.8 million for the year ended December 31, 2003, to $1.9 million in 2004. $0.9 million of this increase was due to additional interest accrued on the Companys note receivable from Lakeview Associates,
LLC (Lakeview). Lakeview, a joint venture in which the Company owned a 50% interest, sold its two-story, 80-unit assisted living facility (ALF) located in Yorba Linda, California in September 2004. The Company had a second
deed of trust note on the ALF owned by Lakeview and had been recognizing a bad debt expense with respect to the monthly interest payments owed on the note due to uncertainty of collection. Upon the sale of the ALF, Lakeview repaid the second deed of
trust note and all accrued interest and the Company recognized the payment of accrued interest as interest income. The remaining $0.2 million increase in interest and loan fee income was due to additional interest earned on the Companys cash
on hand. As of December 31, 2004, the Company had approximately $10.5 million in cash on hand.



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Other income decreased by $1.1 million, or 44%, from $2.6 million for the year ended December 31, 2003,
to $1.5 million for the same period in 2004. This decrease was due to the collection in 2003 of $1.0 million related to a $4.6 million note receivable funded by the Company in December 1997. The Company had fully reserved for the outstanding loan
balance in prior years and reversed $1 million of the reserve into other income upon receipt of the cash payment in 2003.



Total expenses decreased by $22.9 million, or 34%, from $67.3 million for the year ended December 31, 2003, to $44.4 million for the same period in 2004.
The decrease was due to a decrease in skilled nursing operation costs of $17.6 million, a decrease in interest expense of $14.5 million and a decrease in depreciation and amortization expense of $0.3 million. These decreases were offset by an
increase in the impairment of assets of $8.1 million, an increase in provisions for doubtful accounts of $0.4 million and an increase in general and administrative costs of $1.0 million.



Skilled nursing operation costs decreased by $17.6 million, or 74%, from $23.9 million for the year ended December 31, 2003,
to $6.3 million for the same period in 2004. On April 1, 2004, the licenses to operate the three SNFs owned by the Company and located in Massachusetts were transferred to the manager of the facilities. Upon the transfer of these licenses, the
Company no longer reflected the assets, liabilities, revenues and expenses related to the operations of these three SNFs in its consolidated financial statements.



Interest expense decreased $14.5 million, or 58%, from $25.1 million for the year ended December 31, 2003, to $10.6 million
for the same period in 2004. The primary reason for the decrease was the $11.1 million of pre-payment fees and the write-off of deferred loan fees, incurred during 2003, relating to the early repayment of four separate loans totaling $69.5 million.
During 2003, the Company refinanced a $26.2 million loan secured by four of its MOBs located in Beverly Hills, California, a $31.5 million loan secured by MOBs located in Beverly Hills, Sherman Oaks and La Jolla, California, a $7.2 million loan
secured by another MOB located in Beverly Hills, and a $4.6 million loan secured by an MOB located in Santa Clarita, California. An additional $3.9 million of this decrease was due to the repayment in September 2003 of the Companys $35 million
loan obtained in October 2001 in order to repurchase the Companys outstanding common stock held by the public. Also, $0.3 million of this decrease was due to a decrease in 2003 in the fair market value of the LIBOR interest rate cap associated
with the $35 million loan. An additional $0.5 million decrease was due to a decrease in interest expense associated with the spin-off of all of the Companys senior care assets to its common stockholders of record on November 1, 2004. These
decreases were offset by a $1.3 million increase in interest expense due to the 2003 refinancing of four mortgage loans totaling $69.5 million with new mortgage loans totaling $123.3 million.



Depreciation and amortization expense decreased $0.4 million, or 8%, from
$4.9 million for the year ended December 31, 2003, to $4.5 million for the same period in 2004. This decrease of $0.3 million was associated with the spin-off of all of the Companys senior care assets to its common stockholders of record on
November 1, 2004.



General and administrative costs increased
$1 million, or 22%, from $4.6 million for the year ended December 31, 2003, to $5.6 million for the same period in 2004. $0.6 million of this increase was attributed to increased legal and consulting costs associated with the spin-off of the
Companys senior care assets to its common stockholders of record on November 1, 2004 along with a potential offering by the Company of new preferred stock that was never consummated. The remaining $0.4 million increase was the result of an
increase in reserves associated with the $513,602 letter of credit in which the Company is the guarantor on and which was called upon in March 2005.



Provisions for doubtful accounts, notes and bonds receivable increased by $0.4 million, or 40%, from $1.0 million for the year ended December 31, 2003, to
$1.4 million for the same period in 2004. $0.8 million of this increase is the result of an increase in the Companys provision for doubtful accounts associated with the Companys three SNFs located in Massachusetts. Also, the Company
increased its provision for doubtful bonds by an additional $0.3 million relating to the subordinated bonds purchased by the Company in 1999. These increases were offset by a $0.7 million decrease in provision for doubtful accounts associated with
the Companys SNF located in Hoquiam, Washington, which was spun-off on November 1, 2004.



The Company recorded an impairment loss in the amount of $8.1 million during 2004 associated with the spin-off of the Companys senior care assets to its common stockholders of record on November 1, 2004.



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Equity in earnings of unconsolidated affiliates decreased $3.7 million for the year ended December 31,
2004 compared to the same period in 2003. This decrease was mainly due to the sale, in 2003, of a 23,000 square foot MOB located in Aliso Viejo, California in which the Company held a 50% interest along with an ALF located in Omaha, Nebraska, in
which the Company also had a 50% interest. During 2003, the Company recognized gains of approximately $1.3 million and $2.6 million, respectively, as a result of these sales.



Gains from sale of discontinued operations decreased $4.8 million, or 66%, from $7.3 million for the year ended December 31,
2003, to $2.5 million for the same period in 2004. The Company recognized net gains from discontinued operations in the amount of $2.5 million during 2004 due to the sale of an MOB, a research and development building and an SNF as well as the
Companys membership interest in a consolidated joint venture that owned an ALF. The sale, in January 2004, of the Companys membership interest in a joint venture that owned an 80-unit ALF located in Tarzana, California accounted for $0.3
million of this gain while the March 2004 sale of a two-story, 48,000 square foot research and development building located in Irwindale, California accounted for an additional $0.3 million. In August 2004, the Company sold its 10,000 square foot
MOB located in Tustin, California recognizing a gain of $2.1 million. These gains were offset by the $0.2 million loss on the sale of a 59-bed SNF located in Chico, California in June 2004. During 2003, the Company recognized net gains from
discontinued operations in the amount of $7.3 million. The sale, in October 2003, of a one-story, 9,100 square foot retail facility located in Aliso Viejo, California accounted for a net gain of $0.8 million, while the sale, in December 2003, of a
two-story, 26,000 square foot MOB located in Burbank, California accounted for a net gain of $1.4 million. In addition, in December 2003, the Company sold its membership interest in a joint venture that owned a 92-unit ALF located in Santa Monica,
California for $6 million and recognized a net gain on sale of $5.1 million.



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



Total revenues increased by $1.9 million, or 3%, from $55.3 million for the year ended December 31, 2002, to $57.2 million for the same period in 2003.
The increase was due to an increase in patient revenues of $1.8 million, an increase in other income of $1.2 million and an increase in rents, tenant reimbursements and parking revenues of $0.6 million. These increases were offset by a $1.7 million
decrease in interest and loan fee income.



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



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



Interest and loan fee income decreased
$1.7 million from $2.5 million for the year ended December 31, 2002 to $0.8 million in 2003. This decrease was due to the non-recurrence in 2003 of fees associated with the early repayment in 2002 of the Companys two notes receivable related
to a SNF located in Hyattsville, Maryland.



Other income
increased $1.2 million, or 86%, from $1.4 million for the year ended December 31, 2002 to $2.6 million for the same period in 2003. This increase is due to the collection of $1.0 million related to a $4.6 million loan made by the Company in 1997.
The loan has been in default since December 1999 and has been fully reserved by the Company.



Interest expense increased $11.5 million, or 85%, from $13.6 million for the year ended December 31, 2002, to $25.1 million for the same period in 2003. Interest expense increased by $13.2 million from 2002 to 2003
due to prepayment penalties and the write-off of deferred loan fees relating to the early repayment of five individual loans



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totaling $101.3 million. Interest expense also increased an additional $0.2 million due to a new $4.3 million loan secured by a SNF located in Phoenix,
Arizona that was obtained in December 2002. These increases were offset by decreases in interest expense totaling $1.9 million. A decrease in interest expense on the Companys variable rate mortgages due to lower interest rates accounted for
$1.3 million of the total decrease. The remaining $0.6 million decrease was due to the decline in the fair market value of the Companys LIBOR interest rate cap. The Company recognized a $0.3 million loss related to the decline in the fair
market value of its LIBOR interest rate cap during 2003 compared to a $0.9 million loss in 2002. The value of the LIBOR interest rate cap fluctuated based upon current prevailing market interest rates. For the years ended December 31, 2001 and 2002,
the Company recognized a $0.5 million gain and a $0.9 million loss, respectively, on the fair market value of its LIBOR interest rate cap, thus, the net effect on earnings since the Companys purchase of this financial instrument was a $0.7
million loss. In October 2003, the Company sold the LIBOR interest rate cap for $0.2 million



General and administrative costs increased $1.3 million, or 39%, from $3.3 million for the year ended December 31, 2002, to $4.6 million for the same period in 2003. This increase was attributed to an increase in
corporate staffing costs as well as additional legal costs.



Provisions for doubtful accounts, notes and bonds receivable decreased by $0.5 million, or 33%, from $1.5 million for the year ended December 31, 2002, to $1.0 million for the same period in 2003. This decrease was the result of a decrease
in reserves associated with the Companys SNF located in Hoquiam, Washington.



Equity in earnings of unconsolidated affiliates increased $3.8 million for the year ended December 31, 2003 compared to the same period in 2002. This increase was partially due to the sale of a 23,000 square foot MOB
located in Aliso Viejo, California in which the Company held a 50% interest. The Company recognized a gain of approximately $1.3 million as a result of this sale. In addition, another joint venture, in which the Company also held a 50% interest,
sold an ALF located in Omaha, Nebraska. The Company recognized a gain of approximately $2.6 million as a result of the sale.



Gains from sale of discontinued operations increased $5.0 million, or 217%, from $2.3 million for the year ended December 31, 2002, to $7.3 million for
the same period in 2003. The Company recognized net gains from discontinued operations in the amount of $7.3 million during 2003 due to the sale of a retail facility, an MOB property and one of its ALFs. The sale, in October 2003, of a one-story,
9,100 square foot retail facility located in Aliso Viejo, California accounted for a net gain of $0.8 million, while the sale, in December 2003, of a two-story, 26,000 square foot MOB located in Burbank, California accounted for a net gain of $1.4
million. In addition, in December 2003, the Company sold its membership interest in a joint venture that owned a 92-unit ALF located in Santa Monica, California for $6 million and recognized a net gain on sale of $5.1 million. The Company recognized
a net gain from discontinued operations in the amount of $2.3 million for the year ended December 31, 2002. The sale, in January 2002, of a 183-bed hospital located in Tustin, California to Pacific Health Corporation, the operator of the hospital,
accounted for a gain of $2.4 million. This gain was offset by a loss of $0.1 million due to the sale, in May 2002, of a SNF located in Paso Robles, California.



Liquidity and Capital Resources



As of December 31, 2004, the Company had approximately $10.5 million of cash on hand. The Company obtains its liquidity from multiple internal and
external sources. Internally, funds are derived from the operation of its healthcare properties. The MOB Properties produced net income of approximately $9.4 million before minority interests for the year ended December 31, 2004. The net income of
$9.4 million includes a $2.1 million net gain on sale of the Companys 10,000 square foot MOB located in Tustin, California and a $0.3 million net gain on sale of the Companys 48,000 square foot research and development building located
in Irwindale, California. These gains were offset by $1.0 million of prepayment penalties and deferred loan fee write offs relating to the refinancing of a $7.1 million loan secured by the Companys office and retail building located in
Coronado, California. The MOB Properties contain approximately 785,000 rentable square feet and, as of January 31, 2005, were approximately 97.8% leased to over 400 tenants with lease terms typically ranging from three to ten years.



The Companys assisted living facilities produced net income of
approximately $0.1 million for the ten months ended October 31, 2004. The $0.1 million includes a $0.7 million gain on the sale of the Companys assisted living facility located in Yorba Linda, California in which the Company had a 50% interest
as well as a $0.3 million gain



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on the sale of the Companys membership interest in a joint venture that owned an assisted living facility located in Tarzana, California. These gains
were offset by the Companys share of losses in the Companys assisted living facilities owned through joint ventures. On November 1, 2004, the Company spun off its interest in all of its assisting living facilities to its common
stockholders. See Recent Developments above.



The
Companys skilled nursing facilities produced net income of approximately $1.0 million for the ten months ended October 31, 2004 which included a $0.2 million loss on the sale of a skilled nursing facility located in Chico, California. On
November 1, 2004, the Company spun off its interest in all of its skilled nursing facilities to its common stockholders. See Recent Developments above.



The Companys principal external sources of capital consist of various secured loans and selective asset sales. As of
December 31, 2004, the Company had secured loans outstanding of approximately $157.6 million. During 2004, the Company obtained a $3 million secured line of credit that is secured by a first deed of trust on land owned by the Company in Santa
Clarita, California. As of March 31, 2005, the Company had no outstanding borrowings under the line of credit. The Company has also been selling some of its assets which has provided additional liquidity. During 2004, the Company received proceeds
of $13.8 million from the sale of its assets. The Company has reserved these funds for new acquisitions, future stock dividends and for general corporate purposes. The Companys 2004 asset purchase and sales and its refinancings are discussed
below.



On January 26, 2004, the Company sold its membership
interest in a joint venture that owned an 80-unit ALF located in Tarzana, California for $1.7 million in cash and recognized a net gain on sale of $0.3 million. The existing mortgage balance of $8.2 million along with an unsecured note payable of
$0.5 million, were assumed by the buyer.



On March 18, 2004,
the Company sold a two-story, 48,000 square foot research and development building located in Irwindale, California for $8.85 million and received net proceeds of $8.4 million. The Company recognized a gain on sale of $0.3 million.



On June 9, 2004, the Company sold a 59-bed SNF located in Chico, California
for $0.7 million and received net proceeds of $0.6 million. The Company recognized a loss on sale of $0.2 million.



On June 25, 2004, the Company acquired, through a joint venture, a SNF located in Arizona for $7.6 million. The Company funded approximately $0.4 million
in order to acquire a 75% interest in the property. The joint venture borrowed $7.6 million to finance the acquisition. The loan bears interest at 6.5% per annum, requires monthly principal and interest payments and is due in December 2005. This
property was spun-off to the Companys common stockholders on November 1, 2004.



On August 2, 2004, the Company sold a 10,000 square foot MOB located in Tustin, California for $3.6 million and realized net proceeds of $2.1 million. The Company recognized a gain on sale of $2.1 million.



On September 30, 2004, Lakeview sold its 80-unit ALF located in Yorba
Linda, California for $10.6 million. Lakeview netted approximately $4.1 million after repaying the outstanding mortgage loan balance of $6.1 million and other closing costs. Lakeview recognized a gain of $0.6 million on the sale. In October 2004,
the Company received a distribution from Lakeview of $2.9 million.



On November 29, 2004, the Company refinanced a loan secured by an MOB located in Coronado, California with a $13.55 million loan. A portion of the loan proceeds were used to repay the existing $7.1 million as well as other financing costs.
The new loan has a ten year term and bears interest at a fixed rate of 5.24% per annum. On March 24, 2005, the Company sold the property for $18.15 million. The buyer assumed the existing mortgage loan of $13.55 million and the Company received net
proceeds of $4.4 million after all closing costs.



The Company
paid monthly dividends of $0.6 million to holders of the Companys Preferred Stock on the fifteenth day of each month during 2004 to holders of record on the first day of each month. In addition, the Company distributed $3.0 million in cash
dividends and a property dividend valued at $3.1 million for tax purposes to holders of the Companys Common Stock during 2004.



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During 2004, the Company hired an investment banking firm to advise it on the possible issuance of a new
series of preferred stock, the proceeds of which would have been used, in significant part, to redeem the Companys outstanding Series A Preferred Stock and Series B Preferred Stock. On November 29, 2004, the Company announced the termination
of its efforts to refinance its outstanding preferred stock because the front end costs of such a refinancing would have outweighed the potential benefits derived. Although the Company terminated its effort to refinance its currently outstanding
preferred stock, the Company is constantly seeking to reduce its overall cost of capital and may revive such efforts in the future.



While the Company is highly leveraged, the Company expects to continue meeting its short-term liquidity requirements through its working capital, cash
flow provided by operations and its line of credit. The Company also expects to maintain stockholder distributions in accordance with REIT requirements, although no assurances can be given that the current level of distributions will be maintained.
Long-term liquidity requirements such as refinancing mortgages, financing acquisitions and financing capital improvements will be accomplished through long-term borrowings, the sale of assets and joint venture arrangements.



Sources and Uses of Funds



The Companys net cash from operating activities increased $12.2
million from net cash used of $0.9 million for the year ended December 31, 2003 to net cash provided of $11.3 million for the same period in 2004. The increase is due to an increase the impairment of assets of $8.1 million,, a decrease in net gains
from sale of discontinued operations of $4.8 million, a decrease in equity in income of unconsolidated affiliates of $3.7 million, a $0.8 million decrease in tenant rent and reimbursements receivable and a $0.4 million increase in provisions for
doubtful accounts, notes and bonds receivable. These increases in cash provided by operating activities were offset by a $1.9 million decrease in the write-off of deferred loan costs, a $1.7 million decrease in net income, a $0.6 million decrease in
depreciation and amortization and a $1.4 million decrease in accounts payable and other liabilities.



Net cash from investing activities decreased $22.3 million, or 99%, from $22.5 million for the year ended December 31, 2003 to $0.2 million for the same
period in 2004. The decrease was primarily due to a $12.2 million decrease in proceeds from the sale of real estate assets, a $3.7 million increase in purchases of real estate assets, a $3.5 million increase in investments in notes and bonds
receivable, a $1.2 million increase in contributions to unconsolidated affiliates, a $0.6 million decrease in the sale of bonds receivable and a $0.5 million increase in additions to rental properties.



Net cash flows used in financing activities increased $0.9 million, or 8%
from $12.0 million for the twelve months ended December 31, 2003, to $12.9 million for the same period in 2004. The increase was due to a $102.8 million decrease in notes payable proceeds, a $4.4 million increase in purchases of preferred stock and
a $1.7 million increase in restricted cash. These increases in cash flows used in financing activities were offset by a $105.0 million decrease in the repayment of notes payable, a $1.9 million decrease in distributions and a $0.9 million decrease
in payments of deferred loan costs.



Off- Balance Sheet Arrangements



The Company is the guarantor on a $513,602 letter of
credit issued by U.S. Bank National Association (U.S. Bank) in favor of Fannie Mae c/o Greystone Servicing Corporation under which the Companys maximum liability is approximately $410,000. In December 1999, the Company purchased
$1.3 million of subordinated bonds secured by an apartment complex located in Tulsa, Oklahoma. At the time, a letter of credit for $513,602 was issued by the Bank of Oklahoma in favor of the issuer of the subordinated bonds in order to pay the
interest payments on the secured debt of the property in the event the cash flow of the property was insufficient to meet such payments. The Company guaranteed $250,000 of this letter of credit. In December 2003, June 2004 and December 2004, the
borrower defaulted on the semi-annual interest payment to the holders of the subordinated bonds, including those held by the Company. The subordinated bonds owned by the Company are fully-reserved for on the Companys balance sheet. In July
2004, the letter of credit issued by the Bank of Oklahoma was called upon and the Company was required to fund the $250,000 that it had guaranteed. Subsequently, the current letter of credit was issued by



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U.S. Bank. The Companys partners in this investment are in the process of restructuring the management and
operation of the property in order to make it profitable once again. As part of the restructuring, the letter of credit was called upon in March 2005. The Company recorded a reserve of $410,000 on its balance sheet as of December 31, 2004 related to
its maximum liability with respect to the letter of credit.



As
of December 31, 2004, the Company had investments in three unconsolidated joint ventures totaling $2.5 million. All of the unconsolidated joint ventures were formed for the purpose of acquiring and owning real estate assets. Per the terms of the
joint venture agreements, the Company could be required to advance additional funds to these joint ventures if the operating activities of the joint ventures are insufficient to satisfy the obligations of the joint ventures. Any additional funds
advanced to the joint ventures are treated as additional equity contributions and are recorded as an investment in unconsolidated affiliates on the Companys balance sheet.



Contractual Obligations



As of December 31, 2004, the Company had the following contractual obligations outstanding:



|                          |  |      |        |      |   |                |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|------------------------- |  | ---- | ------ | ---- | - | -------------- |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                          |  | 2005 |        | 2006 |   | 2007           |  | 2008 |        | 2009 |   | Thereafter |  | Total
|                          |  |      |        |      |   | (in thousands) |  |      |        |      |   |           
|Obligations:              |  |      |        |      |   |                |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|                          |  |      |        |      |   |                | 
|Fixed rate mortgage debt: |  |      |        |      |   |                |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Interest                  |  | $    | 9,072  |      | $ | 8,935          |  | $    | 8,790  |      | $ | 8,314      |  | $     | 7,851  |  | $ | 18,109  |  | $ | 61,071 
|Principal                 |  |      | 2,237  |      |   | 2,373          |  |      | 2,518  |      |   | 8,889      |  |       | 9,742  |  |   | 131,931 |  |   | 157,690
|                          |  |      |        |      |   |                |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|                          |  | $    | 11,309 |      | $ | 11,308         |  | $    | 11,308 |      | $ | 17,203     |  | $     | 17,593 |  | $ | 150,040 |  | $ | 218,761
|                          |  |      |        |      |   |                |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



Debt Structure



As of December 31, 2004, the Company had thirteen loans totaling $157.7
million. The terms of these loans are described below.



On
April 22, 1998, the Company borrowed $8.1 million from Tokai Bank of California (Tokai) at a fixed rate of 7.05%. On June 1, 1998, the Company began making monthly principal and interest payments on the loan of approximately $58,000
(25-year amortization). This note, which will have a balance at maturity of $6.7 million, is due on April 1, 2008. The Holy Cross Medical Plaza has been pledged as security for this loan. As of December 31, 2004 the outstanding balance on this loan
was $7.1 million. On March 23, 2005, the Company refinanced this loan with a new $17.8 million mortgage loan. The new loan is for ten years but is interest only for the first two years and bears interest at a fixed rate of 5.71% per annum.



On July 2, 1999, the Company obtained a $10 million long-term
loan from Ohio National Life Insurance Company secured by its six building portfolio of MOBs located at the Henry Mayo Newhall Hospital campus in Santa Clarita, California. The Company used $5.0 million of the total proceeds to repay a short-term
loan secured by these buildings. The loan, which is due on July 1, 2009, bears interest at a fixed rate of 6.85% per annum and had an unpaid balance of $8.8 million as of December 31, 2004.



On August 17, 2001, the Company obtained a loan in the amount of $7.2 million
from Deutsche Bank AG secured by two of its properties located in Tustin, California. The proceeds were used to repay an existing $5.1 million first deed of trust. The loan bears interest at a fixed rate of 7.51% per annum and is due in August 2011.
As of December 31, 2004, the unpaid balance on this note was $7.0 million.



On February 28, 2003, the Company refinanced its 435 N. Roxbury Drive MOB with a new $8.2 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The Company used the loan proceeds to repay the remaining
balance on the old loan of $7.2 million along with a prepayment penalty of $0.1 million. The new loan bears interest at a fixed rate of 5.55% per annum and is due on February 1, 2013. The new loan requires monthly principal and interest payments of
$47,000 (30-year amortization). As of December 31, 2004 the outstanding balance on this loan was $8.0 million.



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On May 22, 2003, the Company refinanced its 49,000 square foot MOB located in Valencia, California with a
new $8.6 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The Company used the loan proceeds to repay the remaining balance on the old loan of $4.6 million along with a prepayment penalty of $0.2 million. The new loan bears
interest at a fixed rate of 5.48% per annum and is due on June 1, 2013. As of December 31, 2004, the unpaid balance on this new loan was $8.4 million.



On June 3, 2003, the Company refinanced a mortgage loan that was secured by three of its MOBs and an adjacent parking garage located in Beverly Hills with
four individual loans totaling $47.0 million with GMAC. The Company used the proceeds to repay the remaining balance on the old loan of $26.2 million along with a prepayment penalty of $4.1 million. The new loans bear interest at a fixed rate of
5.69% per annum and are due on July 1, 2013. The combined outstanding balance on the four loans was approximately $46.2 million as of December 31, 2004.



On September 30, 2003, the Company refinanced a mortgage loan that was secured by three of its MOBs and a research and development facility with three
separate loans totaling $59.5 million with Morgan Stanley Mortgage Capital, Inc. The new loans are secured by the Sherman Oaks Medical Plaza, the Regents Medical Center and the 436 North Bedford Drive MOB. The Company used the proceeds to repay the
remaining balance on the old loan of $31.5 million along with a prepayment penalty of $6.1 million. The new loans bear interest at a fixed rate of 5.34% per annum and are due on October 1, 2010. As of December 31, 2004, the combined outstanding
balance on the three loans was approximately $58.6 million.



On
November 29, 2004, the Company borrowed $13.6 million from Morgan Stanley Mortgage Capital, Inc. secured by the Coronado Plaza. A portion of the loan proceeds were used to repay the existing $7.1 million as well as other financing costs. The new
loan is interest only for two years, bears interest at a fixed rate of 5.24% per annum and is due on December 1, 2014. Monthly principal and interest payments of approximately $75,000 (30-year amortization) commence in January 2007. As of December
31, 2004 the unpaid balance on this loan was $13.6 million. The Company sold the Coronado Plaza on March 24, 2005 and the buyer assumed the existing mortgage loan of $13.6 million.



Financing Policies



To the extent that the Board of Directors of the Company decides to seek additional funding, the Company may raise such capital using various means,
including retention of internally generated funds (subject to the distribution requirements in the Code with respect to REITs), existing working capital and possibly the issuance of additional debt (secured or unsecured), the participation in joint
venture arrangements or any combination of the above. It is anticipated that borrowings will continue to be made through the Operating Partnership and Senior Care Partnership or other entities, although the Company may also incur indebtedness that
may be re-borrowed by the Operating Partnership or the Senior Care Partnership on the same terms and conditions as are applicable to the Companys borrowing of such funds. Except as required pursuant to existing financing agreements, the
Company has not established any limit on the number or amount of mortgages or unsecured debt that may be placed on any single property or on its portfolio as a whole.



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



Inflation



The majority of the Companys leases are long-term leases designed to mitigate the adverse effect of inflation.
Approximately 40% of the Companys leases contain provisions that call for annual rent increases equal to the increase in the Consumer Price Index and the majority of the remaining leases allow for specific annual rent



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increases. Furthermore, many of the Companys leases require tenants to pay a pro rata share of building operating expenses, including real estate
taxes, insurance and common area maintenance. The effect of such provisions is to reduce the Companys exposure to increases in costs and operating expenses resulting from inflation.



New Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123(R), Share Based Payments (SFAS No. 123(R)) which replaces SFAS 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their fair values. As such, pro forma disclosure in lieu of expensing is no longer an alternative. The new standard is effective in the first interim or
annual reporting period beginning after June 15, 2005. The Company does not believe the adoption of this Statement will have a material impact on our financial statements.



In December 2003, the FASB issued FASB Interpretation No. 46-R, Consolidation of Variable Interest Entities-an
Interpretation of ARB No. 51 (FIN 46-R). FIN 46-R clarified the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and provided guidance on the identification of entities for which
control is achieved through means other than voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to
an entity in which either: (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated
financial support from other parties. The Company adopted FIN 46-R during 2004 and the adoption of this standard did not have a material impact on our financial statements.



Non-GAAP Supplemental Financial Measure



Industry analysts generally consider funds from operations (FFO) to be an appropriate measure of the performance
of a REIT. The Company calculates FFO as defined by the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT). FFO is helpful in evaluating the performance of a real estate portfolio considering the
fact that historical cost accounting assumes that the value of real estate diminishes predictably over time. FFO is calculated to include the minority interests share of income from the Operating Partnership and Senior Care Partnership since
the Operating Partnership and Senior Care Partnerships net income is allocated proportionately among all owners of Operating Partnership and Senior Care Partnership units. The combined number of Operating Partnership and Senior Care
Partnership units held by the Company is identical to the number of outstanding shares of the Companys Common Stock, and owners of Operating Partnership and Senior Care Partnership units may, at their discretion, convert their units into
shares of Common Stock on a one-for-one basis.



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The Company believes that, in order to facilitate a clear understanding of the operating results of the
Company, FFO should be examined in conjunction with the Companys net income as presented in the Selected Financial Data and Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K and the additional data
presented below. The table on the following page presents an analysis of FFO and additional data for each of the four quarters and the year ended December 31, 2004 for the Operating Partnership:



FUNDS FROM OPERATIONS

FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 2004



|                                                                  |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|----------------------------------------------------------------- |  | ------------------- | ------- | - | ------------------------------------- | - | ------- | --- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------- | -
|                                                                  |  | 2004 Fiscal Quarter |         |   | Year                                  |  
|                                                                  |  | 1st                 |         |   | 2nd                                   |   |         | 3rd |  |   | 4th    |   |  | 2004 |       
|                                                                  |  |                     |         |   | (In thousands, except per share data) |   |         |     | 
|Funds from Operations (1):                                        |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Net income (loss)                                                 |  | $                   | 1,567   |   |                                       | $ | 61      |     |  | $ | 3,965  |   |  | $    | (6,810 | ) |  | $ | (1,217  | )
|Depreciation of real estate assets                                |  |                     | 981     |   |                                       |   | 1,338   |     |  |   | 1,068  |   |  |      | 884    |   |  |   | 4,271   |  
|Amortization of deferred lease costs                              |  |                     | 48      |   |                                       |   | 36      |     |  |   | 37     |   |  |      | 38     |   |  |   | 159     |  
|(Gain) loss on sale of assets                                     |  |                     | (586    | ) |                                       |   | 147     |     |  |   | (2,097 | ) |  |      |       |   |  |   | (2,536  | )
|Impairment of assets                                              |  |                     |        |   |                                       |   |        |     |  |   |       |   |  |      | 8,139  |   |  |   | 8,139   |  
|Depreciation of real estate assets from unconsolidated affiliates |  |                     | 111     |   |                                       |   | 111     |     |  |   | 111    |   |  |      | 60     |   |  |   | 393     |  
|Adjustment for minority interest in consolidated affiliates       |  |                     | (25     | ) |                                       |   | (23     | )   |  |   | (36    | ) |  |      | (26    | ) |  |   | (110    | )
|Dividends paid on preferred stock                                 |  |                     | (1,791  | ) |                                       |   | (1,790  | )   |  |   | (1,790 | ) |  |      | (1,791 | ) |  |   | (7,162  | )
|                                                                  |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Operating Partnership funds from operations                       |  |                     | 305     |   |                                       |   | (120    | )   |  |   | 1,258  |   |  |      | 494    |   |  |   | 1,937   |  
|Minority interest in Operating Partnership                        |  |                     | (16     | ) |                                       |   | 6       |     |  |   | (67    | ) |  |      | (26    | ) |  |   | (103    | )
|                                                                  |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Funds from operations                                             |  | $                   | 289     |   |                                       | $ | (114    | )   |  | $ | 1,191  |   |  | $    | 468    |   |  | $ | 1,834   |  
|                                                                  |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Dividends declared                                                |  | $                   |        |   |                                       | $ |        |     |  | $ | 4.00   |   |  | $    |       |   |  | $ | 4.00    |  
|Cash dividends paid on Common Stock                               |  |                     |        |   |                                       |   |        |     |  |   | 3,000  |   |  |      |       |   |  |   | 3,000   |  
|                                                                  |  |                     |         |   |                                      
|Additional Data                                                   |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Cash Flows:                                                       |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Operating activities                                              |  |                     | 2,105   |   |                                       |   | 4,781   |     |  |   | 2,443  |   |  |      | 1,948  |   |  |   | 11,277  |  
|Investing activities                                              |  |                     | 16,858  |   |                                       |   | (17,084 | )   |  |   | 1,249  |   |  |      | (835   | ) |  |   | 188     |  
|Financing activities                                              |  |                     | (14,964 | ) |                                       |   | 10,703  |     |  |   | (7,080 | ) |  |      | (1,566 | ) |  |   | (12,907 | )
|                                                                  |  |                     |         |   |                                      
|Capital Expenditures:                                             |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Building improvements                                             |  |                     | 171     |   |                                       |   | 48      |     |  |   | 1,245  |   |  |      | 197    |   |  |   | 1,661   |  
|Tenant improvements                                               |  |                     | 76      |   |                                       |   | 115     |     |  |   | 246    |   |  |      | 194    |   |  |   | 631     |  
|Furniture, fixtures & equipment                                   |  |                     | 82      |   |                                       |   | 15      |     |  |   | 19     |   |  |      | 36     |   |  |   | 152     |  
|Leasing commissions                                               |  |                     | 23      |   |                                       |   | 18      |     |  |   | 28     |   |  |      | 51     |   |  |   | 120     |  
|                                                                  |  |                     |         |   |                                      
|Depreciation and Amortization:                                    |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Depreciation of real estate assets                                |  |                     | 981     |   |                                       |   | 1,338   |     |  |   | 1,068  |   |  |      | 884    |   |  |   | 4,271   |  
|Depreciation of non-real estate assets                            |  |                     | 166     |   |                                       |   | 177     |     |  |   | 172    |   |  |      | 68     |   |  |   | 583     |  
|Amortization of deferred lease costs                              |  |                     | 48      |   |                                       |   | 36      |     |  |   | 37     |   |  |      | 38     |   |  |   | 159     |  
|Amortization of deferred licensing costs                          |  |                     | 13      |   |                                       |   | 23      |     |  |   |       |   |  |      |       |   |  |   | 36      |  
|Amortization of capitalized financing costs                       |  |                     | 88      |   |                                       |   | 93      |     |  |   | 90     |   |  |      | 73     |   |  |   | 344     |  
|                                                                  |  |                     |         |   |                                      
|Rents:                                                            |  |                     |         |   |                                       |   |         |     |  |   |        |   |  |      |        |   |  |   |         |  
|Straight-line rent                                                |  |                     | 6,258   |   |                                       |   | 7,119   |     |  |   | 8,183  |   |  |      | 6,612  |   |  |   | 28,172  |  
|Billed rent                                                       |  |                     | 6,201   |   |                                       |   | 7,078   |     |  |   | 8,167  |   |  |      | 6,618  |   |  |   | 28,064  |  

---

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



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The primary risk inherent in the Companys market sensitive instruments is the risk of loss resulting from interest rate fluctuations. As of
December 31, 2004, all of the Companys notes payable bore interest at a fixed rate. As of December 31, 2003, approximately 10% of the Companys notes payable bore interest at a rate indexed to the one-month LIBOR rate or Prime Rate. The
tables below provide information as of December 31, 2004 and 2003 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, 2004 and 2003.



|                      |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|--------------------- |  | ---------------------- | ------ | - | ---- | - | ----- | -------------------------------- |  | - | ----- | - |  | ---- | ----- | - | ---------- | - | ------ | ----- |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |  | PRINCIPAL MATURING IN: |        |   |      |   |       | Fair MarketValueDecember 31,2004
|                      |  | 2005                   |        |   | 2006 |   |       | 2007                             |  |   | 2008  |   |  | 2009 |       |   | Thereafter |   |        | Total |  |  
|                      |  |                        |        |   |      |   |       | (in thousands)                   |  |   |       |   |  |      |       |   |            |   |        |      
|Liabilities:          |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|Mortgage debt:        |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|Fixed rate            |  | $                      | 2,237  |   |      | $ | 2,373 |                                  |  | $ | 2,518 |   |  | $    | 8,889 |   |            | $ | 9,742  |       |  | $ | 131,931 |   |  | $ | 157,690 |   |  | $ | 162,755
|Average interest rate |  |                        | 5.71   | % |      |   | 5.71  | %                                |  |   | 5.71  | % |  |      | 5.63  | % |            |   | 5.63   | %     |  |   | 5.57    | % |  |   | 5.67    | % |  |   |        
|                      |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|                      |  | $                      | 2,237  |   |      | $ | 2,373 |                                  |  | $ | 2,518 |   |  | $    | 8,889 |   |            | $ | 9,742  |       |  | $ | 131,931 |   |  | $ | 157,690 |   |  | $ | 162,755
|                      |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|                      |  | PRINCIPAL MATURING
IN: |        |   |      |   |       | Fair
MarketValueDecember 31,2003
|                      |  | 2004                   |        |   | 2005 |   |       | 2006                             |  |   | 2007  |   |  | 2008 |       |   | Thereafter |   |        | Total |  |  
|                      |  |                        |        |   |      |   |       | (in thousands)                   |  |   |       |   |  |      |       |   |            |   |        |      
|Liabilities:          |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|Mortgage debt:        |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|Fixed rate            |  | $                      | 2,565  |   |      | $ | 2,752 |                                  |  | $ | 2,927 |   |  | $    | 3,112 |   |            | $ | 18,949 |       |  | $ | 146,708 |   |  | $ | 177,013 |   |  | $ | 202,829
|Average interest rate |  |                        | 5.98   | % |      |   | 5.98  | %                                |  |   | 5.98  | % |  |      | 5.98  | % |            |   | 5.92   | %     |  |   | 5.81    | % |  |   | 5.94    | % |  |   |        
|                      |  |                        |        |   |      |   |       |                                 
|Variable rate         |  |                        | 12,910 |   |      |   | 4,218 |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   | 17,128  |   |  |   | 17,128 
|Average interest rate |  |                        | 6.22   | % |      |   | 5.37  | %                                |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   | 6.17    | % |  |   |        
|                      |  |                        |        |   |      |   |       |                                 
|Line of credit:       |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|Variable rate         |  |                        |        |   |      |   | 2,186 |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   | 2,186   |   |  |   | 2,186  
|Average interest rate |  |                        |        |   |      |   | 6.00  | %                                |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   | 6.00    | % |  |   |        
|                      |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        
|                      |  | $                      | 15,475 |   |      | $ | 9,156 |                                  |  | $ | 2,927 |   |  | $    | 3,112 |   |            | $ | 18,949 |       |  | $ | 146,708 |   |  | $ | 196,327 |   |  | $ | 222,143
|                      |  |                        |        |   |      |   |       |                                  |  |   |       |   |  |      |       |   |            |   |        |       |  |   |         |   |  |   |         |   |  |   |        



The
Companys future earnings and cash flows relating to market sensitive instruments are primarily dependent upon prevailing LIBOR market interest rate. Based upon interest rates as of December 31, 2003, a 1% increase in the LIBOR rate would have
decreased future earnings by $193,000, and future cash flow would have decreased by $64,000. A 1% decrease in the LIBOR rate would have increased future earnings by $193,000, and future cash flow would have increased by $64,000. A 1% change in the
LIBOR rate would not have had a material impact on the fair value of the Companys debt.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA



See Index to Consolidated Financial Statements and Schedules on Page 33.



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



Not applicable.



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ITEM 9A. CONTROLS AND PROCEDURES



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



ITEM 9B. OTHER INFORMATION



None.



PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The following table sets forth certain information with respect to the Companys directors as of March 31, 2005, based on information furnished to us by each director.



|                   |  |     |  |                                                                |  |               
|------------------ |  | --- |  | -------------------------------------------------------------- |  | --------------
|Name               |  | Age |  | Position                                                       |  | Director Since
|Daniel M. Gottlieb |  | 64  |  | Chief Executive Officer, Co-Chairman of the Board and Director |  | 1993          
|Steven D. Lebowitz |  | 64  |  | President, Co-Chairman of the Board and Director               |  | 1993          
|Richard L. Lesher  |  | 71  |  | Director                                                       |  | 1993          
|Charles P. Reilly  |  | 62  |  | Director                                                       |  | 1993          
|S. Craig Tompkins  |  | 54  |  | Director                                                       |  | 1993          



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



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



Mr. Lebowitz is our President and Co-Chairman of our board and has held these
positions since we commenced operations in 1993. Mr. Lebowitz is the co-founder and a general partner of G & L Development and has been active in the development, management and ownership of a wide range of real estate properties since 1968. Mr.
Lebowitz received a B.S. in Accounting from the University of Southern California, where he also received his MBA with highest honors in 1965. From 1962 to 1964, Mr. Lebowitz worked for Deloitte & Touche, LLP and was licensed as a Certified
Public Accountant in 1964. From 1965 to 1968, Mr. Lebowitz worked with the U.S. Department of



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Commerce and the Brookings Institution in Washington D.C. Mr. Lebowitz served on the board of directors of the United
States Chamber of Commerce, Washington, D.C. from 1989 to 1994. Mr. Lebowitz is currently a member of the Board of Counselors of the USC Ethel Percy Andrus Gerontology Center. Steven Lebowitz is the father of Andrew Lebowitz, the Companys Vice
President.



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



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



Mr. Tompkins has served as our director since we
commenced operations in 1993. Mr. Tompkins also served until January 2005 as the Chairman of our Companys Audit Committee and currently serves as Chairman of our Strategic Planning Committee. Mr. Tompkins also serves as a Managing Director of
the Companys affiliate, G&L Senior Care Properties, LLC, which specializes in the development, ownership and operation of skilled nursing facilities. Mr. Tompkins is the Director of Business Affairs for Reading International, Inc. (AMEX:
RDI), a publicly traded company principally engaged in the development and operation of entertainment properties in the United States, Australia, New Zealand and Puerto Rico. He is also an advisory director of Marshall & Stevens, a privately
owned appraisal and valuation firm, and the Chairman of the Advisory Committee of GWA Capital Partners, a hedge fund advisor specializing in investments in special situation companies. Mr. Tompkins was also as a Director of Fidelity Federal Bank,
FSB, where he served on the Banks audit and compensation committees. Mr. Tompkins also served on the special board committee which oversaw the sale of the Bank, which closed on December 31, 2001. Prior to joining Reading in 1993, Mr. Tompkins
was a partner specializing in corporate and real estate law in the law firm of Gibson, Dunn & Crutcher. Mr. Tompkins holds a bachelors degree, magna cum laude, from Claremont McKenna College and a J.D., magna cum laude, from
Harvard Law School.



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



|                    |  |     |  |                                                         |  |             
|------------------- |  | --- |  | ------------------------------------------------------- |  | ------------
|Name                |  | Age |  | Position                                                |  | OfficerSince
|Daniel M. Gottlieb  |  | 64  |  | Chief Executive Officer, Co-Chairman of the Board       |  | 1993        
|Steven D. Lebowitz  |  | 64  |  | President, Co-Chairman of the Board                     |  | 1993        
|John H. Rauch       |  | 74  |  | Senior Vice President, Operations                       |  | 1996        
|David E. Hamer      |  | 31  |  | Vice President, Chief Accounting Officer, and Secretary |  | 1998        
|Richard J. Gottlieb |  | 34  |  | Vice President                                          |  | 2002        
|Andrew S. Lebowitz  |  | 28  |  | Vice President                                          |  | 2003        



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



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



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



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



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



Section 16(a) Beneficial Ownership Reporting Compliance.Based solely upon a review of Securities and Exchange Commission Forms 3, 4 and 5
furnished to the Company and certain written representations, the Company believes that all reports required by Section 16(a) of the Securities and Exchange Act of 1934 with respect to the Companys fiscal year ended December 31, 2004 have been
filed by its officers, directors and 10% beneficial owners other than reports for Messrs. Gottlieb and Lebowitz relating to their exchange of their Series A and B Preferred Stock into Series C and D Preferred Stock, which were reported on Form 4s
filed on March 30, 2005.



Audit Committee and Audit Committee Financial
Expert



The Audit Committee of our Board of Directors is
composed of two members who are independent under the New York Stock Exchange listing standards and the regulations adopted by the Securities and Exchange Commission (SEC) pursuant to the Sarbanes-Oxley Act of 2002. The current members
of the Audit Committee are Richard Lesher and Charles Reilly. Craig Tompkins resigned from the Audit Committee in February 2005. The Board has determined that Charles Reilly and Richard Lesher each qualified as an audit committee financial expert as
defined in SEC regulations adopted under the Sarbanes-Oxley Act.



Code of
Ethics



The Company has not adopted a code of ethics that
applies to the Companys principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Company is in the process of developing a code of ethics for its
executive officers and plans to adopt such code in 2005.



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ITEM 11. EXECUTIVE COMPENSATION



The following table sets forth certain information with respect to our executive officers during the year ended December 31, 2004 . We did not grant any restricted stock awards, options or stock appreciation rights or make any long-term
incentive plan payouts during the three years ended December 31, 2004.



|                                                                                |  |                             |           |                     |                       |                       |                              |                       |  |     |  |    
|------------------------------------------------------------------------------- |  | --------------------------- | --------- | ------------------- | --------------------- | --------------------- | ---------------------------- | --------------------- |  | --- |  | ---
|                                                                                |  | Fiscal YearEndedDecember 31 |           | Annual Compensation |                       | All OtherCompensation
|Name and Principal Position                                                     |  |                             | Salary($) |                     | Bonus($)              |                       | Other Annual Compensation($) |                      
|Daniel M. GottliebChief Executive Officer,Co-Chairman of the Board and Director |  | 200420032002                |           | $                   | 390,000390,000390,000 |                       | $                            | 100,000100,000100,000 |  |  |  | 
|                                                                                |  |                             |           |                     |                      
|Steven D. LebowitzPresident, Co-Chairmanof the Board and Director               |  | 200420032002                |           | $                   | 390,000390,000390,000 |                       | $                            | 100,000100,000100,000 |  |  |  | 
|                                                                                |  |                             |           |                     |                      
|John H. RauchSenior Vice President                                              |  | 200420032002                |           | $                   | 135,000128,000120,750 |                       | $                            | 45,00040,00035,000    |  |  |  | 
|                                                                                |  |                             |           |                     |                      
|David E. HamerVice President,Chief Accounting Officer and Secretary             |  | 200420032002                |           | $                   | 142,500135,000130,000 |                       | $                            | 33,00027,50025,000    |  |  |  | 
|                                                                                |  |                             |           |                     |                      
|Richard J. GottliebVice President                                               |  | 200420032002                |           | $                   | 110,000100,000100,000 |                       | $                            | 65,00017,5001,000     |  |  |  | 
|                                                                                |  |                             |           |                     |                      
|Andrew S. LebowitzVice President                                                |  | 200420032002                |           | $                   | 93,50085,000         |                       | $                            | 65,00015,000         |  |  |  | 



Employment Agreements and
Arrangements



In December 1993, each of Daniel M. Gottlieb
and Steven D. Lebowitz entered into separate but identical employment agreements with us and the operating partnership for a term of three years. The agreements provide for automatic renewal for succeeding terms of one year unless we or Messrs.
Gottlieb or Lebowitz give notice at least three months prior to expiration of any term. The employment agreements provide for automatic annual increases in base compensation equal to 5% per annum; however, the board of directors may review the
annual base compensation every twelve months in light of various factors, and following each such review, the annual base compensation may be increased above the 5% automatic increase. The board of directors approved the salary increase for Messrs.
Gottlieb and Lebowitz in 2002. Messrs. Gottlieb and Lebowitz received no salary increases in 2003 and 2004.



In addition, each of Messrs. Gottlieb and Lebowitz are entitled to receive an annual bonus as determined by the board of directors in an amount not to
exceed a maximum of 100% of annual base compensation. Furthermore, each agreement provides that Messrs. Gottlieb and Lebowitz are entitled: (1) to participate in all of our medical, dental, life insurance, retirement, profit sharing, stock
incentive, disability and bonus plans which may be made available to our executives (only medical plans presently exist) and (2) to severance payments, under certain circumstances, equal to two times their then-current annual compensation. The board
of directors approved a bonus of $100,000 in 2004, 2003 and 2002 for each of Messrs. Gottlieb and Lebowitz. The board of directors has also approved an auto allowance for both Messrs. Gottlieb and Lebowitz in the amount of $18,000 per year.



The agreements require Messrs. Gottlieb and Lebowitz to devote
substantially all of their working time and best efforts to performance of their duties for us and, during the term of their employment, prohibits them, with certain



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exceptions, from directly or indirectly owning or operating or otherwise investing or participating in any other business
that is in competition with our business without the prior approval of a majority of the independent members of our board of directors. The Company intends to amend these agreements to reflect the arrangement between the Company and G&L Senior
Care Properties, LLC under the cost sharing agreement.



Option Grants for
2004



The Company granted no options in 2004.



Aggregated Option Exercises in 2004 and Options Values at December 31, 2004



There are currently no outstanding options.



Compensation of Directors



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



Compensation Committee Interlocks and Insider
Participation in Compensation Decisions



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



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth information as of March 31, 2005 regarding the beneficial ownership of common stock and operating partnership units by (1)
each person or company known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, (2) each of our directors, (3) each of our executive officers and (4) our directors and executive officers as a group. As of
March 31, 2005 we had 710,199 shares of common stock outstanding. In addition there were 39,932 operating partnership units outstanding which were not owned by us. Each person named in the table has sole voting and investment power with respect to
all shares shown as beneficially owned by such person except as provided under applicable state marital property laws or as set forth in the notes following the table.





|                                                              |  |                                  |  |                                                     |   |  |                    |  |                                                 |   |  |                                    |   |  |                                    
|------------------------------------------------------------- |  | -------------------------------- |  | --------------------------------------------------- | - |  | ------------------ |  | ----------------------------------------------- | - |  | ---------------------------------- | - |  | -----------------------------------
|Name and address of Beneficial
Owner                          |  | Number of Shares of Common Stock |  | Percentage of Shares of Common Stock Outstanding(1) |   |  | Number of Units(2) |  | Percentage Interest In Operating Partnership(3) |   |  | Percentage Ownership in Company(4) |   |  | Number of Shares of Preferred Stock
|Daniel M. Gottlieb439 N. Bedford DriveBeverly Hills, CA 90210 |  | 383,582                          |  | 54.0                                                | % |  | 14,400             |  | 1.9                                             | % |  | 53.1                               | % |  | 900                                
|                                                              |  |                                  |  |                                                     |   | 
|Steven D. Lebowitz439 N. Bedford DriveBeverly Hills, CA 90210 |  | 326,617                          |  | 46.0                                                |   |  | 12,404             |  | 1.7                                             |   |  | 45.2                               |   |  |                                   



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|                                                               |  |                                  |  |                                                     |   |  |                    |  |                                                 |   |  |                                    |   |  |                                    
|-------------------------------------------------------------- |  | -------------------------------- |  | --------------------------------------------------- | - |  | ------------------ |  | ----------------------------------------------- | - |  | ---------------------------------- | - |  | -----------------------------------
|Name and address of Beneficial
Owner                           |  | Number of Shares of Common Stock |  | Percentage of Shares of Common Stock Outstanding(1) |   |  | Number of Units(2) |  | Percentage Interest In Operating Partnership(3) |   |  | Percentage Ownership in Company(4) |   |  | Number of Shares of Preferred Stock
|                                                               |  |                                  |  |                                                     |   | 
|Richard L. Lesher1126 Cider Press RoadChambersburg, PA 17201   |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  | 26,906                             
|                                                               |  |                                  |  |                                                     |   | 
|Charles P. Reilly1721 Chevy Chase DriveBeverly Hills, CA 90210 |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  |                                   
|                                                               |  |                                  |  |                                                     |   | 
|S. Craig Tompkins550 S. Hope StreetLos Angeles, CA 90071       |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  |                                   
|                                                               |  |                                  |  |                                                     |   | 
|John H. Rauch439 N. Bedford DriveBeverly Hills, CA 90210       |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  |                                   
|                                                               |  |                                  |  |                                                     |   | 
|David E. Hamer439 N. Bedford DriveBeverly Hills, CA 90210      |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  |                                   
|                                                               |  |                                  |  |                                                     |   | 
|Richard J. Gottlieb439 N. Bedford DriveBeverly Hills, CA 90210 |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  |                                   
|                                                               |  |                                  |  |                                                     |   | 
|Andrew S. Lebowitz439 N. Bedford DriveBeverly Hills, CA 90210  |  |                                 |  |                                                    |   |  |                   |  |                                                |   |  |                                   |   |  | 760                                
|                                                               |  |                                  |  |                                                     |   | 
|Directors and Executive Officersas a group (9 persons)         |  | 710,199                          |  | 100.0                                               | % |  | 26,804             |  | 3.6                                             | % |  | 98.3                               | % |  | 28,566                             

---

|(1) | For the purposes of determining the percentage of outstanding common stock held by each person or group set forth in the table, the number of shares indicated as beneficially owned
by such person or group is divided by the sum of the number of outstanding shares of common stock as of March 31, 2005. Assumes that none of the outstanding operating partnership units are converted into shares of common stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | Based on a total of 750,131 operating partnership units outstanding (excluding preferred units all of which are held by us), including the 710,199 operating partnership units held
by our company as of March 31, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Assumes that all operating partnership units held by the person or group and all options exercisable within 60 days of March 31, 2005 held by the person or group are converted for
shares of common stock and that none of the operating partnership units held by other persons are converted into shares of common stock, notwithstanding the percentage limitations under our charter that limits the number of shares that may be
acquired by such person.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



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



In October 2001, the Operating Partnership loaned $5.2 million to Daniel M. Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President,
respectively, of the Company, to fund a $3.5 million tender offer for the Companys Series A and Series B Preferred Stock and to repay $1.7 million of personal debt. Each of the $2.6 million loans to Messrs. Gottlieb and Lebowitz are for a term
of ten years, bear interest at LIBOR plus 7.5% and require monthly interest only payments. Messrs. Gottlieb and Lebowitz have the option to accrue any and all interest payments, which shall then be added to the principal balance of the notes. As of
December 31, 2004, the outstanding principal on these notes was $5.11 million and all accrued interest had been paid in full by Messrs. Gottlieb and Lebowitz.



On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record
on November 1, 2004. Messrs. Gottlieb and Lebowitz are the sole common stockholders of the Company. In total, skilled nursing and assisted living assets having a net equity of $9.03 million, derived from current independent property appraisals less
the existing property debt, have been spun-off to these stockholders. At the time of the spin-off, these assets were held by the Companys consolidated subsidiary, G&L Senior Care Properties, LLC, and the spin-off was effectuated by a
distribution of the Companys membership interests in G&L Senior Care Properties, LLC. In addition to these skilled nursing facility and assisted living facility assets, G&L Senior Care Properties, LLC had cash of approximately $2
million, and indebtedness to the Company of $6 million as of the effective date of the spin-off. Accordingly, G&L Senior Care Properties, LLC at the time of the spin-off, had a net asset value (based on fair market valuations of its skilled
nursing and assisted living facilities) of approximately $5.03 million.



Following the spin-off, G&L Senior Care Properties, LLC is now owned and managed primarily by Daniel Gottlieb and Steven Lebowitz, the CEO and President, respectively, of the Company. Due to the substantial management overlap between
the Company and G&L Senior Care Properties, LLC, the two companies have entered into a cost sharing agreement to allocate between them each year the general and administrative costs of the two companies. Management estimates that, at the current
time, the skilled nursing facility and the assisted care living facility assets now owned by G&L Senior Care Properties, LLC, account for approximately 65% of the general and administrative costs of the two companies. Subsequent to the spin-off,
general and administrative costs totaling $243,723 were allocated to G&L Senior Care Properties, LLC. As of December 31, 2004, G&L Senior Care Properties, LLC owed the Company $133,971 pursuant to this cost sharing agreement between the two
companies. This amount is recorded under tenant rent and reimbursements receivable on the balance sheet as of December 31, 2004 and was paid by G&L Senior Care Properties, LLC to the Company in January 2005.



The Company continues to hold two promissory notes issued by G&L Senior
Care Properties, LLC, a short term promissory note in the amount of $2 million and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum, and will for some time continue to be a creditor of
G&L Senior Care Properties, LLC. The short term promissory note has a term of six months, interest only payable monthly, and is unsecured. The long term promissory note has a term of 12 years, provides for flat monthly payments of interest and
principal on a 25 year amortization basis, with a balloon payment of $3.32 million at the end of the term, and is secured by the interests of G&L Senior Care Properties, LLC in the various special purpose entities through which it holds its
interest in its skilled nursing facility and assisted care living facility assets.



On December 30, 2004, the Board of Directors approved the repurchase by the Company of the 90,797 shares of Series C Preferred Stock and the 102,290 shares of Series D Preferred Stock owned by Messrs. Gottlieb and
Lebowitz for $4.44 million. The purchase price of $23.00 a share represented a 13% and 9% discount, respectively, to the market price of the Companys Series A and Series B Preferred Stock at the time. The Series C and Series D Preferred Stock
rank on a parity with the Series A and Series B Preferred Stock and share pari passu in dividends and at liquidation. The Company completed the repurchase on December 30, 2004.



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During 2004, the Company paid S. Craig Tompkins, a member of the Board of Directors, $100,500 for legal
and consulting services performed in connection with the spin-off of the Companys senior care assets and the potential offering of preferred stock. These fees were in addition to the regular fees paid to the members of the Board of Directors.
In January 2005, the Company paid Mr. Tompkins $250,000 for legal services performed on behalf of the Company and its board of directors in connection with the stockholder litigation described in Item 3.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Audit Fees



The
aggregate fees for professional services rendered by Deloitte & Touche LLP for the audit of the Companys annual financial statements and for review of the financial statements included in the Companys Quarterly Reports on Form 10-Q
for 2004 were $198,700 and for 2003 were $205,200.



Audit-Related Fees



The aggregate fees for
assurance and related services by Deloitte & Touche LLP that are reasonably related to the performance of the audit or review of the Companys financial statements and are not reported under Audit Fees above for 2004 were $0 and
for 2003 were $9,250. The audit-related fees in 2003 related to the review of the financial statements of one of the Companys subsidiaries.



Tax Fees



The aggregate fees for professional services rendered by Deloitte & Touche LLP for tax compliance, tax advice and tax planning for 2004 were $205,734
and for 2003 were $159,496. Most of the fees relate to preparation of the Companys tax returns. During 2004, the Company paid Deloitte & Touche LLP $23,734 for advice and consulting relating to the spin-off of its senior care assets to the
Companys common stockholders. During 2003, the Company engaged Deloitte & Touche to perform a cost segregation study on one of its properties in order to realize greater tax benefits on its depreciation of the property.



All Other Fees



The aggregate fees billed for products and services provided by Deloitte
& Touche LLP, other than the services covered in Audit Fees, Audit-Related Fees, and Tax Fees above, for 2004 were $1,950 and for 2003 were $0. The other services provided to the Company by Deloitte &
Touche during 2004 were related to the review and appeal of property taxes on the Companys medical office buildings.



The audit committee pre-approves all audit, audit-related, tax and other services performed by Deloitte & Touche LLP for the Company. All services
provided by Deloitte & Touche are brought to the attention of the audit committee to determine if such services need to be pre-approved. All of the services provided by Deloitte & Touche that are described above under Audit Fees,
Audit-Related Fees, Tax Fees and All Other Fees were pre-approved by the Audit Committee during 2004 and 2003 except for the cost segregation study discussed above. The pre-approval requirement for this service
was waived because (1) the cost of this service constituted less than 5% of the total amount of revenues paid by the Company to Deloitte & Touche during 2003; (2) the Company did not recognize this service to be a non-audit service at the time
the service was obtained; and (3) this service was promptly brought to the attention of the Audit Committee and approved by it before the completion of the audit for 2003.



32



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##### Table of Contents

PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a) (1) and (a) (2) Index to Consolidated Financial Statements and Schedules:



|   |  |                                                                                                                                                                                                                                                                      |  |                         
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|   |  |                                                                                                                                                                                                                                                                      |  | Page Reference Form 10-K
|1. |  | Consolidated Financial Statements:                                                                                                                                                                                                                                   |  |                         
|   |  | Independent Auditors Report                                                                                                                                                                                                                                         |  | F-1                     
|   |  | Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                                                                                                                                                         |  | F-2                     
|   |  | Consolidated Statements of Operations for the Years EndedDecember 31, 2004, 2003 and 2002                                                                                                                                                                            |  | F-3                     
|   |  | Consolidated Statement of Stockholders EquityFor the Years Ended December 31, 2004, 2003 and 2002                                                                                                                                                                   |  | F-4                     
|   |  | Consolidated Statements of Cash Flows for the Years EndedDecember 31, 2004, 2003 and 2002                                                                                                                                                                            |  | F-5 to 6                
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                           |  | F-7 to 31               
|   |  |                                                                                                                                                                                                                                                                     
|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.



33



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##### Table of Contents

(a) (3) Exhibits



|            |  |      |  |                                                                                                                                                                                                                               
|----------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Note |  | Description                                                                                                                                                                                                                   
|2.1         |  | (8)  |  | The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L realty Corp.                                                                                                                                            
|            |  |     
|2.2         |  | (9)  |  | Amendment No. 1 to the Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp. dated September 28, 2001.                                                                                               
|            |  |     
|2.3         |  | (10) |  | Amendment No. 2 to the Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp. dated October 26, 2001.                                                                                                 
|            |  |     
|2.4         |  | (12) |  | Partnership Merger Agreement dated as of May 10, 2001 by and among G&L Acquisition, LLC, G&L Partnership, LLC, G&L Realty Corp. and G&L Realty Partnership, L.P.                                                              
|            |  |     
|3.1.1       |  | (1)  |  | Amended and Restated Articles of Incorporation of G&L Realty Corp.                                                                                                                                                            
|            |  |     
|3.1.2       |  | (4)  |  | Articles Supplementary of G&L Realty Corp. Series A Preferred Stock                                                                                                                                                           
|            |  |     
|3.1.3       |  | (5)  |  | Articles Supplementary of G&L Realty Corp. Series B Preferred Stock                                                                                                                                                           
|            |  |     
|3.1.4       |  | (14) |  | Articles Supplementary of G&L Realty Corp. Series C Preferred Stock                                                                                                                                                           
|            |  |     
|3.1.5       |  | (14) |  | Articles Supplementary of G&L Realty Corp. Series D Preferred Stock                                                                                                                                                           
|            |  |     
|3.2         |  | (3)  |  | Amended and Restated Bylaws of G&L Realty Corp.                                                                                                                                                                               
|            |  |     
|10.3        |  | (2)  |  | Agreement of Limited Partnership of G&L Realty Partnership, L.P.                                                                                                                                                              
|            |  |     
|10.3.2      |  | (11) |  | Amendment to Agreement of Limited Partnership of G&L Realty Partnership, L.P. dated as of July 31, 2001.                                                                                                                      
|            |  |     
|10.5        |  | (1)  |  | Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.                                                                                                                                      
|            |  |     
|10.9.2      |  | (1)  |  | Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.) between the Selling Partner (as defined therein) and G&L Development, dated as of October 29,
1993.                          
|            |  |     
|10.11       |  | (1)  |  | Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29,
1993.                                   
|            |  |     
|10.77       |  | (6)  |  | Agreement for Transfer of Property by and among G&L Coronado, LLC as Transferor and G&L Realty Partnership, L.P. as Operating Partnership dated as of December 30, 1998.                                                      
|            |  |     
|10.78       |  | (6)  |  | Tenant Estoppel and Real Estate Lease between G&L Coronado, LLC as Landlord and Coronado Managers Corp. as Tenant dated December 1, 1998.                                                                                     
|            |  |     
|10.79       |  | (6)  |  | Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively Guarantor) in favor of G&L Coronado, LLC (Landlord).                                                                                    
|            |  |     
|10.81       |  | (7)  |  | Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and GMAC Commercial Mortgage Corporation, as Lender.                                                                                    
|            |  |     
|10.82       |  | (11) |  | Credit Agreement among G&L Realty Partnership, L.P., G&L Partnership, LLC, the Several Lenders from Time to Time Parties Hereto and GMAC Commercial Mortgage Corporation, as Agent, dated
as of October 29, 2001              
|            |  |     
|10.83       |  | (11) |  | Guarantee and Collateral Agreement made by Daniel M. Gottlieb, Steven D. Lebowitz, G&L Realty Corp. and G&L Realty Partnership, L.P. in favor of GMAC Commercial Mortgage Corporation, as
Agent, dated as of October 29, 2001.
|            |  |     
|10.84       |  | (13) |  | Management and Cost Sharing Agreement, dated as of October 29, 2004 by and among G&L Realty Corp., G&L Senior Care Properties, LLC and G&L Realty Corp., LLC                                                                  
|            |  |     
|10.85       |  | (13) |  | Pledge and Security Agreement, dated as of October 29, 2004 by and between G&L Realty Partnership, L.P. and G&L Senior Care Properties, LLC                                                                                   



34



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##### Table of Contents

|      |  |      |  |                                                                                                                                    
|----- |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------
|10.86 |  | (13) |  | Secured Promissory Note, dated as of November 1, 2004, by G&L Senior Care Properties, LLC in favor of G&L Realty Partnership, L.P. 
|      |  |     
|10.87 |  | (13) |  | Unsecured Promissory Note, dated as of November 1, 2004 by G&L Senior Care Properties, LLC in favor of G&L Realty Partnership, L.P.
|      |  |     
|21    |  |      |  | List of Subsidiaries                                                                                                               
|      |  |     
|31.1  |  |      |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                            
|      |  |     
|31.2  |  |      |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                            
|      |  |     
|32.1  |  |      |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                            
|      |  |     
|32.2  |  |      |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                            

---

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

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

|3) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of October 28, 1997) and incorporated herein by reference.
|-- | ------------------------------------------------------------------------------------------------------------------------------------

|4) | Filed as an exhibit to the Companys Registration Statement on Form S-11 (filed as of April 10, 1997) and amendments thereto and incorporated herein by reference.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5) | Filed as an exhibit to the Companys Registration Statement on Form S-11 (filed as of October 27, 1997) and amendments thereto and incorporated herein by reference.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6) | Filed as an exhibit to the Companys Annual Report on Form 10-K (filed as of April 9, 1999) for the year ended December 31, 1998 and incorporated herein by reference.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of November 12, 1999) for the quarter ended September 30, 1999 and incorporated herein by
reference
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of May 15, 2001) for the quarter ended March 31, 2001 and incorporated herein by reference.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of October 4, 2001) and incorporated herein by reference.
|-- | -----------------------------------------------------------------------------------------------------------------------------------

|10) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of October 31, 2001) and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|11) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of November 13, 2001) and incorporated herein by reference.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|12) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of November 14, 2001) for the quarter ended September 30, 2001 and incorporated herein by
reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13) | Filed as an exhibit to the Companys Current Report on Form 8-K (filed as of November 4, 2004) and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|14) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q (filed as of November 15, 2004) for the quarter ended September 30, 2004 and incorporated herein by
reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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, 2004 and 2003 and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of G&L Realty Corp. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of America.



/s/ Deloitte & Touche LLP



Los Angeles,
California

March 31, 2005



F-1



---

##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                      |  | December 31, |        
|                                                                                                                                                                      |  | 2004         |         |   | 2003 |  
|ASSETS                                                                                                                                                                |  |              |         |   |      |   |         |  
|Rental properties (Note 18):                                                                                                                                          |  |              |         |   |      |   |         |  
|Land                                                                                                                                                                  |  | $            | 18,012  |   |      | $ | 23,544  |  
|Building and improvements, net (Note 3)                                                                                                                               |  |              | 67,796  |   |      |   | 101,185 |  
|Projects under development                                                                                                                                            |  |              | 288     |   |      |   | 989     |  
|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|Total rental properties                                                                                                                                               |  |              | 86,096  |   |      |   | 125,718 |  
|Assets held for sale (Note 3)                                                                                                                                         |  |              | 10,410  |   |      |   | 30,337  |  
|Cash and cash equivalents                                                                                                                                             |  |              | 10,508  |   |      |   | 11,950  |  
|Restricted cash                                                                                                                                                       |  |              | 2,177   |   |      |   | 2,613   |  
|Tenant rent and reimbursements receivable, net (Note 4)                                                                                                               |  |              | 625     |   |      |   | 5,278   |  
|Unbilled rent receivable, net (Note 5)                                                                                                                                |  |              | 2,472   |   |      |   | 2,583   |  
|Mortgage loans, bonds and notes receivable, net (Note 6)                                                                                                              |  |              | 1,161   |   |      |   | 764     |  
|Notes receivable from related parties (Notes 1 and 6)                                                                                                                 |  |              | 6,497   |   |      |   |        |  
|Investments in unconsolidated affiliates (Note 7)                                                                                                                     |  |              | 2,461   |   |      |   | 5,077   |  
|Deferred charges and other assets, net (Note 8)                                                                                                                       |  |              | 3,315   |   |      |   | 3,897   |  
|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|TOTAL ASSETS                                                                                                                                                          |  | $            | 125,722 |   |      | $ | 188,217 |  
|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                        |  |              |         |   |      |   |         |  
|LIABILITIES:                                                                                                                                                          |  |              |         |   |      |   |         |  
|Notes payable (Note 9)                                                                                                                                                |  | $            | 144,140 |   |      | $ | 179,379 |  
|Liabilities of assets held for sale (Note 3)                                                                                                                          |  |              | 13,629  |   |      |   | 17,376  |  
|Accounts payable and other liabilities                                                                                                                                |  |              | 3,018   |   |      |   | 5,837   |  
|Tenant security deposits                                                                                                                                              |  |              | 1,460   |   |      |   | 1,371   |  
|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|Total liabilities                                                                                                                                                     |  |              | 162,247 |   |      |   | 203,963 |  
|                                                                                                                                                                      |  |             
|Commitments and Contingencies (Note 10)                                                                                                                               |  |              |         |   |      |   |         |  
|Minority interest in consolidated affiliates                                                                                                                          |  |              | (1,381  | ) |      |   | (1,453  | )
|Minority interest in Operating and Senior Care Partnerships                                                                                                           |  |              |        |   |      |   |        |  
|                                                                                                                                                                      |  |             
|STOCKHOLDERS EQUITY (Notes 11 and 12):                                                                                                                               |  |              |         |   |      |   |         |  
|Preferred shares - $.01 par value, 10,000,000 shares authorized, liquidation preference of $25.00 per share                                                           |  |              |         |   |      |   |         |  
|      Series A Preferred - 1,404,203 shares and 1,495,000 shares issued and outstanding as of December 31,
2004 and 2003, respectively                               |  |              | 14      |   |      |   | 15      |  
|      Series B Preferred  1,277,710 shares and 1,380,000 shares issued and outstanding as of
December 31, 2004 and 2003, respectively                               |  |              | 13      |   |      |   | 14      |  
|      Series C Preferred Stock  90,797 shares issued and no shares outstanding and no shares issued
and outstanding as of December 31, 2004 and 2003, respectively  |  |              |        |   |      |   |        |  
|      Series D Preferred Stock  102,290 shares issued and no shares outstanding and no shares issued
and outstanding as of December 31, 2004 and 2003, respectively |  |              |        |   |      |   |        |  
|Common shares - $.01 par value, 50,000,000 shares authorized, 710,199 shares issued and outstanding as of December 31, 2004 and 2003,
respectively                    |  |              | 7       |   |      |   | 7       |  
|Additional paid-in capital                                                                                                                                            |  |              | 36,388  |   |      |   | 40,827  |  
|Distributions in excess of net income                                                                                                                                 |  |              | (66,452 | ) |      |   | (50,042 | )
|Notes receivable from stockholders                                                                                                                                    |  |              | (5,114  | ) |      |   | (5,114  | )
|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|Total stockholders deficit                                                                                                                                           |  |              | (35,144 | ) |      |   | (14,293 | )
|                                                                                                                                                                      |  |              |         |   |      |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                           |  | $            | 125,722 |   |      | $ | 188,217 |  
|                                                                                                                                                                      |  |              |         |   |      |   |         |  



See accompanying notes
to Consolidated Financial Statements



F-2



---

##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)



|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                                                               |  | Year Ended December 31, |       
|                                                                                                                                               |  | 2004                    |        |   | 2003 |   |         | 2002 | 
|REVENUES:                                                                                                                                      |  |                         |        |   |      |   |         |      |  |   |        |  
|Rent (Notes 5 and 13)                                                                                                                          |  | $                       | 26,598 |   |      | $ | 23,016  |      |  | $ | 23,164 |  
|Patient revenues                                                                                                                               |  |                         | 6,736  |   |      |   | 26,129  |      |  |   | 24,261 |  
|Tenant reimbursements                                                                                                                          |  |                         | 3,381  |   |      |   | 3,055   |      |  |   | 2,497  |  
|Parking                                                                                                                                        |  |                         | 1,722  |   |      |   | 1,644   |      |  |   | 1,472  |  
|Interest and loan fees                                                                                                                         |  |                         | 1,905  |   |      |   | 787     |      |  |   | 2,459  |  
|Other income                                                                                                                                   |  |                         | 1,529  |   |      |   | 2,563   |      |  |   | 1,413  |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Total revenues                                                                                                                                 |  |                         | 41,871 |   |      |   | 57,194  |      |  |   | 55,266 |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|EXPENSES:                                                                                                                                      |  |                         |        |   |      |   |         |      |  |   |        |  
|Property operations                                                                                                                            |  |                         | 7,747  |   |      |   | 7,748   |      |  |   | 7,329  |  
|Skilled nursing operations                                                                                                                     |  |                         | 6,287  |   |      |   | 23,901  |      |  |   | 21,421 |  
|Depreciation and amortization                                                                                                                  |  |                         | 4,544  |   |      |   | 4,876   |      |  |   | 4,908  |  
|Interest                                                                                                                                       |  |                         | 10,592 |   |      |   | 25,122  |      |  |   | 13,606 |  
|Loss on sale of bonds receivable (Note 6)                                                                                                      |  |                         |       |   |      |   | 120     |      |  |   |       |  
|                                                                                                                                               |  |                         |       
|General and administrative                                                                                                                     |  |                         | 5,641  |   |      |   | 4,551   |      |  |   | 3,280  |  
|Provision for doubtful accounts, notes and bonds receivable (Notes 4 and 6)                                                                    |  |                         | 1,401  |   |      |   | 975     |      |  |   | 1,542  |  
|Impairment of assets (Note 1)                                                                                                                  |  |                         | 8,139  |   |      |   |        |      |  |   |       |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Total expenses                                                                                                                                 |  |                         | 44,351 |   |      |   | 67,293  |      |  |   | 52,086 |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|(Loss) income from operations before minority interests and equity in earnings (loss) of unconsolidated affiliates and discontinued
operations |  |                         | (2,480 | ) |      |   | (10,099 | )    |  |   | 3,180  |  
|                                                                                                                                               |  |                         |       
|Equity in earnings (loss) of unconsolidated affiliates                                                                                         |  |                         | 9      |   |      |   | 3,743   |      |  |   | (140   | )
|Minority interest in consolidated affiliates                                                                                                   |  |                         | (564   | ) |      |   | (150    | )    |  |   | (285   | )
|Corporate income tax expense                                                                                                                   |  |                         |       |   |      |   | (136    | )    |  |   | (295   | )
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|(Loss) income from operations before discontinued operations                                                                                   |  |                         | (3,035 | ) |      |   | (6,642  | )    |  |   | 2,460  |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Discontinued operations (Note 15):                                                                                                             |  |                         |        |   |      |   |         |      |  |   |        |  
|Net (loss) income from operations of discontinued operations                                                                                   |  |                         | (718   | ) |      |   | (185    | )    |  |   | (291   | )
|Gain from sale of discontinued operations                                                                                                      |  |                         | 2,536  |   |      |   | 7,347   |      |  |   | 2,320  |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Total income from discontinued operations                                                                                                      |  |                         | 1,818  |   |      |   | 7,162   |      |  |   | 2,029  |  
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Net (loss) income                                                                                                                              |  |                         | (1,217 | ) |      |   | 520     |      |  |   | 4,489  |  
|Dividends on preferred stock                                                                                                                   |  |                         | (7,162 | ) |      |   | (7,162  | )    |  |   | (7,162 | )
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Net (loss) available to common stockholders                                                                                                    |  | $                       | (8,379 | ) |      | $ | (6,642  | )    |  | $ | (2,673 | )
|                                                                                                                                               |  |                         |        |   |      |   |         |      |  |   |        |  



See accompanying notes
to Consolidated Financial Statements



F-3



---

##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(In thousands)



|                                                           |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------- |  | ---------------------------------- | - |  | ---------------------------------- | -- | - | ------------ | ----- | ------------------------- | ------ | - | ------------------------------------ | ------ |  | ------------------------------- |  | - | ----------------------------------- |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                           |  | Preferred StockSeries A & Series C |   |  | Preferred StockSeries B & Series D |    |   | Common Stock |       | Additional Paid-inCapital |        |   | Distributions in excess ofnet income |        |  | Notesreceivablefromstockholders |  |   | Total stockholders equity(deficit) | 
|                                                           |  | Shares                             |   |  | Amount                             |    |   | Shares       |       |                           | Amount |   |                                      | Shares |  | Amount                          |  |   |                                     | 
|BALANCE JANUARY 1, 2002                                    |  | 1,495                              |   |  | $                                  | 15 |   |              | 1,380 |                           |        | $ | 14                                   |        |  | 710                             |  | $ | 7                                   |  | $ | 40,827 |   |  | $ | (34,722 | ) |  | $ | (5,240 | ) |  | $ | 901     |  
|Net Income                                                 |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   | 4,489   |   |  |   |        |   |  |   | 4,489   |  
|Distributions declared                                     |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   | (7,662  | ) |  |   |        |   |  |   | (7,662  | )
|                                                           |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCE DECEMBER 31, 2002                                  |  | 1,495                              |   |  |                                    | 15 |   |              | 1,380 |                           |        |   | 14                                   |        |  | 710                             |  |   | 7                                   |  |   | 40,827 |   |  |   | (37,895 | ) |  |   | (5,240 | ) |  |   | (2,272  | )
|Principal reductions to notes receivable from stockholders |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   |         |   |  |   | 126    |   |  |   | 126     |  
|Net Income                                                 |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   | 520     |   |  |   |        |   |  |   | 520     |  
|Distributions declared                                     |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   | (12,667 | ) |  |   |        |   |  |   | (12,667 | )
|                                                           |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCE DECEMBER 31, 2003                                  |  | 1,495                              |   |  |                                    | 15 |   |              | 1,380 |                           |        |   | 14                                   |        |  | 710                             |  |   | 7                                   |  |   | 40,827 |   |  |   | (50,042 | ) |  |   | (5,114 | ) |  |   | (14,293 | )
|Repurchase of preferred stock                              |  | (91                                | ) |  |                                    | (1 | ) |              | (102  | )                         |        |   | (1                                   | )      |  |                                 |  |   |                                     |  |   | (4,439 | ) |  |   |         |   |  |   |        |   |  |   | (4,441  | )
|Net loss                                                   |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   | (1,217  | ) |  |   |        |   |  |   | (1,217  | )
|Distributions declared                                     |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   | (15,193 | ) |  |   |        |   |  |   | (15,193 | )
|                                                           |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCE DECEMBER 31, 2004                                  |  | 1,404                              |   |  | $                                  | 14 |   |              | 1,278 |                           |        | $ | 13                                   |        |  | 710                             |  | $ | 7                                   |  | $ | 36,388 |   |  | $ | (66,452 | ) |  | $ | (5,114 | ) |  | $ | (35,144 | )
|                                                           |  |                                    |   |  |                                    |    |   |              |       |                           |        |   |                                      |        |  |                                 |  |   |                                     |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  



See accompanying notes
to Consolidated Financial Statements



F-4



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##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                  |  | Year Ended December 31, |        
|                                                                                  |  | 2004                    |         |   | 2003 |   |          | 2002 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Net (loss) income                                                                 |  | $                       | (1,217  | ) |      | $ | 520      |      |  | $ | 4,489   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |         |   |      |   |          |      |  |   |         |  
|Depreciation and amortization                                                     |  |                         | 5,049   |   |      |   | 5,653    |      |  |   | 6,275   |  
|Amortization of deferred financing costs                                          |  |                         | 344     |   |      |   | 638      |      |  |   | 929     |  
|Write-off of deferred loan costs                                                  |  |                         | 69      |   |      |   | 1,984    |      |  |   |        |  
|Net gain from sale of discontinued operations                                     |  |                         | (2,536  | ) |      |   | (7,347   | )    |  |   | (2,320  | )
|Impairment of assets                                                              |  |                         | 8,139   |   |      |   |         |      |  |   |        |  
|Loss on sale of bonds receivable                                                  |  |                         |        |   |      |   | 120      |      |  |   |        |  
|Gain on sale of interest rate hedge                                               |  |                         |        |   |      |   | (23      | )    |  |   |        |  
|Loss on change in value of interest rate hedge                                    |  |                         |        |   |      |   | 333      |      |  |   | 957     |  
|Minority interests                                                                |  |                         | 564     |   |      |   | 150      |      |  |   | 285     |  
|Unbilled rent receivable                                                          |  |                         | 108     |   |      |   | (73      | )    |  |   | (631    | )
|Equity in (earnings) loss of unconsolidated affiliates                            |  |                         | (9      | ) |      |   | (3,743   | )    |  |   | 140     |  
|Provision for doubtful accounts, notes and bonds receivables                      |  |                         | 1,401   |   |      |   | 975      |      |  |   | 1,542   |  
|(Increase) decrease in:                                                           |  |                         |         |   |      |   |          |      |  |   |         |  
|Prepaid expense and other assets                                                  |  |                         | (667    | ) |      |   | (570     | )    |  |   | (232    | )
|Tenant rent and reimbursements receivable                                         |  |                         | 767     |   |      |   | (53      | )    |  |   | (2,570  | )
|Accrued interest and loan fees receivable                                         |  |                         | (15     | ) |      |   | 278      |      |  |   | (234    | )
|Increase (decrease) in:                                                           |  |                         |         |   |      |   |          |      |  |   |         |  
|Accounts payable and other liabilities                                            |  |                         | (807    | ) |      |   | 163      |      |  |   | (4,655  | )
|Tenant security deposits                                                          |  |                         | 87      |   |      |   | 59       |      |  |   | (104    | )
|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|Net cash provided by (used in) operating activities                               |  |                         | 11,277  |   |      |   | (936     | )    |  |   | 3,871   |  
|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Additions to rental properties                                                    |  |                         | (2,444  | ) |      |   | (1,904   | )    |  |   | (2,234  | )
|Purchase of real estate assets                                                    |  |                         | (7,661  | ) |      |   | (3,956   | )    |  |   |        |  
|Sale of bonds receivable                                                          |  |                         |        |   |      |   | 600      |      |  |   |        |  
|Sale of interest rate hedge                                                       |  |                         |        |   |      |   | 183      |      |  |   |        |  
|Sale of real estate assets                                                        |  |                         | 13,808  |   |      |   | 25,963   |      |  |   | 5,141   |  
|Construction in progress                                                          |  |                         | (828    | ) |      |   | (1,140   | )    |  |   | (246    | )
|Pre-acquisition costs, net                                                        |  |                         | (205    | ) |      |   | 6        |      |  |   | 116     |  
|Contributions to unconsolidated affiliates                                        |  |                         | (1,490  | ) |      |   | (248     | )    |  |   | (1,746  | )
|Distributions from unconsolidated affiliates                                      |  |                         | 2,568   |   |      |   | 3,053    |      |  |   | 1,717   |  
|Leasing commissions                                                               |  |                         | (120    | ) |      |   | (134     | )    |  |   | (159    | )
|Investments in notes and bonds receivable                                         |  |                         | (3,512  | ) |      |   |         |      |  |   | (310    | )
|Principal payments received from notes and bonds receivable                       |  |                         | 72      |   |      |   | 126      |      |  |   | 9,333   |  
|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|Net cash provided by investing activities                                         |  |                         | 188     |   |      |   | 22,549   |      |  |   | 11,612  |  
|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                         |         |   |      |   |          |      |  |   |         |  
|Notes payable proceeds                                                            |  |                         | 21,150  |   |      |   | 123,925  |      |  |   | 14,526  |  
|Repayment of notes payable                                                        |  |                         | (16,654 | ) |      |   | (121,690 | )    |  |   | (23,029 | )
|Payment of deferred loan costs                                                    |  |                         | (550    | ) |      |   | (1,489   | )    |  |   | (171    | )
|(Increase) decrease in restricted cash                                            |  |                         | (1,496  | ) |      |   | 225      |      |  |   | 1,479   |  
|Minority interest equity contribution                                             |  |                         | 164     |   |      |   |         |      |  |   | 25      |  
|Purchase of preferred stock                                                       |  |                         | (4,441  | ) |      |   |         |      |  |   |        |  
|Distributions to minority interests                                               |  |                         | (470    | ) |      |   | (333     | )    |  |   | (324    | )
|Distributions to stockholders                                                     |  |                         | (10,610 | ) |      |   | (12,667  | )    |  |   | (7,662  | )
|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  
|Net cash used in financing activities                                             |  |                         | (12,907 | ) |      |   | (12,029  | )    |  |   | (15,156 | )
|                                                                                  |  |                         |         |   |      |   |          |      |  |   |         |  



Continued



F-5



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##### Table of Contents

G&L REALTY CORP.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|------------------------------------------------------------------------ |  | - | ------- | - |  | - | ------ |  | - | ------ | -
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                     |  |   | (1,442  | ) |  |   | 9,584  |  |   | 327    |  
|BEGINNING CASH AND CASH EQUIVALENTS                                      |  |   | 11,950  |   |  |   | 2,366  |  |   | 2,039  |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|ENDING CASH AND CASH EQUIVALENTS                                         |  | $ | 10,508  |   |  | $ | 11,950 |  | $ | 2,366  |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                       |  |   |         |   |  |   |        |  |   |        |  
|Cash paid during the year for interest                                   |  | $ | 11,278  |   |  | $ | 13,496 |  | $ | 16,019 |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Cash paid during the year for mortgage loan prepayment penalties         |  | $ | 894     |   |  | $ | 11,194 |  | $ | 718    |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|NONCASH INVESTING AND FINANCING ACTIVITIES                               |  |   |         |   |  |   |        |  |   |        |  
|                                                                         |  |   |        
|Assumption of notes payable by buyer upon sale of real estate assets     |  | $ | 8,687   |   |  | $ |       |  | $ |       |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Preferred distributions due to minority partner                          |  | $ |        |   |  | $ | 105    |  | $ | 60     |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Spin-off of Senior Care assets and liabilities to common stockholders:   |  |   |         |   |  |   |        |  |   |        |  
|Cash and cash equivalents                                                |  | $ | 448     |   |  |   |        |  |   |        |  
|Restricted cash                                                          |  |   | 1,140   |   |  |   |        |  |   |        |  
|Land                                                                     |  |   | 6,102   |   |  |   |        |  |   |        |  
|Buildings and improvements, net                                          |  |   | 38,376  |   |  |   |        |  |   |        |  
|Projects under development                                               |  |   | 1,424   |   |  |   |        |  |   |        |  
|Tenant rent and reimbursements receivable, net                           |  |   | 2,791   |   |  |   |        |  |   |        |  
|Mortgage loans and bonds receivable, net                                 |  |   | (3,732  | ) |  |   |        |  |   |        |  
|Investments in unconsolidated affiliates                                 |  |   | 1,547   |   |  |   |        |  |   |        |  
|Deferred charges and other assets                                        |  |   | 1,401   |   |  |   |        |  |   |        |  
|Accounts payable and other liabilities                                   |  |   | (1,659  | ) |  |   |        |  |   |        |  
|Notes payable                                                            |  |   | (34,446 | ) |  |   |        |  |   |        |  
|Minority interest in consolidated affiliates                             |  |   | (222    | ) |  |   |        |  |   |        |  
|Distributions in excess of net income                                    |  |   | (8,139  | ) |  |   |        |  |   |        |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Total                                                                    |  | $ | 5,031   |   |  |   |        |  |   |        |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Spin-off of Senior Care assets and liabilities to common stockholders:   |  |   |         |   |  |   |        |  |   |        |  
|Distributions                                                            |  | $ | 5,031   |   |  |   |        |  |   |        |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Acquisition of property and other assets for assumption of note payable: |  |   |         |   |  |   |        |  |   |        |  
|Restricted cash                                                          |  |   |         |   |  |   |        |  | $ | 597    |  
|Land                                                                     |  |   |         |   |  |   |        |  |   | 1,390  |  
|Buildings and improvements                                               |  |   |         |   |  |   |        |  |   | 10,760 |  
|Deferred charges and other assets                                        |  |   |         |   |  |   |        |  |   | 463    |  
|Note receivable                                                          |  |   |         |   |  |   |        |  |   | (1,269 | )
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Total                                                                    |  |   |         |   |  |   |        |  | $ | 11,941 |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Assumption of note payable for property and other assets:                |  |   |         |   |  |   |        |  |   |        |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  
|Note payable                                                             |  |   |         |   |  |   |        |  | $ | 11,941 |  
|                                                                         |  |   |         |   |  |   |        |  |   |        |  



Concluded





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##### Table of Contents

G&L REALTY CORP.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2004

1. General



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Prior to November 1, 2004, the Company also held interests in the following entities:



G&L Gardens, LLC, an Arizona limited
liability company (Maryland Gardens)



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



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



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



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



G&L St. Thomas More, LLC, a Nevada limited liability company ( G&L St. Thomas More) and successor to

G&L St. Thomas More, Inc.



St. Thomas More, LLC, a Nevada limited liability company (St. Thomas More) and successor to St. Thomas More,

Inc.



G&L
Gardens  Apt., LLC, an Arizona limited liability company (Winter Gardens)



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



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



Palm Valley
Senior Care, LLC, an Arizona limited liability company (Palm Valley)



The Company, as the sole general partners and as owner of an approximately 95% interest, controls the Operating Partnership and the Senior Care Partnership. References in these consolidated financial statements to the
Company include its operations, assets and liabilities, including the operations, assets and liabilities of the Operating Partnership, the Senior Care Partnership, the Medical Partnership, the Roxbury Partnership (in which the Operating Partnership
owns a 32.81% partnership interest and is the sole general partner), Valencia, Tustin, Holy Cross, Lyons, Coronado, Tustin II, Tustin III, 405



F-7



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##### Table of Contents

Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436 Bedford, Sherman Oaks and Regents, and prior to November 1, 2004, Maryland Gardens, Hampden, Hoquiam,
Massachusetts, Aspen, G&L St. Thomas More, St. Thomas More, Winter Gardens, Chestnut, Mary Lyon and Palm Valley (in which the Senior Care Partnership owned a 75% membership interest)



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



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



Lakeview Associates, LLC (Lakeview)



Tustin Heritage Place, LLC (Heritage Place)



Paradigm Housing, LLC (Paradigm)



|Prior | to November 1, 2004, the Company also held interests in the following entities:
|----- | -------------------------------------------------------------------------------



G&L Penasquitos, LLC (Penasquitos)



G&L Radius Realty, LLC (Radius)



Encanto Senior Care, LLC (Encanto)



San Pedro, Lakeview, Heritage Place, Paradigm, Penasquitos, Radius and Encanto
are herein collectively referred to as the Unconsolidated Affiliates and individually as Unconsolidated Affiliate.



The Company has decided to focus in the future on the development, ownership and operation of medical office buildings. Accordingly, on November 1, 2004,
the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record on November 1, 2004. In total, skilled nursing and assisted living assets having a net equity of $9.0 million, derived
from current independent property appraisals less the existing property debt, have been spun-off to these stockholders. At the time of the spin-off, these assets were held by the Companys consolidated subsidiary, G&L Senior Care
Properties, LLC, and the spin-off was effectuated by a distribution of the Companys membership interests in G&L Senior Care Properties, LLC. In addition to these skilled nursing facility and assisted living facility assets, G&L Senior
Care Properties, LLC had cash of approximately $2 million, and indebtedness to the Company of $6 million as of the effective date of the spin-off. Accordingly, G&L Senior Care Properties, LLC at the time of the spin-off, had a net asset value
(based on fair market valuations of its skilled nursing and assisted living facilities) of approximately $5.0 million as compared to a carrying value of $13.1 million, the excess of the carrying value of the net assets over the fair value in the
amount of $8.1 million. See the Companys Form 8-K filed on November 4, 2004 for certain pro forma information giving effect to the spin-off.



Incident to the spin-off, the Company converted G&L St. Thomas More and St. Thomas More into limited liability companies and formed G&L Senior
Care Properties, LLC. The spin off consisted of the Companys membership interests in G&L Senior Care Properties, LLC which holds the membership interests in Maryland Gardens, Hampden, Hoquiam, G&L St. Thomas More, St. Thomas More,
Winter Gardens, Chestnut, Mary Lyon, Palm Valley, Penasquitos, Radius and Encanto and in the subsidiaries that served as the managing members of Maryland Gardens and Hampden. Following the spin-off, G&L Senior Care Properties, LLC is now owned
and managed primarily by Daniel Gottlieb and Steven Lebowitz, the CEO and President, respectively, of the Company. Due to the substantial management overlap between the Company and G&L Senior Care Properties, LLC, the two companies have entered
into a cost sharing agreement to allocate between them each year the general and administrative costs of the two companies. Management estimates that, at the current time, the skilled nursing facility and the assisted care living facility assets now
owned by G&L Senior Care Properties, LLC, account for approximately 65% of the general and administrative costs of the two companies.



The Company continues to hold two promissory notes issued by G&L Senior Care Properties, LLC, a short term promissory note in the amount of $2 million
and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum, and will for some time continue to be a creditor of G&L Senior Care Properties, LLC. The short term promissory note has a term of
six months, interest only payable monthly, and is unsecured. The long



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##### Table of Contents

term promissory note has a term of 12 years, provides for flat monthly payments of interest and principal on a 25 year amortization basis, with a balloon
payment of $3.3 million at the end of the term, and is secured by the interests of G&L Senior Care Properties, LLC in the various special purpose entities through which it holds its interest in its skilled nursing facility and assisted care
living facility assets.



2. Summary of Significant Accounting Policies



BusinessThe Company is a self-managed Real
Estate Investment Trust (REIT) that acquires, develops, manages and leases healthcare properties. Historically, the Companys business has consisted of investments in a variety of healthcare properties. Prior to the spin-off on
November 1, 2004, the Companys investments in healthcare properties consisted of acquisitions, made either directly or through joint ventures, in medical office buildings (MOBs), skilled nursing facilities (SNFs) and
assisted living facilities (ALFs). After the spin-off of the SNF and ALF assets on November 1, 2004, the Companys business consisted only of MOBs.



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



PropertiesThe Operating Partnership, the Senior Care Partnership, the Medical Partnership, the Roxbury
Partnership, Maryland Gardens, Hampden, Valencia, Tustin, Holy Cross, Hoquiam, Lyons, Coronado, Massachusetts, Aspen, Tustin II, Tustin III, G&L St. Thomas More, St. Thomas More, Winter Gardens, 405 Bedford, 415 Bedford, 416 Bedford, 435
Bedford, 436 Bedford, Sherman Oaks, Regents, Chestnut, Mary Lyon and Palm Valley own a 100% fee simple interest in all of the properties.



Income taxes The Company expects to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
Code). As a REIT, the Company is generally not subject to corporate Federal income taxes so long as it distributes at least 90% of its taxable income to stockholders and meets certain other requirements relating to its income and assets.
For the years ended December 31, 2004, 2003 and 2002, the Company met all of these requirements. Though as a REIT the Company is generally not permitted to operate properties, in 2000, the Company foreclosed upon and took over the operations at
three of its SNFs located in Massachusetts. Under Section 856(e) of the Code, the Company has the ability to operate these properties as foreclosure property for a period of up to three years after the year in which the foreclosure took
place. However, the Company must pay Federal and State income taxes on the taxable income produced by these three facilities during this period. As a result, the Company has included $136,000 and $220,000 of corporate income tax expense in its
financial statements for the years ended December 31, 2003, and 2002, respectively, with respect to these properties. On April 1, 2004, the Company transferred the operating licenses for these three facilities to the manager of these facilities and
entered into a lease agreement with the manager. Upon the transfer of the licenses, the Company was no longer responsible for Federal and State income taxes on the taxable income produced by these three facilities. The three facilities produced a
net loss for the three months ended March 31, 2004, thus, no tax expense has been included in the financial statements for the year ended December 31, 2004.



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



Real estate and depreciation Rental property is recorded at cost less accumulated depreciation. Depreciation is
computed on a straight-line basis over the estimated useful lives of the assets as follows:



|                                  |  |              
|--------------------------------- |  | -------------
|Buildings and improvements        |  | 40 years     
|Tenant improvements               |  | Life of lease
|Furniture, fixtures and equipment |  | 5 years      



F-9



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##### Table of Contents

Depreciation expense for the years ended December 31, 2004, 2003 and 2002 was $4,854,000, $5,382,000 and
$5,972,000 respectively. Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations and all costs directly related to acquisitions are capitalized.



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



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



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



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



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



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



Long-lived assetsThe Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that an assets book value exceeds the undiscounted expected future cash flows to be derived from that asset. Whenever undiscounted expected future cash flows are less than the
book value, the asset will be reduced to estimated fair value and an impairment loss will be recognized. The Company recorded no impairment losses in 2004, 2003 and 2002.



Financial instrumentsThe estimated fair value of the Companys financial instruments is determined using
available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or estimation
methodologies may have a material impact on the estimated fair value amounts. The book value of cash, cash equivalents, tenant rent and other accounts receivable, accounts payable and other liabilities approximates fair value due to their short-term
maturities. The carrying amount of the Companys variable rate notes payable as of December 31, 2003 approximate fair value because the interest rates are comparable to rates currently being offered to the Company. The Company had no variable
rate notes payable outstanding as of December 31, 2004. The fair value of the Companys fixed rate notes payable as of December 31, 2004 and 2003 was $162.7 million and $202.8 million, respectively because the interest rates on the
Companys fixed rate notes payable were higher for both 2004 and 2003 than the rates being offered to the Company at that time. The estimated fair values of the Companys mortgage loans and bonds receivable, are based upon market values of
loans and bonds receivable with similar characteristics adjusted for risk inherent in the underlying transactions. Management estimates that the fair value of the Companys mortgage loans and bonds receivable approximate their amortized cost
basis, after adjustment for the allowance for amounts deemed to be uncollectible.



F-10



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##### Table of Contents

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



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



In November 2001, the Company purchased an interest rate cap for $905,000 to protect against an increase in the one month LIBOR rate on a $35 million
variable rate loan the Company obtained in October 2001. SFAS 133 requires the Company to record the interest rate cap on the balance sheet at fair value and to record changes in the fair value of the interest rate cap in the statement of
operations. For the year ended December 31, 2001, the Company recognized a $0.5 million gain on the fair market value of its LIBOR interest rate cap while recognizing a $0.9 million loss for the year ended December 31, 2002. For the year ended
December 31, 2003, the Company recognized a $0.3 million loss on the fair market value of the LIBOR interest rate cap. In October 2003, the Company sold the LIBOR interest rate cap for $0.2 million. As of December 31, 2004, the Company did not own
any derivative instruments.



Recent accounting
pronouncements In December 2004, the FASB issued SFAS No. 123(R), Share Based Payments (SFAS No. 123(R)) which replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. As such, pro forma disclosure in lieu of expensing is no longer an alternative. The new standard is effective in the first interim or annual reporting period beginning after June 15, 2005. The Company
does not believe the adoption of this Statement will have a material impact on our financial statements.



In December 2003, the FASB issued FASB Interpretation No. 46-R, Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51
(FIN 46-R). FIN 46-R clarified the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and provided guidance on the identification of entities for which control is achieved through means
other than voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity in which either: (1) the
equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. The
Company adopted FIN 46-R during 2004 and the adoption of this standard did not have a material impact on our financial statements.



3. Buildings and Improvements



Buildings and improvements consist of the following:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | December 31,   |        
|                                               |  | 2004           |         |   | 2003 |  
|                                               |  | (in thousands) |        
|Buildings and improvements                     |  | $              | 89,790  |   |      | $ | 122,867 |  
|Tenant improvements                            |  |                | 11,639  |   |      |   | 11,074  |  
|Furniture, fixtures and equipment              |  |                | 1,022   |   |      |   | 4,977   |  
|                                               |  |                |         |   |      |   |         |  
|                                               |  |                | 102,451 |   |      |   | 138,918 |  
|                                               |  |               
|Less accumulated depreciation and amortization |  |                | (34,655 | ) |      |   | (37,733 | )
|                                               |  |                |         |   |      |   |         |  
|Total                                          |  | $              | 67,796  |   |      | $ | 101,185 |  
|                                               |  |                |         |   |      |   |         |  



F-11



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##### Table of Contents

As of December 31, 2004, the Company was under contract to sell its three-story, 40,000 square foot
office and retail complex located in Coronado, California (Coronado). On January 26, 2004, the Company sold its membership interest in a two-story, 80-unit ALF located in Tarzana, California (Tarzana) for $1.7 million and
recognized a net gain on sale of $0.3 million. On March 18, 2004, the Company sold a two-story, 48,000 square foot research and development building located in Irwindale, California (Irwindale) for $8.85 million recognizing a net gain on
sale of $0.3 million. On June 9, 2004, the Company sold a 59-bed SNF in Chico, California (Chico) for $0.7 million recognized a net loss on sale of $0.2 million. On August 2, 2004, the Company sold its 10,000 square foot MOB located in
Tustin, California (Tustin) for $3.58 million and recognized a net gain on sale of $2.1 million. On March 24, 2005, the Company sold the Coronado Plaza, a 47,000 square foot office and retail center located in Coronado, California for
$18.15 million and recognized a gain of approximately $8.5 from the sale. For presentation purposes, the assets and liabilities relating to these properties have been included in assets held for sale and liabilities of assets held for sale,
respectively, on the balance sheet. The following tables summarize assets held for sale and liabilities of assets held for sale as of December 31, 2004 and December 31, 2003:



Assets and Liabilities of Assets Held for Sale

December 31, 2004

(In thousands)



|                                               |  |          |       
|---------------------------------------------- |  | -------- | ------
|                                               |  | Coronado
|Rental properties:                             |  |          |       
|Land                                           |  | $        | 809   
|Buildings and improvements, net                |  |          | 8,203 
|Projects under development                     |  |          | 71    
|                                               |  |          |       
|Total rental properties                        |  |          | 9,083 
|                                               | 
|Restricted cash                                |  |          | 904   
|Tenant rent and reimbursements receivable, net |  |          | 116   
|Unbilled rent receivable, net                  |  |          | 43    
|Deferred charges and other assets, net         |  |          | 264   
|                                               |  |          |       
|Total assets held for sale                     |  | $        | 10,410
|                                               |  |          |       
|LIABILITIES:                                   |  |          |       
|Notes payable                                  |  | $        | 13,550
|Accounts payable and other liabilities         |  |          | 79    
|                                               |  |          |       
|Total liabilities of assets held for sale      |  | $        | 13,629
|                                               |  |          |       



Assets and
Liabilities of Assets Held for Sale

December 31, 2003

(In thousands)



|                                               |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|---------------------------------------------- |  | ----- | --- | -------- | - | ----- | --------- |  | ------- | ----- | ------ | - | ------ |  | - | ----- |  | - | ------
|                                               |  | Chico |     | Coronado |   |       | Irwindale |  | Tarzana |       | Tustin |   | Total 
|Rental properties:                             |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|Land                                           |  | $     | 159 |          | $ | 809   |           |  | $       | 1,260 |        | $ | 2,350  |  | $ | 474   |  | $ | 5,052 
|Buildings and improvements, net                |  |       | 577 |          |   | 8,294 |           |  |         | 6,249 |        |   | 7,420  |  |   | 606   |  |   | 23,146
|Projects under development                     |  |       |    |          |   | 307   |           |  |         |      |        |   | 41     |  |   |      |  |   | 348   
|                                               |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|Total rental properties                        |  |       | 736 |          |   | 9,410 |           |  |         | 7,509 |        |   | 9,811  |  |   | 1,080 |  |   | 28,546
|                                               |  |       |     |          |   |      
|Restricted cash                                |  |       |    |          |   | 111   |           |  |         |      |        |   | 296    |  |   | 5     |  |   | 412   
|Tenant rent and reimbursements receivable, net |  |       |    |          |   | 60    |           |  |         |      |        |   | 153    |  |   | 9     |  |   | 222   
|Unbilled rent receivable, net                  |  |       |    |          |   | 37    |           |  |         | 365   |        |   |       |  |   | 136   |  |   | 538   
|Deferred charges and other assets, net         |  |       | 2   |          |   | 132   |           |  |         | 196   |        |   | 260    |  |   | 29    |  |   | 619   
|                                               |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|Total assets held for sale                     |  | $     | 738 |          | $ | 9,750 |           |  | $       | 8,070 |        | $ | 10,520 |  | $ | 1,259 |  | $ | 30,337
|                                               |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|LIABILITIES:                                   |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|Notes payable                                  |  | $     |    |          | $ | 7,060 |           |  | $       |      |        | $ | 8,690  |  | $ | 1,199 |  | $ | 16,949
|Accounts payable and other liabilities         |  |       | 3   |          |   | (3    | )         |  |         |      |        |   | 336    |  |   |      |  |   | 336   
|Tenant security deposits                       |  |       |    |          |   | 34    |           |  |         | 57    |        |   |       |  |   |      |  |   | 91    
|                                               |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       
|Total liabilities of assets held for sale      |  | $     | 3   |          |   | 7,091 |           |  | $       | 57    |        | $ | 9,026  |  | $ | 1,199 |  | $ | 17,376
|                                               |  |       |     |          |   |       |           |  |         |       |        |   |        |  |   |       |  |   |       



F-12



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##### Table of Contents

During 2004, the Company recorded an impairment loss of $8.1 million. The loss represents the difference
between the appraised values and the Companys book value for those assets that were spun-off on November 1, 2004 to the Companys stockholders.



4. Tenant Rent and Reimbursements Receivable



Tenant rent and reimbursements receivable are net of an allowance for uncollectible amounts of $53,000 and $750,000 as of December 31, 2004 and 2003,
respectively. The activity in the allowance for uncollectible tenant accounts for the three years ending December 31, 2004, was as follows:



|                               |  |                         |        |   |      |   |        |      |  |   |        |  
|------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                               |  | Year ended December 31, |       
|                               |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                               |  | (in thousands)          |       
|Balance, beginning of year     |  | $                       | 750    |   |      | $ | 1,142  |      |  | $ | 1,261  |  
|Additions                      |  |                         | 1,108  |   |      |   | 908    |      |  |   | 1,316  |  
|Spin-off of senior care assets |  |                         | (1,195 | ) |      |   |       |      |  |   |       |  
|Charge-offs                    |  |                         | (610   | ) |      |   | (1,300 | )    |  |   | (1,435 | )
|                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Balance, end of year           |  | $                       | 53     |   |      | $ | 750    |      |  | $ | 1,142  |  
|                               |  |                         |        |   |      |   |        |      |  |   |        |  



5. Unbilled Rent Receivable



The Company has operating leases with tenants that expire
at various dates through 2018. The minimum rents due under these leases are subject to either scheduled fixed increases or adjustments based on the Consumer Price Index. Generally accepted accounting principles require that rents due under operating
leases with fixed increases be averaged over the life of the lease. This practice, known as straight-line rents creates an unbilled rent receivable in any period during which the amount of straight-line rent exceeds the actual rent
billed (this occurs primarily at the inception of the lease period). As the lease approaches its expiration date, billed rent will eventually exceed the amount of straight-line rent causing the unbilled rent receivable to decline. The straight-line
rent calculation assumes no new or re-negotiated rents or extension periods during the life of the lease and excludes operating cost reimbursements. The following table summarizes future rents due under existing leases and the corresponding
straight-line rent calculation as of December 31, 2004:



|                         |  |                     |        |                    |   |                         |  |   |      
|------------------------ |  | ------------------- | ------ | ------------------ | - | ----------------------- |  | - | -----
|Year Ending December 31, |  | Future Minimum Rent |        | Straight-line Rent |   | Unbilled RentReceivable
|                         |  |                     |        | (in thousands)     |   |                        
|2005                     |  | $                   | 16,926 |                    | $ | 16,607                  |  | $ | 319  
|2006                     |  |                     | 13,962 |                    |   | 13,369                  |  |   | 593  
|2007                     |  |                     | 9,487  |                    |   | 9,072                   |  |   | 415  
|2008                     |  |                     | 7,036  |                    |   | 6,608                   |  |   | 428  
|2009                     |  |                     | 4,456  |                    |   | 4,096                   |  |   | 360  
|Thereafter               |  |                     | 5,049  |                    |   | 4,488                   |  |   | 561  
|                         |  |                     |        |                    |   |                         |  |   |      
|Total                    |  | $                   | 56,916 |                    | $ | 54,240                  |  | $ | 2,676
|                         |  |                     |        |                    |   |                         |  |   |      



F-13



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##### Table of Contents

The activity in the allowance for unbilled rent, recorded as a reduction of rental revenue for the three
years ending December 31, 2004, consisted of the following:



|                           |  |                         |     |   |      |   |      |      |  |   |      |  
|-------------------------- |  | ----------------------- | --- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                           |  | Year ended December 31, |    
|                           |  | 2004                    |     |   | 2003 |   |      | 2002 | 
|                           |  | (in thousands)          |    
|Balance, beginning of year |  | $                       | 224 |   |      | $ | 365  |      |  | $ | 465  |  
|Additions                  |  |                         | 40  |   |      |   |     |      |  |   | 25   |  
|Charge-offs                |  |                         | (60 | ) |      |   | (141 | )    |  |   | (125 | )
|                           |  |                         |     |   |      |   |      |      |  |   |      |  
|Balance, end of year       |  | $                       | 204 |   |      | $ | 224  |      |  | $ | 365  |  
|                           |  |                         |     |   |      |   |      |      |  |   |      |  



6. Mortgage Loans, Bonds and Notes
Receivable



Mortgage loans, bonds and notes receivable
consist of the following:



|                                                                                                                                                  |  |                |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                  |  | December 31,   |       
|                                                                                                                                                  |  | 2004           |        |   | 2003 |  
|                                                                                                                                                  |  | (in thousands) |       
|Secured subordinated bond receivable due December 15, 2029, interest payable semiannually at 8.75% per annum (The bonds are currently in
default) |  | $              | 1,218  |   |      | $ | 498    |  
|Unsecured promissory note due January 31, 2010, principal and interest payable monthly at 10% per annum (This note is currently in
default)       |  |                | 567    |   |      |   | 567    |  
|Unsecured promissory note payable upon demand                                                                                                     |  |                | 362    |   |      |   |       |  
|Unsecured promissory note payable upon demand, interest payable monthly at 2.5% per annum                                                         |  |                | 50     |   |      |   |       |  
|Secured promissory note due April 1, 2008, interest payable semiannually at 10% per annum (This note is currently in default)                     |  |                | 150    |   |      |   | 150    |  
|Secured promissory note due August 25, 1998, interest payable at 12% per annum (This note is currently in default)                                |  |                | 1,377  |   |      |   | 1,377  |  
|Unsecured promissory note due September 1, 2000, interest payable at 10% per annum                                                                |  |                |       |   |      |   | 1,000  |  
|Unsecured promissory note due July 1, 2000, interest payable at 10% per annum                                                                     |  |                |       |   |      |   | 69     |  
|Unsecured promissory note receivable due April 11, 2003, interest payable monthly at 10%                                                          |  |                |       |   |      |   | 290    |  
|                                                                                                                                                  |  |                |        |   |      |   |        |  
|Face value of mortgage loans, bonds and notes receivable                                                                                          |  |                | 3,724  |   |      |   | 3,951  |  
|Accrued interest                                                                                                                                  |  |                | 326    |   |      |   | 278    |  
|Allowance for uncollectible amounts                                                                                                               |  |                | (2,889 | ) |      |   | (3,465 | )
|                                                                                                                                                  |  |                |        |   |      |   |        |  
|Total mortgage loans, bonds, notes and interest receivable                                                                                        |  | $              | 1,161  |   |      | $ | 764    |  
|                                                                                                                                                  |  |                |        |   |      |   |        |  



F-14



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##### Table of Contents

The activity in the allowance for uncollectible notes receivable for the three years ending December 31,
2004, is as follows:



|                               |  |                         |       |   |      |   |        |      |  |   |       |  
|------------------------------ |  | ----------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                               |  | Year ended December 31, |      
|                               |  | 2004                    |       |   | 2003 |   |        | 2002 | 
|                               |  | (in thousands)          |      
|Balance, beginning of year     |  | $                       | 3,465 |   |      | $ | 4,475  |      |  | $ | 4,484 |  
|Additions                      |  |                         | 293   |   |      |   | 67     |      |  |   | 89    |  
|Spin-off of senior care assets |  |                         | (22   | ) |      |   |       |      |  |   |      |  
|Charge-offs                    |  |                         | (847  | ) |      |   | (1,077 | )    |  |   | (98   | )
|                               |  |                         |       |   |      |   |        |      |  |   |       |  
|Balance, end of year           |  | $                       | 2,889 |   |      | $ | 3,465  |      |  | $ | 4,475 |  
|                               |  |                         |       |   |      |   |        |      |  |   |       |  



Notes receivable from
related party consist of the following:



|                                                                                                                                                |  |                |       |      |   |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- | - | -
|                                                                                                                                                |  | December 31,  
|                                                                                                                                                |  | 2004           |       | 2003
|                                                                                                                                                |  | (in thousands)
|Unsecured promissory note due May 1, 2005, interest payable monthly at 10.75% per annum, due from G&L Senior Care Properties,
LLC               |  | $              | 2,000 |      | $ | 
|Secured promissory note due November 1, 2016, interest payable at 10.75% per annum, due from G&L Senior Care Properties,
LLC                    |  |                | 3,997 |      |   | 
|Unsecured promissory note payable upon demand, interest payable monthly at Prime plus 0.50% per annum, due from a minority owner of the
Company |  |                | 500   |      |   | 
|                                                                                                                                                |  |                |       |      |   |  
|Total notes receivable from related party                                                                                                       |  | $              | 6,497 |      | $ | 
|                                                                                                                                                |  |                |       |      |   |  



F-15



---

##### Table of Contents

7. Investments In Unconsolidated Affiliates



The Company has investments in various unconsolidated affiliates as described in Note 1. The following tables provide a
summary of the changes in the Companys investment in each of these entities as of December 31, 2004 and 2003 (in thousands).



|                                         |  |          |       |             |   |      |               |  |        |    |  |          |        |         |  |   |          |  |   |           |   |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------- | ----- | ----------- | - | ---- | ------------- |  | ------ | -- |  | -------- | ------ | ------- |  | - | -------- |  | - | --------- | - |  | - | ------ | - |  | - | ------ | -
|                                         |  | SanPedro |       | Penasquitos |   |      | HeritagePlace |  | Radius |    |  | Paradigm |        | Encanto |  |   | Lakeview |  |   | 2004Total |  
|Opening balance at beginning of period   |  | $        | 636   |             | $ | (612 | )             |  | $      |   |  | $        | 978    |         |  | $ |         |  | $ |          |   |  | $ | 751    |   |  | $ | 1,753  |  
|Equity in earnings (loss) of affiliates  |  |          | 58    |             |   | (108 | )             |  |        |    |  |          | 99     |         |  |   |         |  |   | (2        | ) |  |   | (38    | ) |  |   | 9      |  
|Cash contributions                       |  |          | 89    |             |   | 7    |               |  |        |   |  |          |       |         |  |   | 550      |  |   | 684       |   |  |   | 160    |   |  |   | 1,490  |  
|Cash distributions                       |  |          |      |             |   |     |               |  |        |   |  |          |       |         |  |   |         |  |   |          |   |  |   | (2,568 | ) |  |   | (2,568 | )
|Intercompany transactions                |  |          |      |             |   | 297  |               |  |        |   |  |          | 204    |         |  |   |         |  |   |          |   |  |   | 1,695  |   |  |   | 2,196  |  
|Spin-off of senior care assets           |  |          |      |             |   | 416  |               |  |        |   |  |          | (1,281 | )       |  |   |         |  |   | (682      | ) |  |   |       |   |  |   | (1,547 | )
|                                         |  |          |       |             |   |      |               |  |        |    |  |          |        |         |  |   |          |  |   |           |   |  |   |        |   |  |   |        |  
|Equity, before inter-company adjustments |  |          | 783   |             |   |     |               |  |        |   |  |          |       |         |  |   | 550      |  |   |          |   |  |   |       |   |  |   | 1,333  |  
|                                         |  |          |       |             |   |      |               |  |        |    |  |          |        |         |  |   |          |  |   |           |   |  |   |        |   |  |   |        |  
|Intercompany transactions:               |  |          |       |             |   |      |               |  |        |    |  |          |        |         |  |   |          |  |   |           |   |  |   |        |   |  |   |        |  
|Receivable, net                          |  |          | 1,114 |             |   |     |               |  |        | 14 |  |          |       |         |  |   |         |  |   |          |   |  |   |       |   |  |   | 1,128  |  
|                                         |  |          |       |             |   |      |               |  |        |    |  |          |        |         |  |   |          |  |   |           |   |  |   |        |   |  |   |        |  
|Investment in unconsolidated affiliates  |  | $        | 1,897 |             | $ |     |               |  | $      | 14 |  | $        |       |         |  | $ | 550      |  | $ |          |   |  | $ |       |   |  | $ | 2,461  |  
|                                         |  |          |       |             |   |      |               |  |        |    |  |          |        |         |  |   |          |  |   |           |   |  |   |        |   |  |   |        |  



|                                         |  |           |        |   |             |   |      |                |  |              |    |  |        |        |   |                |   |       |          |  |   |          |   |  |            |        |   |  |   |       |   |  |   |        |  
|---------------------------------------- |  | --------- | ------ | - | ----------- | - | ---- | -------------- |  | ------------ | -- |  | ------ | ------ | - | -------------- | - | ----- | -------- |  | - | -------- | - |  | ---------- | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                         |  | San Pedro |        |   | Penasquitos |   |      | Heritage Place |  | Pacific Park |    |  | Radius |        |   | Eagle Run Inc. |   |       | EagleRun |  |   | Lakeview |   |  | 2003 Total |       
|                                         |  |           |        |   |             |   |      |               
|Opening balance at beginning of period   |  | $         | 1,520  |   |             | $ | (475 | )              |  | $            |   |  | $      | 48     |   |                | $ | 1,217 |          |  | $ | (916     | ) |  | $          | 423    |   |  | $ | 442   |   |  | $ | 2,259  |  
|Equity in earnings (loss) of affiliates  |  |           | 162    |   |             |   | (85  | )              |  |              |    |  |        | 1,276  |   |                |   | 53    |          |  |   | 51       |   |  |            | 2,597  |   |  |   | (311  | ) |  |   | 3,743  |  
|Cash contributions                       |  |           |       |   |             |   |     |                |  |              |   |  |        |       |   |                |   |      |          |  |   |         |   |  |            |       |   |  |   | 248   |   |  |   | 248    |  
|Cash distributions                       |  |           |       |   |             |   | (52  | )              |  |              |   |  |        | (1,233 | ) |                |   | (88   | )        |  |   |         |   |  |            | (1,745 | ) |  |   |      |   |  |   | (3,118 | )
|Intercompany elimination                 |  |           | (1,046 | ) |             |   |     |                |  |              |   |  |        | (647   | ) |                |   | (204  | )        |  |   | 36       |   |  |            | 48     |   |  |   | 372   |   |  |   | (1,441 | )
|Gain (loss) on investment                |  |           |       |   |             |   |     |                |  |              |   |  |        | 556    |   |                |   |      |          |  |   | 829      |   |  |            | (1,323 | ) |  |   |      |   |  |   | 62     |  
|                                         |  |           |        |   |             |   |      |                |  |              |    |  |        |        |   |                |   |       |          |  |   |          |   |  |            |        |   |  |   |       |   |  |   |        |  
|Equity, before inter-company adjustments |  |           | 636    |   |             |   | (612 | )              |  |              |   |  |        |       |   |                |   | 978   |          |  |   |         |   |  |            |       |   |  |   | 751   |   |  |   | 1,753  |  
|                                         |  |           |        |   |             |   |      |                |  |              |    |  |        |        |   |                |   |       |          |  |   |          |   |  |            |        |   |  |   |       |   |  |   |        |  
|Intercompany transactions:               |  |           |        |   |             |   |      |                |  |              |    |  |        |        |   |                |   |       |          |  |   |          |   |  |            |        |   |  |   |       |   |  |   |        |  
|Receivable, net                          |  |           | 1,114  |   |             |   | 297  |                |  |              | 14 |  |        |       |   |                |   | 204   |          |  |   |         |   |  |            |       |   |  |   | 1,695 |   |  |   | 3,324  |  
|                                         |  |           |        |   |             |   |      |                |  |              |    |  |        |        |   |                |   |       |          |  |   |          |   |  |            |        |   |  |   |       |   |  |   |        |  
|Investment in unconsolidated affiliates  |  | $         | 1,750  |   |             | $ | (315 | )              |  | $            | 14 |  | $      |       |   |                | $ | 1,182 |          |  | $ |         |   |  | $          |       |   |  | $ | 2,446 |   |  | $ | 5,077  |  
|                                         |  |           |        |   |             |   |      |                |  |              |    |  |        |        |   |                |   |       |          |  |   |          |   |  |            |        |   |  |   |       |   |  |   |        |  



F-16



---

##### Table of Contents

Following is a summary of the financial information of each of the unconsolidated affiliates as of and for the year ended
December 31, 2004 or for the ten months ended October 31, 2004 for those entities that were spun-off (in thousands).



|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|-------------------------------- |  | -------- | ------ | - | ----------- | - | ---- | ------------- |  | - | ------ | - |  | -------- | ---- | ------- |  | - | -------- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                 |  | SanPedro |        |   | Penasquitos |   |      | HeritagePlace |  |   | Radius |   |  | Paradigm |      | Encanto |  |   | Lakeview |  |   | Total |  
|Financial Position:              |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Land                             |  | $        | 2,017  |   |             | $ |     |               |  | $ | 750    |   |  | $        |     |         |  | $ |         |  | $ |      |   |  | $ |       |   |  | $ | 2,767  |  
|Buildings                        |  |          | 4,622  |   |             |   |     |               |  |   |       |   |  |          |     |         |  |   |         |  |   |      |   |  |   |       |   |  |   | 4,622  |  
|Other assets                     |  |          | 112    |   |             |   |     |               |  |   | 238    |   |  |          |     |         |  |   | 550      |  |   |      |   |  |   |       |   |  |   | 900    |  
|Notes payable                    |  |          | (4,326 | ) |             |   |     |               |  |   | (940   | ) |  |          |     |         |  |   |         |  |   |      |   |  |   |       |   |  |   | (5,266 | )
|Other liabilities                |  |          | (1,349 | ) |             |   |     |               |  |   | (48    | ) |  |          |     |         |  |   |         |  |   |      |   |  |   |       |   |  |   | (1,397 | )
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Net assets                       |  | $        | 1,076  |   |             | $ |     |               |  | $ |       |   |  | $        |     |         |  | $ | 550      |  | $ |      |   |  | $ |       |   |  | $ | 1,626  |  
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Partners equity:                |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Company                          |  | $        | 783    |   |             | $ |     |               |  | $ |       |   |  | $        |     |         |  | $ | 550      |  | $ |      |   |  | $ |       |   |  | $ | 1,333  |  
|Others                           |  |          | 293    |   |             |   |     |               |  |   |       |   |  |          |     |         |  |   |         |  |   |      |   |  |   |       |   |  |   | 293    |  
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Total equity                     |  | $        | 1,076  |   |             | $ |     |               |  | $ |       |   |  | $        |     |         |  | $ | 550      |  | $ |      |   |  | $ |       |   |  | $ | 1,626  |  
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Operations:                      |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Revenues                         |  | $        | 1,135  |   |             | $ | 556  |               |  | $ |       |   |  | $        | 625  |         |  | $ |         |  | $ | 20    |   |  | $ | 1,238  |   |  | $ | 3,574  |  
|Expenses                         |  |          | (1,049 | ) |             |   | (816 | )             |  |   |       |   |  |          | (493 | )       |  |   |         |  |   | (22   | ) |  |   | (1,270 | ) |  |   | (3,650 | )
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Net income (loss)                |  | $        | 86     |   |             | $ | (260 | )             |  | $ |       |   |  | $        | 132  |         |  | $ |         |  | $ | (2    | ) |  | $ | (32    | ) |  | $ | (76    | )
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Allocation of net income (loss): |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Company                          |  | $        | 58     |   |             | $ | (108 | )             |  | $ |       |   |  | $        | 99   |         |  | $ |         |  | $ | (2    | ) |  | $ | (38    | ) |  | $ | 9      |  
|Others                           |  |          | 28     |   |             |   | (152 | )             |  |   |       |   |  |          | 33   |         |  |   |         |  |   |      |   |  |   | 6      |   |  |   | (85    | )
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  
|Net income (loss)                |  | $        | 86     |   |             | $ | (260 | )             |  | $ |       |   |  | $        | 132  |         |  | $ |         |  | $ | (2    | ) |  | $ | (32    | ) |  | $ | (76    | )
|                                 |  |          |        |   |             |   |      |               |  |   |        |   |  |          |      |         |  |   |          |  |   |       |   |  |   |        |   |  |   |        |  





F-17



---

##### Table of Contents

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



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





F-18



---

##### Table of Contents

8. Deferred Charges and Other Assets



Deferred charges and other assets consist of the following:



|                                 |  |                |        |   |      |   |        |  
|-------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                 |  | December 31,   |       
|                                 |  | 2004           |        |   | 2003 |  
|                                 |  | (in thousands) |       
|Deferred financing costs         |  | $              | 2,024  |   |      | $ | 2,769  |  
|Pre-acquisition costs            |  |                |       |   |      |   | 141    |  
|Leasing commissions              |  |                | 1,552  |   |      |   | 1,452  |  
|Prepaid expense and other assets |  |                | 1,401  |   |      |   | 1,036  |  
|                                 |  |                |        |   |      |   |        |  
|                                 |  |                | 4,977  |   |      |   | 5,398  |  
|Less accumulated amortization    |  |                | (1,662 | ) |      |   | (1,501 | )
|                                 |  |                |        |   |      |   |        |  
|Total                            |  | $              | 3,315  |   |      | $ | 3,897  |  
|                                 |  |                |        |   |      |   |        |  



9. Notes Payable



Notes payable consist of the following:



|                                                                                                                                                              |  |                |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                                                                                                                              |  | December 31,  
|                                                                                                                                                              |  | 2004           |         | 2003
|                                                                                                                                                              |  | (in thousands)
|$8,100,000 Note due April 1, 2008, collateralized by deed of trust, monthly principal and interest payments of $58,000, interest at 7.05% per
annum.          |  | $              | 7,106   |      | $ | 7,286  
|$10,000,000 Note due July 1, 2009 collateralized by deed of trust, monthly principal and interest payments of $73,000, interest at 6.85% per
annum.           |  |                | 8,773   |      |   | 9,035  
|$7,200,000 Note due on August 1, 2011, collateralized by deed of trust, monthly principal and interest of $50,000, interest at 7.51% per
annum                |  |                | 6,993   |      |   | 7,061  
|$8,200,000 Note due February 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $47,000, interest at 5.55%
per annum.        |  |                | 8,019   |      |   | 8,125  
|$8,625,000 Note due June 1, 2013, collateralized by deed of trust, monthly principal and interest payments of $49,000, interest at 5.48% per
annum.           |  |                | 8,460   |      |   | 8,572  
|$14,175,000 Note due July 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $82,000, interest at 5.69% per
annum.           |  |                | 13,932  |      |   | 14,106 
|$6,100,000 Note due July 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $35,000, interest at 5.69% per
annum.            |  |                | 5,995   |      |   | 6,065  
|$11,325,000 Note due July 1, 2013 collateralized by deed of trust, monthly principal and interest payments of $66,000, interest at 5.69% per
annum.           |  |                | 11,130  |      |   | 11,270 
|$15,400,000 Note due July 1, 2013, collateralized by deed of trust, monthly principal and interest payments of $89,000, interest at 5.69% per
annum.          |  |                | 15,136  |      |   | 15,311 
|$30,117,000 Note due October 1, 2010, collateralized by deed of trust, monthly principal and interest payments of $168,000, interest at 5.34%
per annum.      |  |                | 29,659  |      |   | 30,053 
|$12,412,500 Note due October 1, 2010, collateralized by deed of trust, monthly principal and interest payments of $69,000, interest at 5.34%
per annum.       |  |                | 12,224  |      |   | 12,386 
|$16,970,500 Note due October 1, 2010, collateralized by deed of trust, monthly principal and interest payments of $95,000, interest at 5.34%
per annum.       |  |                | 16,713  |      |   | 16,935 
|$13,550,000 Note due December 1, 2014 collateralized by deed of trust, monthly interest only payments at 5.24% per annum.                                     |  |                | 13,550  |      |   |       
|$1,333,125 Note due April 1, 2008 collateralized by deed of trust, monthly principal and interest payments of $9,554, interest at 7.05% per
annum. (Note 3)   |  |                |        |      |   | 1,199  
|$2,475,000 Note due September 1, 2008 collateralized by deed of trust, monthly principal and interest payments of $18,000, interest at 7.49%
per annum.       |  |                |        |      |   | 2,261  
|$7,500,000 Note due December 11, 2008, collateralized by deed of trust, monthly principal and interest payments of $50,000, interest at 6.90%
per annum.      |  |                |        |      |   | 7,060  
|$13,920,000 Note due July 1, 2004 collateralized by deed of trust, monthly principal and interest payments at LIBOR plus 4.0% per
annum.                      |  |                |        |      |   | 12,910 
|$3,500,000 Secured line of credit due May 1, 2005, interest payable at Prime plus 2.0% per annum.                                                             |  |                |        |      |   | 2,186  
|$11,941,000 Note due January 1, 2027, collateralized by deed of trust, monthly principal and interest payments of $85,000, interest at 7.05%
per annum.       |  |                |        |      |   | 11,598 
|$8,327,000 Note due May 17, 2037, collateralized by deed of trust, monthly principal and interest payments of $53,000, interest at 6.95% per
annum. (Note 3)  |  |                |        |      |   | 8,233  
|$483,000 Unsecured promissory note due May 17, 2017, interest rate of 8.0% per annum, monthly principal and interest payments of $4,600. (Note
3)             |  |                |        |      |   | 457    
|$4,300,000 Note due July 1, 2005, collateralized by deed of trust, monthly principal and interest payments of $27,000, interest at LIBOR plus
4.5% per annum. |  |                |        |      |   | 4,218  
|                                                                                                                                                              |  |                |         |      |   |        
|Total                                                                                                                                                         |  | $              | 157,690 |      | $ | 196,327
|                                                                                                                                                              |  |                |         |      |   |        



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Aggregate future principal payments as of December 31, 2004 are as follows:





|                                        |  |   |        
|--------------------------------------- |  | - | -------
|Years Ending December 31 (in thousands) |  |  
|2005                                    |  | $ | 2,237  
|2006                                    |  |   | 2,373  
|2007                                    |  |   | 2,518  
|2008                                    |  |   | 8,889  
|2009                                    |  |   | 9,742  
|Thereafter                              |  |   | 131,931
|                                        |  |   |        
|Total                                   |  | $ | 157,690
|                                        |  |   |        



10. Commitments and Contingencies



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



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



In addition, on April 4, 2002, a group of four former common stockholders of
the Company filed an individual suit against the Company and its directors arising from the same conduct alleged in the putative class actions and the merger proposals made by those four stockholders in 2001. Lyle Weisman, et al. v. G & L Realty
Corp., et al., case number BC 271401, asserted claims against the individual directors for breach of fiduciary duty, fraud and violations of the California Corporations Code, sections 25400-25403 and 25500-25502. The fourth amended complaint also
asserted a claim for unjust enrichment against Messrs. Gottlieb and Lebowitz and a claim for unfair competition under Business and Professions Code sections 17200 et seq. against Messrs. Gottlieb and Lebowitz and the



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Company. The Court previously dismissed with prejudice Plaintiffs claims for negligent and intentional interference with prospective economic
advantage. The Weisman suit was consolidated with the Lukoff class actions for purposes of discovery.



The Company and the director defendants reached a settlement of the California class actions in June 2004 providing for a class settlement and release of
claims and entry of judgment dismissing the action with prejudice. The Company and the director defendants, in June 2004, also reached a settlement of the Weisman suit also providing for a release of claims and entry of judgment dismissing
the action with prejudice. The total payment in settlement of these suits was $1.25 million, of which approximately $1 million was paid from insurance.



The Company is the guarantor on a $513,602 letter of credit issued by U.S. Bank National Association (U.S. Bank) in favor of Fannie Mae c/o
Greystone Servicing Corporation under which the Companys maximum liability is approximately $410,000. In December 1999, the Company purchased $1.3 million of subordinated bonds secured by an apartment complex located in Tulsa, Oklahoma. At the
time, a letter of credit for $513,602 was issued by the Bank of Oklahoma in favor of the issuer of the subordinated bonds in order to pay the interest payments on the secured debt of the property in the event the cash flow of the property was
insufficient to meet such payments. The Company guaranteed $250,000 of this letter of credit. In December 2003, June 2004 and December 2004, the borrower defaulted on the semi-annual interest payment to the holders of the subordinated bonds. In July
2004, the letter of credit issued by the Bank of Oklahoma was called upon and the Company was required to fund the $250,000 that it had guaranteed. Subsequently, the current letter of credit was issued by U.S. Bank. The Companys partners in
this investment are in the process of restructuring the management and operation of the property in order to make it profitable once again. As part of the restructuring, the letter of credit was called upon in March 2005. The Company recorded a
reserve of $410,000 on its balance sheet as of December 31, 2004 related to its maximum liability with respect to the letter of credit.



11. Stockholders Equity



On December 30, 2004, the Board of Directors approved the repurchase by the Company of the 90,797 shares of Series C Preferred Stock and the 102,290
shares of Series D Preferred Stock owned by Messrs. Gottlieb and Lebowitz for $4.44 million. The purchase price of $23.00 a share represented a 13% and 9% discount, respectively, to the market price of the Companys Series A and Series B
Preferred Stock at the time. The Series C and Series D Preferred Stock rank on a parity with the Series A and Series B Preferred Stock and share pari passu in dividends and at liquidation. The Company completed the repurchase on December 30,
2004.



In September 2004, the Companys board of directors
classified and designated 200,000 authorized but unissued shares of Preferred Stock as Series C Cumulative Preferred Stock having the same rights, privileges and preferences as the Companys currently outstanding Series A Preferred Stock and
200,000 authorized but unissued shares of Preferred Stock as Series D Cumulative Preferred Stock having the same rights, privileges and preferences as the Companys currently outstanding Series B Preferred Stock. The board of directors then
authorized the exchange of the 90,797 shares of Series A Preferred Stock and 102,290 shares of Series B Preferred Stock owned by Messrs. Gottlieb and Lebowitz for 90,797 shares of Series C Preferred Stock and 102,290 shares of Series D Preferred
Stock, respectively.



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



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



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securities of the Company. The Company, at its sole discretion, may call the Series A and Series B Preferred Stock at any time. All classes of the
Companys preferred stock have a par value of $0.01 and rank senior to the Companys common stock with respect to payment of dividends and upon liquidation. All classes of Preferred Stock are on parity with all other classes of the
Companys Preferred Stock for payment of dividends and liquidation purposes. In the event of liquidation, or if the Company elects to call the Preferred Stock, holders of the Companys Preferred Stock are entitled to receive $25.00 per
share plus any accrued and unpaid dividends, whether or not such dividends have been declared by the Companys Board of Directors. Holders of the Companys Series A Preferred Stock are entitled to receive monthly dividends at an annual
rate of $2.56 per share. Series B Preferred Stockholders are entitled to receive monthly dividends at an annual rate of $2.45 per share.



Distributions in excess of net incomeAs described in Note 2, the Company has elected to be treated as a REIT for Federal income tax
purposes. As such, the Company is required to distribute at least 90% of its annual taxable income. For the years ended December 31, 2004, 2003 and 2002, 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 2004, 2003 and 2002, 100% of the Companys common stock dividend was considered a return of capital to common stockholders. In 2004, dividends
paid to holders of the Companys preferred stock were considered a 28.21% return of capital to preferred stockholders, 26.63% taxable as long-term capital gain, 8.99% taxable as Section 1250 unrecaptured gain on sale and the remaining 36.17%
taxable as ordinary income. In 2003, dividends paid to holders of the Companys preferred stock were considered a 94.24% return of capital to preferred stockholders and the remaining 5.76% taxable as Section 1250 unrecaptured gain on sale. In
2002, dividends paid to holders of the Companys preferred stock were considered a 40.8% return of capital to preferred stockholders, 32.9% taxable as long-term capital gain, 3.4% taxable as Section 1250 unrecaptured gain on sale and the
remaining 22.9% taxable as ordinary income.



12. Concentration of Credit
Risk



The Company is subject to 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. No tenant
occupies more than 2% of the Companys total square footage.



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.



13. Segment Information



Prior to November 1, 2004, the Companys business consisted of the following segments:



| |  |  | Medical office buildings  These investments consist of 21 high quality MOBs, an office and retail facility and one parking facility totaling approximately 785,000 rentable
square feet and all located in Southern California. These properties are owned either directly by the Company or indirectly through joint ventures.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Skilled nursing facilities  These investments consisted of eight SNFs and one apartment complex. The Company previously held the operating license in three of
the eight SNFs. On March 15, 2000, the Company obtained licenses from the Commonwealth of Massachusetts to operate the three SNFs owned by the Company in Hampden, Massachusetts. The Company then entered into a management agreement with a third-party
company to manage the facility. As a result, from March 15, 2000 through March 31, 2004, all of the assets, liabilities, revenues and expenses of these SNFs were reflected in the consolidated
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | financial statements of the Company and the segment information provided below. The Company was required to pay the applicable corporate income tax on any
net income produced by the SNFs located in Hampden, Massachusetts, although the Companys REIT status was not affected. In February 2004, the manager of these facilities received approval from the Massachusetts Department of Health to obtain
the operating licenses for the three facilities from the Company. The manager subsequently entered into lease agreements with the Company for these facilities effective on the date of the license transfers which occurred on April 1, 2004. Subsequent
to the transfer of the licenses, licenses, the Company no longer reflects the assets, liabilities, revenues and expenses related to the operations of these three SNFs in its consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assisted living facilities  These investments consisted of two ALFs, owned through joint ventures. The two ALFs contain 172 units that are typically occupied by residents who
require a less intense level of care in comparison to the SNFs. On September 30, 2004, the ALF owned by Lakeview was sold for $10.6 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt obligations  These investments initially consisted of short-term secured and unsecured loans made to third parties to facilitate the acquisition of healthcare facilities.
The Company is no longer in the business of lending money and has not originated any new loans since 2001. The Company is working to collect the balance of its loans that are currently outstanding, most of which have been partially or fully
reserved. As of December 31, 2004, the Company had eight loans outstanding with a net book value of $7.6 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



After the spin-off of the SNF and ALF assets on November 1, 2004, the Company has one reportable segment  MOBs.



The tables on the following pages reconcile the Companys
income and expense activity for the years ending December 31, 2004, 2003 and 2002 and balance sheet data as of December 31, 2004 and 2003.



F-23



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##### Table of Contents

2004 Reconciliation of Reportable Segment Information



|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | - | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | ----- | ----- | - | ------- | - |  | - | ------ | -
|                                                             |  | MedicalOffice  |        |   | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |       | Total |  
|                                                             |  | (In thousands) |       
|Revenue:                                                     |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Rents, tenant reimbursements and parking                     |  | $              | 26,587 |   |                | $ | 5,114  |                |  | $ |                |   |       | $ |      |       | $ |        |   |  | $ | 31,701 |  
|Patient revenues                                             |  |                |       |   |                |   | 6,736  |                |  |   |                |   |       |   |      |       |   |        |   |  |   | 6,736  |  
|Interest and loan fees                                       |  |                | 58     |   |                |   | 90     |                |  |   |                |   |       |   | 1,596 |       |   | 161     |   |  |   | 1,905  |  
|Other income                                                 |  |                | 269    |   |                |   | 11     |                |  |   |                |   |       |   |      |       |   | 1,249   |   |  |   | 1,529  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Total revenues                                               |  |                | 26,914 |   |                |   | 11,951 |                |  |   |                |   |       |   | 1,596 |       |   | 1,410   |   |  |   | 41,871 |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Expenses:                                                    |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Property operations                                          |  |                | 7,364  |   |                |   | 365    |                |  |   |                |   |       |   | 18    |       |   |        |   |  |   | 7,747  |  
|Skilled nursing operations                                   |  |                |       |   |                |   | 6,287  |                |  |   |                |   |       |   |      |       |   |        |   |  |   | 6,287  |  
|Depreciation and amortization                                |  |                | 3,188  |   |                |   | 1,338  |                |  |   |                |   |       |   |      |       |   | 18      |   |  |   | 4,544  |  
|Interest                                                     |  |                | 8,710  |   |                |   | 1,882  |                |  |   |                |   |       |   |      |       |   |        |   |  |   | 10,592 |  
|Impairment of assets                                         |  |                |       |   |                |   |       |                |  |   |                |   |       |   |      |       |   | 8,139   |   |  |   | 8,139  |  
|Provision for doubtful accounts, notes and bonds receivable  |  |                | 89     |   |                |   | 1,018  |                |  |   |                |   |       |   | 294   |       |   |        |   |  |   | 1,401  |  
|General and administrative                                   |  |                |       |   |                |   |       |                |  |   |                |   |       |   |      |       |   | 5,641   |   |  |   | 5,641  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Total expenses                                               |  |                | 19,351 |   |                |   | 10,890 |                |  |   |                |   |       |   | 312   |       |   | 13,798  |   |  |   | 44,351 |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Income (loss) from operations                                |  |                | 7,563  |   |                |   | 1,061  |                |  |   |                |   |       |   | 1,284 |       |   | (12,388 | ) |  |   | (2,480 | )
|Equity in earnings (loss) of unconsolidated affiliates       |  |                | 58     |   |                |   | 99     |                |  |   | (148            | ) |       |   |      |       |   |        |   |  |   | 9      |  
|Net (loss) income from operations of discontinued operations |  |                | (676   | ) |                |   | (12    | )              |  |   | (30             | ) |       |   |      |       |   |        |   |  |   | (718   | )
|Gain (loss) from sale of discontinued operations             |  |                | 2,430  |   |                |   | (147   | )              |  |   | 253             |   |       |   |      |       |   |        |   |  |   | 2,536  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  
|Income (loss) from operations before minority interests      |  | $              | 9,375  |   |                | $ | 1,001  |                |  | $ | 75              |   |       | $ | 1,284 |       | $ | (12,388 | ) |  | $ | (653   | )
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |         |   |  |   |        |  



2004 Reconciliation
of Reportable Segment Information



|                                              |  |                |         |                |   |                |  |                 |   |       |   |       |  |   |        |  |   |        
|--------------------------------------------- |  | -------------- | ------- | -------------- | - | -------------- |  | --------------- | - | ----- | - | ----- |  | - | ------ |  | - | -------
|                                              |  | MedicalOffice  |         | SkilledNursing |   | AssistedLiving |  | DebtObligations |   | Other |   | Total
|                                              |  | (In thousands)
|Rental properties                             |  | $              | 85,880  |                | $ |               |  | $               |  |       | $ |      |  | $ | 216    |  | $ | 86,096 
|Assets held for sale                          |  |                | 10,410  |                |   |               |  |                 |  |       |   |      |  |   |       |  |   | 10,410 
|Mortgage loans and notes receivable, net      |  |                |        |                |   |               |  |                 |  |       |   | 7,658 |  |   |       |  |   | 7,658  
|Cash and cash equivalents                     |  |                | 208     |                |   |               |  |                 |  |       |   |      |  |   | 10,300 |  |   | 10,508 
|Restricted cash                               |  |                | 2,177   |                |   |               |  |                 |  |       |   |      |  |   |       |  |   | 2,177  
|Tenant rent and reimbursement receivable, net |  |                | 222     |                |   |               |  |                 |  |       |   |      |  |   | 403    |  |   | 625    
|Unbilled rent receivable, net                 |  |                | 2,472   |                |   |               |  |                 |  |       |   |      |  |   |       |  |   | 2,472  
|Investment in unconsolidated affiliates       |  |                | 1,897   |                |   |               |  |                 |  |       |   |      |  |   | 564    |  |   | 2,461  
|Deferred financing costs, net                 |  |                | 1,516   |                |   |               |  |                 |  |       |   |      |  |   |       |  |   | 1,516  
|Deferred lease costs, net                     |  |                | 397     |                |   |               |  |                 |  |       |   |      |  |   |       |  |   | 397    
|Prepaid expense and other                     |  |                | 1,402   |                |   |               |  |                 |  |       |   |      |  |   |       |  |   | 1,402  
|                                              |  |                |         |                |   |                |  |                 |   |       |   |       |  |   |        |  |   |        
|Total assets                                  |  | $              | 106,581 |                | $ |               |  | $               |  |       | $ | 7,658 |  | $ | 11,483 |  | $ | 125,722
|                                              |  |                |         |                |   |                |  |                 |   |       |   |       |  |   |        |  |   |        



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##### Table of Contents

2003 Reconciliation of Reportable Segment Information



|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|------------------------------------------------------------ |  | -------------- | ------ | - | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | ----- | ----- | - | ------ | - |  | - | ------- | -
|                                                             |  | MedicalOffice  |        |   | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |       | Total |  
|                                                             |  | (In thousands) |       
|Revenue:                                                     |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Rents, tenant reimbursements and parking                     |  | $              | 25,606 |   |                | $ | 2,109  |                |  | $ |                |   |       | $ |      |       | $ |       |   |  | $ | 27,715  |  
|Patient revenues                                             |  |                |       |   |                |   | 26,129 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 26,129  |  
|Interest and loan fees                                       |  |                | 32     |   |                |   | 29     |                |  |   |                |   |       |   | 695   |       |   | 31     |   |  |   | 787     |  
|Other income                                                 |  |                | 1,528  |   |                |   | 56     |                |  |   | (494            | ) |       |   | 1,000 |       |   | 473    |   |  |   | 2,563   |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Total revenues                                               |  |                | 27,166 |   |                |   | 28,323 |                |  |   | (494            | ) |       |   | 1,695 |       |   | 504    |   |  |   | 57,194  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Expenses:                                                    |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Property operations                                          |  |                | 7,049  |   |                |   | 601    |                |  |   |                |   |       |   | 98    |       |   |       |   |  |   | 7,748   |  
|Skilled nursing operations                                   |  |                |       |   |                |   | 23,901 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 23,901  |  
|Depreciation and amortization                                |  |                | 3,320  |   |                |   | 1,528  |                |  |   |                |   |       |   |      |       |   | 28     |   |  |   | 4,876   |  
|Interest                                                     |  |                | 18,496 |   |                |   | 2,341  |                |  |   |                |   |       |   |      |       |   | 4,285  |   |  |   | 25,122  |  
|Loss on sale of bonds receivable                             |  |                |       |   |                |   |       |                |  |   |                |   |       |   | 120   |       |   |       |   |  |   | 120     |  
|Provision for doubtful accounts, notes and bonds receivable  |  |                |       |   |                |   | 975    |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 975     |  
|General and administrative                                   |  |                |       |   |                |   |       |                |  |   |                |   |       |   |      |       |   | 4,551  |   |  |   | 4,551   |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Total expenses                                               |  |                | 28,865 |   |                |   | 29,346 |                |  |   |                |   |       |   | 218   |       |   | 8,864  |   |  |   | 67,293  |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|(Loss) income from operations                                |  |                | (1,699 | ) |                |   | (1,023 | )              |  |   | (494            | ) |       |   | 1,477 |       |   | (8,360 | ) |  |   | (10,099 | )
|Equity in earnings (loss) of unconsolidated affiliates       |  |                | 1,438  |   |                |   | 52     |                |  |   | 2,253           |   |       |   |      |       |   |       |   |  |   | 3,743   |  
|Net income (loss) from operations of discontinued operations |  |                | 1,213  |   |                |   | (57    | )              |  |   | (1,341          | ) |       |   |      |       |   |       |   |  |   | (185    | )
|Gain from sale of discontinued operations                    |  |                | 2,278  |   |                |   |       |                |  |   | 5,069           |   |       |   |      |       |   |       |   |  |   | 7,347   |  
|Corporate tax expense                                        |  |                |       |   |                |   | (136   | )              |  |   |                |   |       |   |      |       |   |       |   |  |   | (136    | )
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  
|Income (loss) from operations before minority interests      |  | $              | 3,230  |   |                | $ | (1,164 | )              |  | $ | 5,487           |   |       | $ | 1,477 |       | $ | (8,360 | ) |  | $ | 670     |  
|                                                             |  |                |        |   |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |         |  



2003 Reconciliation
of Reportable Segment Information



|                                              |  |                |         |                |   |                |  |                 |        |       |   |       |  |   |        |  |   |        
|--------------------------------------------- |  | -------------- | ------- | -------------- | - | -------------- |  | --------------- | ------ | ----- | - | ----- |  | - | ------ |  | - | -------
|                                              |  | MedicalOffice  |         | SkilledNursing |   | AssistedLiving |  | DebtObligations |        | Other |   | Total
|                                              |  | (In thousands)
|Rental properties                             |  | $              | 87,330  |                | $ | 38,210         |  | $               |       |       | $ |      |  | $ | 178    |  | $ | 125,718
|Assets held for sale                          |  |                | 19,079  |                |   | 738            |  |                 | 10,520 |       |   |      |  |   |       |  |   | 30,337 
|Mortgage loans and notes receivable, net      |  |                |        |                |   | 268            |  |                 |       |       |   | 496   |  |   |       |  |   | 764    
|Cash and cash equivalents                     |  |                | 881     |                |   | 689            |  |                 |       |       |   |      |  |   | 10,380 |  |   | 11,950 
|Restricted cash                               |  |                | 1,823   |                |   | 731            |  |                 |       |       |   |      |  |   | 59     |  |   | 2,613  
|Tenant rent and reimbursement receivable, net |  |                | 402     |                |   | 3,970          |  |                 |       |       |   |      |  |   | 906    |  |   | 5,278  
|Unbilled rent receivable, net                 |  |                | 2,583   |                |   |               |  |                 |       |       |   |      |  |   |       |  |   | 2,583  
|Investment in unconsolidated affiliates       |  |                | 1,764   |                |   | 1,182          |  |                 | 2,131  |       |   |      |  |   |       |  |   | 5,077  
|Deferred financing costs, net                 |  |                | 1,731   |                |   | 568            |  |                 |       |       |   |      |  |   |       |  |   | 2,299  
|Pre-acquisition costs                         |  |                | 141     |                |   |               |  |                 |       |       |   |      |  |   |       |  |   | 141    
|Deferred lease costs, net                     |  |                | 420     |                |   |               |  |                 |       |       |   |      |  |   |       |  |   | 420    
|Prepaid expense and other                     |  |                | 729     |                |   | 308            |  |                 |       |       |   |      |  |   |       |  |   | 1,037  
|                                              |  |                |         |                |   |                |  |                 |        |       |   |       |  |   |        |  |   |        
|Total assets                                  |  | $              | 116,883 |                | $ | 46,664         |  | $               | 12,651 |       | $ | 496   |  | $ | 11,523 |  | $ | 188,217
|                                              |  |                |         |                |   |                |  |                 |        |       |   |       |  |   |        |  |   |        



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##### Table of Contents

2002 Reconciliation of Reportable Segment Information



|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | -------------- | - | ------ | -------------- |  | - | --------------- | - | ----- | - | ----- | ----- | - | ------ | - |  | - | ------ | -
|                                                             |  | MedicalOffice  |        | SkilledNursing |   |        | AssistedLiving |  |   | DebtObligations |   | Other |   |       | Total |  
|                                                             |  | (In thousands) |       
|Revenue:                                                     |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Rents, tenant reimbursements and parking                     |  | $              | 24,577 |                | $ | 2,556  |                |  | $ |                |   |       | $ |      |       | $ |       |   |  | $ | 27,133 |  
|Patient revenues                                             |  |                |       |                |   | 24,261 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 24,261 |  
|Interest and loan fees                                       |  |                | 42     |                |   | 33     |                |  |   |                |   |       |   | 2,345 |       |   | 39     |   |  |   | 2,459  |  
|Other income                                                 |  |                | 585    |                |   | 762    |                |  |   |                |   |       |   |      |       |   | 66     |   |  |   | 1,413  |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Total revenues                                               |  |                | 25,204 |                |   | 27,612 |                |  |   |                |   |       |   | 2,345 |       |   | 105    |   |  |   | 55,266 |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Expenses:                                                    |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Property operations                                          |  |                | 6,731  |                |   | 455    |                |  |   |                |   |       |   | 143   |       |   |       |   |  |   | 7,329  |  
|Skilled nursing operations                                   |  |                |       |                |   | 21,421 |                |  |   |                |   |       |   |      |       |   |       |   |  |   | 21,421 |  
|Depreciation and amortization                                |  |                | 3,495  |                |   | 1,371  |                |  |   |                |   |       |   |      |       |   | 42     |   |  |   | 4,908  |  
|Interest                                                     |  |                | 7,203  |                |   | 1,959  |                |  |   |                |   |       |   | 150   |       |   | 4,294  |   |  |   | 13,606 |  
|Provision for doubtful accounts, notes and bonds receivable  |  |                | 10     |                |   | 993    |                |  |   |                |   |       |   | 89    |       |   | 450    |   |  |   | 1,542  |  
|General and administrative                                   |  |                |       |                |   |       |                |  |   |                |   |       |   |      |       |   | 3,280  |   |  |   | 3,280  |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Total expenses                                               |  |                | 17,439 |                |   | 26,199 |                |  |   |                |   |       |   | 382   |       |   | 8,066  |   |  |   | 52,086 |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Income (loss) from operations                                |  |                | 7,765  |                |   | 1,413  |                |  |   |                |   |       |   | 1,963 |       |   | (7,961 | ) |  |   | 3,180  |  
|Equity in earnings (loss) of unconsolidated affiliates       |  |                | 218    |                |   | 43     |                |  |   | (406            | ) |       |   | 5     |       |   |       |   |  |   | (140   | )
|Net income (loss) from operations of discontinued operations |  |                | 308    |                |   | (70    | )              |  |   | (529            | ) |       |   |      |       |   |       |   |  |   | (291   | )
|Gain from sale of discontinued operations                    |  |                | 2,458  |                |   | (138   | )              |  |   |                |   |       |   |      |       |   |       |   |  |   | 2,320  |  
|Corporate tax expense                                        |  |                |       |                |   | (295   | )              |  |   |                |   |       |   |      |       |   |       |   |  |   | (295   | )
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests      |  | $              | 10,749 |                | $ | 953    |                |  | $ | (935            | ) |       | $ | 1,968 |       | $ | (7,961 | ) |  | $ | 4,774  |  
|                                                             |  |                |        |                |   |        |                |  |   |                 |   |       |   |       |       |   |        |   |  |   |        |  



14. Related Party Transactions



On October 29, 2001, the Company completed a merger with
G & L Acquisition, LLC, a Maryland limited liability company, owned by Daniel M. Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President, respectively, of the Company. Upon completion of the Merger, each outstanding share of the
Companys Common Stock, other than a portion of the shares held by Messrs. Gottlieb and Lebowitz, was converted into the right to receive $13.00 in cash, without interest. After completion of the Merger, the Companys Common Stock was
delisted from the New York Stock Exchange.



As part of the
Merger, the Operating Partnership loaned $5.2 million of the loan proceeds to Messrs. Gottlieb and Lebowitz to fund a $3.5 million tender offer for the Companys Series A and Series B Preferred Stock and to repay $1.7 million of personal debt.
Each of the $2.6 million loans to Messrs. Gottlieb and Lebowitz are for a term of ten years, due on October 31, 2011, bear interest at an annual rate of Libor plus 7.5% and require monthly interest only payments. Messrs. Gottlieb and Lebowitz have
the option to accrue any and all interest payments, which shall then be added to the principal balance of the notes. As of December 31, 2004, the outstanding principal balance on the notes was $5.1 million. For purposes of presentation in these
consolidated financial statements, the $5.1 million balance has been reflected on the balance sheet as a deduction to stockholders equity.



On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record on
November 1, 2004. Messrs. Gottlieb and Lebowitz are the sole common stockholders of the Company. In total, skilled nursing and assisted living assets having a net equity of $9.0 million, derived from current independent property appraisals less the
existing property debt, have been distributed as a dividend to these stockholders. This transaction is described in greater detail in Footnote 1 above.



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##### Table of Contents

During 2004, general and administrative costs totaling $243,723 were allocated to G&L Senior Care
Properties, LLC pursuant to the cost sharing agreement between the two companies discussed in Footnote 1 above. As of December 31, 2004, G&L Senior Care Properties, LLC owed the Company $133,971 related to these allocated general and
administrative costs. This amount is recorded under tenant rent and reimbursements receivable on the balance sheet as of December 31, 2004 and was paid by G&L Senior Care Properties, LLC to the Company in January 2005.



On December 30, 2004, the Board of Directors approved the repurchase by the
Company of the 90,797 shares of Series C Preferred Stock and the 102,290 shares of Series D Preferred Stock owned by Messrs. Gottlieb and Lebowitz for $4.44 million. The purchase price of $23.00 a share represented a 13% and 9% discount,
respectively, to the market price of the Companys Series A and Series B Preferred Stock at the time. The Series C and Series D Preferred Stock rank on a parity with the Series A and Series B Preferred Stock and share pari passu in
dividends and at liquidation. The Company completed the repurchase on December 30, 2004.



During 2004, the Company paid S. Craig Tompkins, a member of the Board of Directors, $100,500 for legal and consulting services performed in connection with the spin-off of the Companys senior care assets and
the potential offering of preferred stock. These fees were in addition to the regular fees paid to the members of the Board of Directors. In January 2005, the Company paid Mr. Tompkins $250,000 for legal services performed on behalf of the Company
and its board of directors in connection with the stockholder litigation described in Footnote 10.



15. Discontinued Operations



In accordance with SFAS 144, the net income or loss and the net gain or loss on dispositions of operating properties sold subsequent to December 31, 2003 are reflected in the consolidated statement of operations as discontinued operations
for all periods presented (see Note 2). For the years ended December 31, 2004, 2003 and 2002, discontinued operations consist of a 9,100 square foot retail facility located in Aliso Viejo, California, a 26,000 square foot MOB located in Burbank,
California, and a 92-unit ALF located in Santa Monica, California that the Company sold in 2003 as well as a 48,000 square foot research and development building located in Irwindale, California, a 59-bed nursing and rehabilitation center in Chico,
California, a 10,000 square foot MOB located in Tustin, California and an 80-unit ALF located in Tarzana, California that the Company sold in 2004. The related interest expense was also allocated to discontinued operations. The following table
summarizes the income and expense components that comprise discontinued operations:



|                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|----------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                          |  | Year Ended December 31, |      
|                                          |  | 2004                    |       |   | 2003 |   |       | 2002 | 
|                                          |  | (In thousands)          |      
|REVENUES:                                 |  |                         |       |   |      |   |       |      |  |   |       |  
|Rent, tenant reimbursements and parking   |  | $                       | 1,942 |   |      | $ | 4,344 |      |  | $ | 6,290 |  
|Other income                              |  |                         |      |   |      |   | 33    |      |  |   | 20    |  
|                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|Total revenues                            |  | $                       | 1,942 |   |      | $ | 4,377 |      |  | $ | 6,310 |  
|                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|EXPENSES:                                 |  |                         |       |   |      |   |       |      |  |   |       |  
|Property operations                       |  |                         | 525   |   |      |   | 1,059 |      |  |   | 1,467 |  
|Depreciation and amortization             |  |                         | 505   |   |      |   | 777   |      |  |   | 1,367 |  
|Interest                                  |  |                         | 1,630 |   |      |   | 2,726 |      |  |   | 3,767 |  
|                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|Total expenses                            |  |                         | 2,660 |   |      |   | 4,562 |      |  |   | 6,601 |  
|                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|Net loss from discontinued operations     |  |                         | (718  | ) |      |   | (185  | )    |  |   | (291  | )
|Gain from sale of discontinued operations |  |                         | 2,536 |   |      |   | 7,347 |      |  |   | 2,320 |  
|                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|Total income from discontinued operations |  | $                       | 1,818 |   |      | $ | 7,162 |      |  | $ | 2,029 |  
|                                          |  |                         |       |   |      |   |       |      |  |   |       |  



16. Subsequent Events



On March 24, 2005, the Company sold the Coronado Plaza, a
47,000 square foot office and retail center located in Coronado, California for $18.15 million. The buyer assumed the existing mortgage loan of $13.55 million and the Company received net proceeds of $4.4 million after all closing costs. The Company
will recognize a gain of approximately $8.5 from the sale.



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##### Table of Contents

On March 23, 2005, the Company refinanced the Holy Cross Medical Plaza, a 72,000 square foot MOB located
in Mission Hills, California with a new $17.8 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company received net proceeds of $9.7 million from the refinancing after repayment of the existing $7.1 million mortgage loan,
prepayment penalties and closing costs. The new loan is for ten years but is interest only for two years and bears interest at a fixed rate of 5.71% per annum.



During the first week of April, the Company expects to refinance three MOBs owned by San Pedro, a joint venture in which the Company owns a 50%
interest, with a new $7.7 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company expects to receive net proceeds of $2.4 million from the refinancing after repayment of the existing $4.6 million mortgage loan, prepayment
penalties and closing costs. The new loan will be for ten years but will be interest only for two years and will bear interest at a fixed rate of 5.64% per annum.



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##### Table of Contents

17. Unaudited Consolidated Quarterly Information



Unaudited consolidated quarterly financial information for the periods as follows:



|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | --- | - | ------ | --- |  | - | ------ | - |  | - | ------ | -
|                                                             |  | 2004 Fiscal Quarter                      |       
|                                                             |  | 1st                                      |        |   | 2nd |   |        | 3rd |  |   | 4th    |  
|                                                             |  | (In thousands, except per share amounts) |       
|Revenue:                                                     |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Rental                                                       |  | $                                        | 5,716  |   |     | $ | 6,762  |     |  | $ | 7,838  |   |  | $ | 6,282  |  
|Patient revenues                                             |  |                                          | 6,736  |   |     |   |       |     |  |   |       |   |  |   |       |  
|Tenant reimbursements                                        |  |                                          | 829    |   |     |   | 862    |     |  |   | 860    |   |  |   | 830    |  
|Parking                                                      |  |                                          | 402    |   |     |   | 431    |     |  |   | 467    |   |  |   | 422    |  
|Interest and loan fees                                       |  |                                          | 194    |   |     |   | 211    |     |  |   | 121    |   |  |   | 1,379  |  
|Other income                                                 |  |                                          | 154    |   |     |   | 301    |     |  |   | 328    |   |  |   | 746    |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total revenues                                               |  |                                          | 14,031 |   |     |   | 8,567  |     |  |   | 9,614  |   |  |   | 9,659  |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Expenses:                                                    |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Property operations                                          |  |                                          | 1,797  |   |     |   | 1,987  |     |  |   | 2,107  |   |  |   | 1,856  |  
|Skilled nursing operations                                   |  |                                          | 6,287  |   |     |   |       |     |  |   |       |   |  |   |       |  
|Depreciation and amortization                                |  |                                          | 1,208  |   |     |   | 1,207  |     |  |   | 1,204  |   |  |   | 925    |  
|Interest                                                     |  |                                          | 2,704  |   |     |   | 2,705  |     |  |   | 2,799  |   |  |   | 2,384  |  
|General and administrative                                   |  |                                          | 1,038  |   |     |   | 1,218  |     |  |   | 1,448  |   |  |   | 1,937  |  
|Provision for doubtful accounts                              |  |                                          | 59     |   |     |   | 852    |     |  |   | 341    |   |  |   | 149    |  
|Impairment of assets                                         |  |                                          |       |   |     |   |       |     |  |   |       |   |  |   | 8,139  |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total expenses                                               |  |                                          | 13,093 |   |     |   | 7,969  |     |  |   | 7,899  |   |  |   | 15,390 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests      |  |                                          | 938    |   |     |   | 598    |     |  |   | 1,715  |   |  |   | (5,731 | )
|Equity in (loss) earnings of unconsolidated affiliates       |  |                                          | (99    | ) |     |   | (64    | )   |  |   | 189    |   |  |   | (17    | )
|Minority interest in consolidated affiliates                 |  |                                          | (125   | ) |     |   | (136   | )   |  |   | (162   | ) |  |   | (141   | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income (loss) before discontinued operations                 |  |                                          | 714    |   |     |   | 398    |     |  |   | 1,742  |   |  |   | (5,889 | )
|Net income (loss) from operations of discontinued operations |  |                                          | 266    |   |     |   | (190   | )   |  |   | 126    |   |  |   | (920   | )
|Gain (loss) from discontinued operations                     |  |                                          | 586    |   |     |   | (147   | )   |  |   | 2,097  |   |  |   |       |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss)                                            |  |                                          | 1,566  |   |     |   | 61     |     |  |   | 3,965  |   |  |   | (6,809 | )
|Dividends on preferred stock                                 |  |                                          | (1,791 | ) |     |   | (1,790 | )   |  |   | (1,790 | ) |  |   | (1,791 | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net (loss) income to common stockholders                     |  | $                                        | (225   | ) |     | $ | (1,729 | )   |  | $ | 2,175  |   |  | $ | (8,600 | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  



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##### Table of Contents

|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | --- | - | ------ | --- |  | - | ------ | - |  | - | ------ | -
|                                                             |  | 2003 Fiscal Quarter                      |       
|                                                             |  | 1st                                      |        |   | 2nd |   |        | 3rd |  |   | 4th    |  
|                                                             |  | (In thousands, except per share amounts) |       
|Revenue:                                                     |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Rental                                                       |  | $                                        | 5,714  |   |     | $ | 5,625  |     |  | $ | 5,846  |   |  | $ | 5,831  |  
|Patient revenues                                             |  |                                          | 5,899  |   |     |   | 6,337  |     |  |   | 6,882  |   |  |   | 7,011  |  
|Tenant reimbursements                                        |  |                                          | 701    |   |     |   | 711    |     |  |   | 939    |   |  |   | 704    |  
|Parking                                                      |  |                                          | 368    |   |     |   | 403    |     |  |   | 454    |   |  |   | 419    |  
|Interest and loan fees                                       |  |                                          | 207    |   |     |   | 192    |     |  |   | 196    |   |  |   | 192    |  
|Other income                                                 |  |                                          | 525    |   |     |   | 72     |     |  |   | 1,216  |   |  |   | 750    |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total revenues                                               |  |                                          | 13,414 |   |     |   | 13,340 |     |  |   | 15,533 |   |  |   | 14,907 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Expenses:                                                    |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Property operations                                          |  |                                          | 1,957  |   |     |   | 1,959  |     |  |   | 2,004  |   |  |   | 1,828  |  
|Skilled nursing operations                                   |  |                                          | 5,409  |   |     |   | 5,843  |     |  |   | 6,281  |   |  |   | 6,368  |  
|Depreciation and amortization                                |  |                                          | 1,261  |   |     |   | 958    |     |  |   | 1,219  |   |  |   | 1,438  |  
|Interest                                                     |  |                                          | 3,399  |   |     |   | 7,984  |     |  |   | 10,984 |   |  |   | 2,755  |  
|Loss on sale of bonds receivable                             |  |                                          | 120    |   |     |   |       |     |  |   |       |   |  |   |       |  
|General and administrative                                   |  |                                          | 953    |   |     |   | 879    |     |  |   | 1,376  |   |  |   | 1,343  |  
|Provision for doubtful accounts                              |  |                                          | 279    |   |     |   | 114    |     |  |   | 269    |   |  |   | 313    |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Total expenses                                               |  |                                          | 13,378 |   |     |   | 17,737 |     |  |   | 22,133 |   |  |   | 14,045 |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income (loss) from operations before minority interests      |  |                                          | 36     |   |     |   | (4,397 | )   |  |   | (6,600 | ) |  |   | 862    |  
|Equity in earnings (loss) of unconsolidated affiliates       |  |                                          | 3,884  |   |     |   | (84    | )   |  |   | (41    | ) |  |   | (16    | )
|Minority interest in consolidated affiliates                 |  |                                          | 71     |   |     |   | (81    | )   |  |   | (66    | ) |  |   | (74    | )
|Corporate income tax expense                                 |  |                                          | (23    | ) |     |   | (22    | )   |  |   | (73    | ) |  |   | (18    | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Income (loss) before discontinued operations                 |  |                                          | 3,968  |   |     |   | (4,584 | )   |  |   | (6,780 | ) |  |   | 754    |  
|Net (loss) income from operations of discontinued operations |  |                                          | (157   | ) |     |   | (99    | )   |  |   | (108   | ) |  |   | 179    |  
|Gain from discontinued operations                            |  |                                          |       |   |     |   |       |     |  |   |       |   |  |   | 7,347  |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss)                                            |  |                                          | 3,811  |   |     |   | (4,683 | )   |  |   | (6,888 | ) |  |   | 8,280  |  
|Dividends on preferred stock                                 |  |                                          | (1,790 | ) |     |   | (1,791 | )   |  |   | (1,790 | ) |  |   | (1,791 | )
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  
|Net income (loss) to common stockholders                     |  | $                                        | 2,021  |   |     | $ | (6,474 | )   |  | $ | (8,678 | ) |  | $ | 6,489  |  
|                                                             |  |                                          |        |   |     |   |        |     |  |   |        |   |  |   |        |  



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##### Table of Contents

18. SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2004 (In Thousands).



|                                                |  |                          |             |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|----------------------------------------------- |  | ------------------------ | ----------- | - | ------------------------- | - | ----------------------------------------- |  | ------------------------------------------------ | ------ | ---------------- | - | -------------------------------------- |  | ----- | ------ | ------------------------ | - | ------ |  | - | ------- |  | - | ------- |  | - | ------ |  | ---- |  | --------------
|                                                |  | Encumbrances (See Notes) |             |   | Initial Cost to Company   |   | Cost Capitalized Subsequentto Acquisition |  | Gross amount at which carried at close of Period |        | Acquisition Date |   | Date of Construction or Rehabilitation
|Description                                     |  |                          | Land        |   | Building and Improvements |   | Land                                      |  | Building and Improvement                         |        | Land             |   | Building and Improvements              |  | Total |        | Accumulated Depreciation |   |       
|Medical Office Buildings California Properties: |  |                          |             |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|405 North Bedford Drive                         |  | $                        | 13,932      |   |                           | $ | 2,186                                     |  | $                                                | 4,076  |                  | $ | 452                                    |  | $     | 10,542 |                          | $ | 2,638  |  | $ | 14,618  |  | $ | 17,256  |  | $ | 6,150  |  | 1993 |  | 1947/1987     
|415 North Bedford Drive                         |  |                          | 5,995       |   |                           |   | 292                                       |  |                                                  | 573    |                  |   |                                       |  |       | 629    |                          |   | 292    |  |   | 1,202   |  |   | 1,494   |  |   | 706    |  | 1993 |  | 1955          
|416 North Bedford Drive                         |  |                          | 11,130      |   |                           |   | 427                                       |  |                                                  | 247    |                  |   |                                       |  |       | 2,827  |                          |   | 427    |  |   | 3,074   |  |   | 3,501   |  |   | 1,549  |  | 1993 |  | 1946/1986     
|435 North Bedford Drive                         |  |                          | 15,136      |   |                           |   | 1,144                                     |  |                                                  | 2,853  |                  |   |                                       |  |       | 3,815  |                          |   | 1,144  |  |   | 6,668   |  |   | 7,812   |  |   | 3,847  |  | 1993 |  | 1950/1963/1984
|435 North Roxbury Drive                         |  |                          | 8,019       |   |                           |   | 162                                       |  |                                                  | 390    |                  |   | 39                                     |  |       | 3,430  |                          |   | 201    |  |   | 3,820   |  |   | 4,021   |  |   | 1,810  |  | 1993 |  | 1956/1983     
|436 North Bedford Drive                         |  |                          | 29,659      |   |                           |   | 2,675                                     |  |                                                  | 15,317 |                  |   |                                       |  |       | 803    |                          |   | 2,675  |  |   | 16,120  |  |   | 18,795  |  |   | 3,618  |  | 1990 |  | 1980          
|439 North Bedford Drive                         |  |                          |            |   |                           |   |                                          |  |                                                  | 109    |                  |   |                                       |  |       | 601    |                          |   |       |  |   | 710     |  |   | 710     |  |   | 492    |  | 1993 |  | 1956/1983     
|Holy Cross Medical Plaza                        |  |                          | 7,106       |   |                           |   | 2,556                                     |  |                                                  | 10,256 |                  |   |                                       |  |       | 1,733  |                          |   | 2,556  |  |   | 11,989  |  |   | 14,545  |  |   | 3,922  |  | 1994 |  | 1985          
|Sherman Oaks Medical Plaza                      |  |                          | 12,224      |   |                           |   | 1,454                                     |  |                                                  | 8,278  |                  |   |                                       |  |       | 3,149  |                          |   | 1,454  |  |   | 11,427  |  |   | 12,881  |  |   | 4,090  |  | 1994 |  | 1969/1993     
|Regents Medical Center                          |  |                          | 16,713      |   |                           |   | 1,470                                     |  |                                                  | 8,390  |                  |   |                                       |  |       | 1,535  |                          |   | 1,470  |  |   | 9,925   |  |   | 11,395  |  |   | 3,354  |  | 1994 |  | 1989          
|14591 Newport Avenue                            |  |                          | (See Note A | ) |                           |   | 160                                       |  |                                                  | 36     |                  |   |                                       |  |       | 549    |                          |   | 160    |  |   | 585     |  |   | 745     |  |   | 219    |  | 1996 |  | 1969          
|14642 Newport Avenue                            |  |                          | (See Note A | ) |                           |   | 400                                       |  |                                                  | 1,033  |                  |   |                                       |  |       | 699    |                          |   | 400    |  |   | 1,732   |  |   | 2,132   |  |   | 713    |  | 1996 |  | 1985          
|23861  23929 McBean Parkway                    |  |                          | 8,773       |   |                           |   |                                          |  |                                                  | 4,164  |                  |   | 3,972                                  |  |       | 8,617  |                          |   | 3,972  |  |   | 12,781  |  |   | 16,753  |  |   | 2,757  |  | 1998 |  | 1981/1999     
|24355 Lyons Avenue                              |  |                          | 8,460       |   |                           |   | 623                                       |  |                                                  | 6,752  |                  |   |                                       |  |       | 1,048  |                          |   | 623    |  |   | 7,800   |  |   | 8,423   |  |   | 1,428  |  | 1998 |  | 1990          
|1330 Orange Ave (See Note B)                    |  |                          | 13,550      |   |                           |   | 809                                       |  |                                                  | 8,753  |                  |   |                                       |  |       | 854    |                          |   | 809    |  |   | 9,607   |  |   | 10,416  |  |   | 1,404  |  | 1998 |  | 1977/1985     
|                                                |  |                          |             |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|Total                                           |  | $                        | 150,697     |   |                           | $ | 14,358                                    |  | $                                                | 71,227 |                  | $ | 4,463                                  |  | $     | 40,831 |                          | $ | 18,821 |  | $ | 112,058 |  | $ | 130,879 |  | $ | 36,059 |  |      |  |               
|                                                |  |                          |             |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|G&L Tustin III, LLC (Note A)                    |  |                          | 6,993       |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|Per Above                                       |  |                          | 150,697     |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|                                                |  |                          |             |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|Total encumbrances                              |  | $                        | 157,690     |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               
|                                                |  |                          |             |   |                           |   |                                           |  |                                                  |        |                  |   |                                        |  |       |        |                          |   |        |  |   |         |  |   |         |  |   |        |  |      |  |               



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



|                               |  |                          |         |   |      |   |         |      |  |   |         |  
|------------------------------ |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                               |  | Total Real Estate Assets |        
|                               |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|Balance at beginning of year   |  | $                        | 195,168 |   |      | $ | 209,155 |      |  | $ | 199,882 |  
|Improvements and acquisitions  |  |                          | 10,105  |   |      |   | 5,665   |      |  |   | 12,361  |  
|Spin-off of senior care assets |  |                          | (51,678 | ) |      |   |        |      |  |   |        |  
|Dispositions                   |  |                          | (22,716 | ) |      |   | (19,652 | )    |  |   | (3,088  | )
|                               |  |                          |         |   |      |   |         |      |  |   |         |  
|Balance at end of year         |  | $                        | 130,879 |   |      | $ | 195,168 |      |  | $ | 209,155 |  
|                               |  |                          |         |   |      |   |         |      |  |   |         |  
|                               | 
|                               |  | Accumulated Depreciation |        
|                               |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|Balance at beg. of year        |  | $                        | 42,241  |   |      | $ | 39,439  |      |  | $ | 33,873  |  
|Depreciation                   |  |                          | 4,854   |   |      |   | 5,576   |      |  |   | 5,855   |  
|Spin-off of senior care assets |  |                          | (7,582  | ) |      |   |        |      |  |   |        |  
|Dispositions                   |  |                          | (3,454  | ) |      |   | (2,774  | )    |  |   | (289    | )
|                               |  |                          |         |   |      |   |         |      |  |   |         |  
|Balance at end of year         |  | $                        | 36,059  |   |      | $ | 42,241  |      |  | $ | 39,439  |  
|                               |  |                          |         |   |      |   |         |      |  |   |         |  

---

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

Note B : This building was sold on March 24, 2005 and
is included in Assets Held for Sale on the Companys balance sheet as of December 31, 2004 and 2003.



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |                  |  |                                        
|-------------------- |  | ---------------- |  | ---------------------------------------
|                     |  | G&L REALTY CORP.
|                     |  |                 
|Date: March 31, 2005 |  | By:              |  | /s/ David E. Hamer                     
|                     |  |                  |  | David E. Hamer                         
|                     |  |                  |  | Controller and Chief Accounting Officer



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



|                                         |  |                                                                                              |  |               
|---------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                        |  | Date          
|/s/ Daniel M. GottliebDaniel M. Gottlieb |  | Chief Executive Officer, Co-Chairman of the Board and Director (Principal Executive Officer) |  | March 31, 2005
|                                         |  |                                                                                             
|/s/ Steven D. LebowitzSteven D. Lebowitz |  | President, Co-Chairman of theBoard and Director                                              |  | March 31, 2005
|                                         |  |                                                                                             
|/s/ Richard L. LesherRichard L. Lesher   |  | Director                                                                                     |  | March 31, 2005
|                                         |  |                                                                                             
|/s/ Charles P. ReillyCharles P. Reilly   |  | Director                                                                                     |  | March 31, 2005
|                                         |  |                                                                                             
|/s/ S. Craig TompkinsS. Craig Tompkins   |  | Director                                                                                     |  | March 31, 2005



F-32