10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2005

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

G & L REALTY CORP.

(Exact name of Registrant as specified in its charter)

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

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

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

Indicate by check mark if the Registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    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, 2006, 710,199 shares of common stock of G&L Realty Corp. were outstanding.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	5
ITEM 1B.	UNRESOLVED STAFF COMMENTS	12
ITEM 2.	PROPERTIES	12
ITEM 3.	LEGAL PROCEEDINGS	17
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	17
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	17
ITEM 6.	CONSOLIDATED SELECTED FINANCIAL DATA	18
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA	32
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	32
ITEM 9A.	CONTROLS AND PROCEDURES	32
ITEM 9B.	OTHER INFORMATION	32
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	33
ITEM 11.	EXECUTIVE COMPENSATION	35
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	37
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	39
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	41
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	42

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PART I

ITEM 1. BUSINESS

General

G&L Realty Corp. (referred to from time to time in this Annual Report as “we” or “us” or the “Company”) is a 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”) in Southern California. 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”), in which the Company has a 95% interest, or its various special purpose subsidiaries. Notwithstanding this 5% minority interest, we use the term “our Company” to describe collectively, and without differentiation, G&L Realty Corp and the Operating Partnership. Our financial disclosures, however, are adjusted to reflect this 5% minority interest.

The Company’s business and operations are managed through G&L Realty Corp LLC, a limited liability company wholly owned by our controlling shareholders, Daniel M. Gottlieb and Steven D. Lebowitz and certain members of their respective families. The Company was incorporated in Maryland on September 15, 1993, and all of the common stock is owned by its principal executive officers, Daniel M. Gottlieb and Steven D. Lebowitz. Messrs. Gottlieb and Lebowitz and sometimes referred to in this Annual Report as our “Founding Stockholders”).

Our executive offices are located at 439 North Bedford Drive, Beverly Hills, California 90210, and our telephone number is (310) 273-9930. Our website is www.glrealty.com.

Recent Developments

Over the past two years, we have endeavored to re-focus our activities on the development, ownership and operation of MOBs in Southern California and to generally clean up our balance sheet by removing assets not related to that core focus. Consequently, since the beginning of 2004, we have either sold to third parties or spun-off to our Founding Stockholders (i) our retail properties (other than those retail areas located within or specifically ancillary to our MOBs), (ii) our skilled nursing facility and assisted care living facility assets, (iii) certain minority interests in entities owning or managing residential real estate, (iv) certain non-management minority interests in MOB development projects located outside of our core southern California base, and (v) certain related party promissory notes. In order to reduce the potential for conflicts of interest and to provide more flexibility to our management company, we have also spun-off our management company operations to our Founding Stockholders, and are now managed under a long term management agreement with that company. In order to protect the interests of our preferred stockholders, that management agreement specifically subordinates all management fees to the payment of dividends on our preferred stock and to the liquidation preference of the holders of our preferred stock. Since the spin-off of our skilled nursing facility and assisted living facility assets, we have operated in only one business segment – the ownership, acquisition, development and management of medical office buildings.

On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to our Founding Stockholders in order to focus our activities on the medical office building segment of our business. Assets with a net asset value (based on independent fair market valuations of these skilled nursing and assisted living facilities) of approximately $5.03 million were distributed in this spin-off. These assets are now held by G&L Senior Care Properties, LLC, a company controlled by our Founding Stockholders.

On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company, to its common stockholders. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care Properties, LLC. As part of the distribution of G&L Realty Corp., LLC to the Company’s stockholders, the Company entered into a management agreement with G&L Realty Corp., LLC.

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Through the end of our fiscal year ended December 31, 2005, the management agreement provided that G&L Realty Corp., LLC would provide ongoing management services to us in exchange for reimbursement of the out-of-pocket costs associated with providing such services. These costs were calculated by multiplying the total operating costs of G&L Realty Corp., LLC by a percentage determined to represent the percentage of G&L Realty Corp., LLC’s time committed to the management of our company. We calculated this percentage at 35%. Effective January 1, 2006, our Company began paying fees to G&L Realty Corp., LLC based on a schedule of fixed fees as provided for in the management agreement.

In addition, the Company, commencing January 1, 2006, began reimbursing G&L Realty Corp., LLC for all reasonable out-of-pocket expenses, including the cost of any on-site managers or on-site personnel provided at the request of our Company, but not any home office or general and administrative personnel. G&L Realty Corp., LLC also provides leasing services, but receives no additional compensation with respect to the provision of such services. Historically, the Company has made only limited use of outside brokers to obtain tenants. As a result of the management agreement with G&L Realty Corp., LLC, the Company has no employees and has effectively out-sourced all of its day-to-day operating functions.

Messrs. Gottlieb and Lebowitz, the Chief Executive Officer and President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making of that company. Thus, our Founding Stockholders continue to have significant involvement in the management and operations of the Company through G&L Realty Corp., LLC.

At the time of the distribution, G&L Realty Corp., LLC’s assets included (i) two promissory notes from Messrs. Gottlieb and Lebowitz totaling $5.1 million, (ii) a $1 million investment in a company specializing in the management and ownership of low cost housing, and (iii) a $2.7 million limited partnership investment in a limited partnership, formed to acquire and develop a vacant parcel of land in Northern California. An independent appraisal conducted at the time of the distribution valued G&L Realty Corp., LLC at $4.3 million, compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss on the Company’s financial statements. Incident to the distribution, the Company also agreed to lend certain funds to the Northern California limited partnership on a secured basis pending the procurement of construction financing by that limited partnership. These loans were repaid in full February 2006, and the Company has no further relationship with or commitments to that limited partnership.

On February 14, 2006 we entered into an agreement to sell our interest in the San Pedro Medical Plaza located in San Pedro, California for $13 million. The San Pedro Medical Plaza is owned by a limited liability company in which we have an 50% equity interest, and is carried on our books on a unconsolidated basis. Upon completion of that sale, we will report a gain of approximately $2.5 million.

On October 14, 2005, we refinanced two properties located in Tustin, California with a new $13.5 million loan. We received proceeds of $5.3 million from the refinancing after repayment of the existing $6.9 million mortgage loan, prepayment penalties and closing costs. The new loan bears interest at a fixed rate of 5.29% and is due on October 8, 2015.

On March 23, 2005, we refinanced a property located in Mission Hills, California with a new $17.8 million mortgage loan. We received 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 bears interest at a fixed rate of 5.71% and is due on April 1, 2015.

The Company is currently exploring its options with respect to the possible redemption of its outstanding preferred stock so as to be able to operate as a private company. Like many other public companies of our size, we have found the costs of complying with the requirements of Sarbanes Oxley to be burdensome. The Company’s Series A and Series B preferred stock both are currently redeemable at a price of $25 per share upon thirty days notice to the preferred stockholders. No assurances can be given at this time as to whether we will ultimately elect to redeem our outstanding preferred stock and go private, or to continue as a public company, or to participate in some other transaction.

Description of Business

The Company’s MOB business strategy is to acquire, own, develop, manage and lease a portfolio of medical office buildings, principally in Southern California. The MOB portfolio currently consists of approximately 742,000 rentable square feet. The Company directly owns 17 high quality MOBs and an adjacent parking facility. In addition, the Company owns four additional MOBs through joint ventures (collectively, the “MOB Properties”). All of the MOB Properties are located in Southern California. Several of the MOB Properties include retail space on the ground level.

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As of January 31, 2006, the MOB Properties were 98.8% leased, typically pursuant to three to ten year leases. As of that date, we had leases with over 400 tenants. No tenant leases more than 2% of our MOB space. Our tenants are principally doctors and other medical professionals, practice groups and, in some cases, hospitals. Our MOB Properties have experienced lease renewal rates of approximately 90.6%, 88.4% and 79.7% for the years ended December 31, 2005, 2004 and 2003, respectively. Typically, where our tenant’s have elected not to renew, it is because of our inability to satisfy their increased space needs or because they have retired from practice.

We compete principally with other lessors of medical office building space, typically in buildings designed or converted for such purposes. We typically do not compete with lessors of commercial office space, as medical office buildings typically require a higher degree of services, greater elevator capacity, and more parking than non-medical commercial office buildings. Many of our buildings are located on or near hospital campuses, in which case we may also compete with medical office space offered on such campuses directly by the hospitals themselves.

We currently have only one development project – the anticipated construction of two medical office buildings on the Henry Mayo Memorial Hospital Campus in Santa Clarita, California. However, this project is still in the land use planning stages, and the ultimate size and timing of this project is, accordingly, uncertain.

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.

An investment in our company involves material risks, as discussed in greater detail under the caption RISK FACTORS, later in this Annual Report.

Employees

As of March 31, 2006, the Company had no employees having last year out-sourced all of its management functions to G&L Realty Corp., LLC. At that date, G&L Realty Corp., LLC employed 29 persons, 11 of whom are on-site building employees who provide maintenance services for the MOB Properties and 6 of whom are professional employees engaged in leasing, asset management and administration.

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.

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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 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.

Tax Status

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

Segment Information

Segment information is set forth in footnote 13 to our Financial Statements set forth below in this Annual Report. After the spin-off of the skilled nursing and assisted living facility assets, the Company has one reportable segment-medical office buildings.

Available Information

Our website is www.glrealty.com. We make available through our website our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

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ITEM 1A. RISK FACTORS

Our earnings are derived from a relatively small and concentrated number of properties.

Our earnings are derived from a relatively small number of properties. Our Properties consist of only the MOB Properties representing only approximately 742,000 rentable square feet. All of these properties are located in Southern California. Moreover, the MOBs in the “Golden Triangle” area of Beverly Hills, California produce approximately 35% of our net operating income. Our operating results may be significantly impacted by the performance of one or a group of our properties and by factors affecting generally the health-care industry, the Southern California economy or the “Golden Triangle” area. Our business could be particularly adversely affected, for example, by a catastrophic incident such as a material terrorist attack or earthquake centered in the “Golden Triangle” area.

Failure of our tenants to comply with health-care regulations could affect their operations and their ability to make lease payments to us.

The health-care industry is highly regulated by federal, state and local law and is directly affected by state and local licensure, fines, and loss of certification required to participate in the Medicare and Medicaid programs, as well as potential criminal penalties. Failure of our tenants to comply with governing laws, requirements and regulations could adversely affect the operation of our properties and a tenant’s capacity to make lease payments to us.

Delays in reimbursement by healthcare payors to our tenants could adversely impact their ability to pay rent.

The healthcare industry is facing various challenges, including increased government and private payor pressure on health-care providers to control costs, and the vertical and horizontal consolidation of healthcare providers. Healthcare reform has been the subject of much governmental review in recent periods. It is currently unclear the direction or extent of such reform.

We believe that government and private efforts to contain and reduce healthcare costs will continue. These trends are likely to lead to reduced or slower growth in reimbursement for certain services provided by some of our tenants. We cannot predict whether governmental reforms will be adopted. If adopted such reforms may have a material adverse effect on our financial condition or results of operations.

We have greater operating costs than other real estate operators due to our healthcare focus.

The costs of operating a medical office building are typically higher than those of a conventional office or retail space. For example, medical office tenants typically have greater demands for electricity than conventional office tenants, and special elevators and waste disposal facilities are often required. In our leases that are not triple net, we may have to bear all of these additional costs. In addition, even in our triple net leases, we may not, in the future, be able to pass through all of these costs to our tenants if it becomes economically prohibitive to do so because it would result in the loss of our tenants. As a natural result of the nature of our tenant’s clientele, we may be more exposed to slip and fall type liability and claims than operators of conventional office space, and our insurance premiums may, accordingly, be higher than the operators of such conventional office facilities. Again, while most of our leases are currently triple net leases, we may not in the future be able to pass through all of these costs to our tenants as these triple net leases turnover.

Properties we acquire or develop may underperform forecasted results.

We may continue to pursue acquisitions of additional MOB properties and to selectively develop new properties. Acquisitions and development entail risks that investments will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to develop and acquire properties will prove inaccurate, in addition to the general investment risks associated with any new real estate investment.

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Properties that we develop or acquire and renovate substantially do not have the operating history that would allow our management to make objective pricing decisions in acquiring these properties. The purchase prices of these properties are based upon projections by management as to the expected operating results of such properties, subjecting us to risks that such properties may not achieve anticipated operating results or may not achieve these results within anticipated time frames.

We may be limited in our ability to finance future acquisitions.

We anticipate that future acquisitions and development will largely be financed through externally generated funds such as mortgage loans, borrowings under credit facilities and other secured and unsecured debt financing and from issuances of equity securities. Because we must distribute at least 90% of our REIT taxable income each year to maintain our qualification as a REIT, our ability to rely upon income from operations or cash flow from operations to finance our growth and acquisition activities will be limited. Accordingly, if we are unable to obtain funds from borrowings or the capital markets to finance our acquisition and development activities, our ability to grow and diversify our investment portfolio could be curtailed.

We depend on debt financing which could result in foreclosure on our properties if we are unable to make required payments.

We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, the risk that existing indebtedness on the properties cannot be refinanced or that the terms of such refinancing will not be as favorable as the terms of existing indebtedness and the risk that necessary capital expenditures for such purposes as renovations and reletting space cannot be financed on favorable terms, if at all. If a property is mortgaged to secure payment of indebtedness and we are unable to meet the mortgage payments, the property could be lost through foreclosure or transfer to the mortgagee with a consequent loss of income and asset value to us.

We may be unable to renew leases or relet space as leases expire.

We are subject to the normal risks associated with leasing property, including the risk that upon the expiration of leases for space located in the properties, the leases may not be renewed, the space may not be relet or the terms of renewal or leasing (including any cost of required renovations or concessions to tenants) may be less favorable than current lease terms. If we are unable promptly to relet or renew leases for a significant portion of our space or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our earnings and ability to make expected distributions to stockholders may be adversely affected. As our buildings are specially set up for medical office purposes, and as medical professionals typically prefer to be located in buildings with a high percentage of other medical professional tenants, we are more limited in our selection of potential tenants than general commercial or office buildings. Since our leases are typically short term (our average remaining lease term as of December 31, 2005 was only 2.8 years, excluding month-to-month tenants), increasing vacancy factors and declining rental rates can affect our cash flow more quickly than businesses that rely on longer term leases.

Closure of nearby hospitals could affect the desirability of our properties.

Our MOBs are often in close proximity to one or more hospitals. Fourteen of our MOBs are located less than one-half mile from a hospital. The relocation or closure of a hospital could make our nearby Properties (particularly those outside of the Beverly Hills area) less desirable to doctors affiliated with the hospital and affect our ability to collect rent due under existing leases, renew leases and attract new tenants.

We face competition from other health-care investors, which may prevent us from taking advantage of investment opportunities.

We compete with other REITs, real estate partnerships, healthcare providers and other investors, including real estate developers, professional medical partnerships, financial institutions and institutional investors, many of which have greater financial resources than us, in the acquisition and leasing of healthcare facilities. Among other things, we must secure continued access to capital to fund new healthcare property acquisitions, and identify and successfully pursue opportunities for investment in healthcare properties. Given the competition in the MOB marketplace, there can be no assurance that suitable investments will be identified or that additional investments can be consummated on terms favorable to us.

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We face potential liability relating to environmental matters.

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in its property. Current or prior owners or operators may also be liable for government fines and damages for injuries to persons, natural resources and adjacent property. These laws often 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.

The cost of complying with environmental laws could materially and adversely affect amounts available for distribution to our stockholders and could exceed the value of our properties. In addition, the presence of hazardous or toxic substances, or the failure to properly dispose of or remediate these substances, including medical waste generated by physicians or other healthcare tenants, may adversely affect our tenants’ or our ability use, sell or rent such property or to borrow using such property as collateral, which, in turn, could reduce our revenue and our financing ability. Liability for, or other claims against us in connection with, environmental matters may exist of which we are unaware.

As part of the normal practice of doctors, medical waste is generated. Our 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 it from the premises each night. The handling and disposal of this waste is the responsibility of the tenants; however, we remain responsible as the owner of the property. There can be no assurances that all such medical waste will be properly handled and disposed of or that we will not incur costs in connection with improper disposal of medical waste by our tenants. In addition, environmental and occupational health and safety laws are constantly evolving, and changes in laws, regulations or policies, or changes in their interpretations, could create liabilities where none exist today.

We are exposed to risks related to our historic skilled nursing facilities and assisted living facilities assets and business.

There is typically, in our view, a greater litigation risk in the ownership and leasing of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) than in the ownership and leasing of MOB assets. While we have spun off our SNF and ALF business, and while we operated our SNF and ALF business through special purpose limited liability entities, the risk remains that we could be named in lawsuits relating to alleged shortfalls in the operating quality of SNF and ALF tenants occurring prior to the date of the spin off of the SNF and ALF business and that the plaintiffs in these lawsuits could seek to pierce the corporate veil to reach our MOB assets. So called “Elder Abuse” is an increasingly popular tort for plaintiff’s lawyers, and litigation in this area appears to be significantly on the rise. Also, for approximately four years, one of our subsidiaries was the holder of the operating license for a group of SNFs located in Massachusetts, and was involved in the operation of those facilities while working to identify a new tenant for these facilities.

Our financial performance will be affected by risks associated with the real estate industry.

Events and conditions generally applicable to owners and operators or real property, some of which are beyond our control, may adversely affect our economic performance and ability to pay dividends to our stockholders include:

• changes in the national, regional and local economic climate;

• local conditions such as an oversupply of, or a reduction in demand for, medical office space, outpatient treatment and diagnostic facilities, physician practice group clinics, ambulatory surgery centers, specialty hospitals and treatment centers and senior care facilities;

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• reduced attractiveness of our properties to physicians and other types of tenants;

• competition from other medical office buildings, outpatient treatment facilities, physician practice group clinics, ambulatory surgery centers, specialty hospitals, treatment centers and senior care facilities;

• inability to collect rent from tenants;

• increased operating costs, including real estate taxes, insurance premiums and utilities;

• costs of complying with changes in government regulations; and

• the relative illiquidity of real estate investments.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If any of these events were to happen, our financial condition, results of operations and ability to make distributions to our stockholders could be materially adversely affected.

We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

Under the Americans with Disabilities Act of 1993, or ADA, all public accommodations are required to meet certain federal requirements related to access and use by persons with disabilities. A determination that we are not in compliance with the ADA with respect to any of our properties could result in the imposition of fines by the U.S. government or an award of damages to private litigants. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations. If we were required to make substantial modifications at our properties to comply with the ADA or governmental rules and regulations, our financial condition, results of operations and ability to make distributions to our stockholders could be materially adversely affected.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Real estate investments are relatively illiquid and, therefore, tend to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. Virtually all of our properties are “special purpose” properties that could not be readily converted to general residential, retail or office use. Thus, if the operation of any of our properties becomes unprofitable due to competition, age of improvements or other factors such that our lessee becomes unable to meet its obligations on the lease, the liquidation value of the property may be substantially less, particularly relative to the amount owing on any related mortgage loan, than would be the case if the property were readily adaptable to other uses. In addition, certain significant expenditures associated with real estate investment, such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, our financial condition and results of operations would be materially adversely affected.

Our properties are subject to property taxes that may increase in the future and adversely affect our business.

Our properties are subject to real and personal property taxes that may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. Since the passage of Proposition 13 in 1978, property in California typically is only subject to reassessment if sold and minimal annual increases. However, no assurances can be given, as state budgets become increasing strained, whether this will continue to be the case in California. Our leases generally provide that the property taxes are charged to the tenants as an expense related to the properties that they occupy. As the owner of the properties, however, we are ultimately responsible for payment of the taxes to the government. If property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes.

8

Potential losses may not be covered by insurance.

Although we carry comprehensive liability and casualty insurance with respect to our properties, there can be no assurance that policies maintained by us will be adequate in the event of a loss. Inflation, changes in building codes and ordinances, environmental considerations and other factors may also make it impracticable to use insurance proceeds to rebuild a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive might not be adequate to restore our economic position with respect to the affected property. In addition, some of our policies, like those covering losses due to earthquakes, floods and windstorms, are subject to limitations involving deductibles and policy limits that may not be sufficient to cover losses. All of our MOBs are located in Southern California, an area especially prone to earthquakes. Generally, we do not carry insurance for uninsured losses, such as loss from riots, war or events of force majeure. Some risks simply are not currently insurable, such as risk of loss due to nuclear, chemical or biological terrorist attack. Also, our insurance policies themselves are lengthy and highly technical, and there may be gaps in our coverage that we do not currently fully appreciate.

If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from that property. In addition, if the damaged property is subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if the property was irreparably damaged. In the event of a significant loss at one or more of the properties covered by our blanket policy, the remaining insurance under our policy, if any, could be insufficient to adequately insure our remaining properties. In this event, securing additional insurance, if possible, could be significantly more expensive than our current policy.

An uninsured loss or a loss that exceeds the policies on our properties could subject us to lost capital or revenue on those properties.

Under their leases, tenants are generally required to indemnify and hold us harmless from liabilities resulting from injury to persons, air, water, land or property, on or off the premises due to activities conducted by them on the properties. There are, however, generally speaking exceptions for claims arising from the gross negligence or intentional misconduct by us. Additionally, tenants are generally required, with the exception of entities that are self-insured, to obtain and keep in force during the term of the lease at their own expense, liability and property damage insurance policies issued by companies holding general policyholder ratings at a minimum level. In the event that we experience an uninsured loss or a loss in excess of the insurance policies on our properties, we may suffer significant losses of capital that we have invested in those properties or lost revenue in the form of unpaid lease payments from tenants.

We are subject to the risks associated with the contracting out of substantially all of the day-to-day management of our business.

Since the spin-off of G&L Realty Corp., LLC, our Company has not retained any employees dedicated solely to the management of its business. G&L Realty Corp., LLC, in addition to providing day-to-day management for our Company, also manages its own assets and businesses and those of G&L Senior Care Properties, LLC and certain of its affiliates. Furthermore, G&L Realty Corp., LLC is wholly owned by Daniel Gottlieb, Steven Lebowitz, Richard Gottlieb and Andrew Lebowitz, who also have, directly or indirectly, financial interests in G&L Senior Care Properties, LLC and certain of its affiliates. Accordingly, this management and ownership structure could divert the attention of the individuals responsible for day-to-day management. In such event, our business could be harmed. Also, Mr. S. Craig Tompkins, a member of the Board of Directors of our Company, is also a member of the three member management committees of G&L Realty Corp., LLC and G&L Senior Care Properties, LLC with Messrs. Daniel Gottlieb and Steven Lebowitz. Together, Messrs. Tompkins, Daniel Gottlieb and Steven Lebowitz constitute a majority of our Board of Directors.

9

Messrs. Gottlieb and Lebowitz control all matters that are subject to stockholder approval as a result of their ownership of 100% of our common stock.

As a result of their 100% ownership of our outstanding common stock, Messrs. Gottlieb and Lebowitz have interests that may differ from those of the holders of our preferred stock and may vote as stockholders in ways that may not be consistent with the interests of the holders of our preferred stock. Their ownership interests may delay, prevent or deter a change of control of our Company or could deprive holders of our preferred stock of an opportunity to receive a premium for their shares as a part of a sale of our Company. The directors of our Company serve at the pleasure of Messrs. Gottlieb and Lebowitz and can be removed at any time, with or without cause.

Moreover, Messrs. Gottlieb and Lebowitz are also the owners of limited partnership units, representing approximately 3.5% of the partnership interests, in the Operating Partnership, through which we own all of our Properties, and their interests in the distributions from the operating partnership are senior to dividend payments to the holders of our preferred stock. Accordingly, they may influence the amount and timing of distributions from the Operating Partnership in ways that may adversely affect the holders of our preferred stock.

There may be potential conflicts between our two common stockholders.

Although Mr. Daniel Gottlieb holds 54% of our outstanding common stock, compared to Mr. Steven Lebowitz’s 46%, Messrs. Gottlieb and Lebowitz operate our company together and consult extensively with each other before significant decisions are made. Specifically, Messrs. Gottlieb and Lebowitz have agreed that any extraordinary transactions, such as a sale of all or substantially all of the Company’s assets, would require the unanimous approval of the common stockholders. This may slow the decision-making process, and a disagreement between the two individuals could prevent key strategic decisions from being made in a timely manner. In the event Messrs. Gottlieb and Lebowitz are unable to continue to work well together in providing cohesive leadership, our business could be harmed.

Our common stockholders may dispose of their shares of common stock at any time and in a manner that may materially adversely affect our Company.

Other than their agreement regarding extraordinary transactions discussed immediately above, Messrs. Gottlieb and Lebowitz are not party to any agreement governing the disposition of their common stock and are free, subject to applicable state and federal restrictions on the sale of securities and to the ownership limitations set forth our articles of incorporation, to sell or otherwise dispose of their respective interests in our Company in such manner and to such persons as they may, in their sole and absolute discretion, determine. Consequently, we may be subject to a greater risk of a change of control transaction than a company whose common shares were more broadly held.

We may pursue less vigorous enforcement of terms of certain agreements because of conflicts of interest with our two common stockholders.

Our Company is the holder of a $4 million promissory note from G&L Senior Care Properties, LLC, a company approximately 98.25% owned and controlled by Messrs. Gottlieb and Lebowitz. G&L Realty Corp., LLC is wholly owned by Messrs. Gottlieb and Lebowitz and certain members of their family and responsible for the day-to-day management of our Company through a long term management agreement. While we have endeavored to negotiate these transactions at arms length, in each case these transactions are with entities controlled and principally owned by our controlling stockholders. Accordingly, we may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationships with Messrs. Gottlieb and Lebowitz and/or because of their practical power to remove directors and appoint their replacements.

Our success depends on key personnel whose continued service is not guaranteed.

Our future success depends in large part upon the continued service of key members of the G&L Realty Corp., LLC management team. In particular, Messrs. Daniel Gottlieb and Steven Lebowitz, our founders, Co-Chairmen and Chief Executive Officer and President, respectively, are critical to the overall management of our company as well as our development and strategic direction. Messrs. Gottlieb and Lebowitz have worked together as partners for the past 28 years, and are principally responsible for the development of our Company as it exists today.

Messrs. Daniel Gottlieb and Steven Lebowitz are each key executives, and the loss of either or both of these individuals could have a material adverse effect on us. While G&L Realty Corp., LLC has employment contracts

10

with each of these executives, these contracts may be easily terminated, as can the management agreement between G&L Realty Corp., LLC and our Company, and will be of limited benefit to the holders of the Company’s preferred stock, since they will have no control over whether Messrs. Gottlieb and Lebowitz, as the owners of all of our common stock, should chose to amend, modify, terminate or extend such agreements. Although neither Mr. Gottlieb or Mr. Lebowitz has indicated he intends to retire, Mr. Gottlieb is 65 years old and Mr. Lebowitz is 65 years old. Furthermore, given their interests in G&L Senior Care Properties, LLC, they have not been available to our Company on a full time basis since the spin-off of that company in 2004. Accordingly, we cannot guarantee that either or both of them will continue to work for us on even a part-time basis in the future.

Other than Messrs. Gottlieb and Lebowitz, we operate with a limited and relatively inexperienced executive management staff. After Messrs. Gottlieb and Lebowitz, our next most senior executive officer is Mr. David Hamer, our vice president, chief accounting officer and secretary, who is 32 years old and has been with us since 1998. In 2002, we employed Mr. Richard J. Gottlieb, who is 36 years old and the son of Mr. Daniel M. Gottlieb, and, in 2003, we employed Mr. Andrew Lebowitz who is 29 years old and the son of Mr. Steven D. Lebowitz. These individuals are now employees of G&L Realty Corp., LLC, and are only available to us through that company. While we believe that we could find replacements for our key personnel, the loss of their services could materially adversely affect our operations in the short-term.

We do not have a formal succession plan.

Mr. Daniel Gottlieb, our Chief Executive Officer, is 65 years old, and Mr. Steven Lebowitz, our President and Chief Financial Officer, is 65 years old. We do not have a formal succession plan and cannot assure you that we will establish one in a timely fashion or at all.

We may authorize and issue preferred stock without stockholder approval.

Under our articles of incorporation, our board of directors has the authority to issue additional series of preferred stock ranking in parity with the Company’s preferred stock and establish the terms, preferences and rights of any such series of preferred stock, all without the consent of holders of our preferred stock. Our board of directors also has the authority, with the approval of two-thirds of the outstanding preferred stock, to issue additional series of preferred stock ranking senior to the preferred stock. The ability of holders of our preferred stock to receive their liquidation preference may be adversely affected by future issuances of preferred stock not expressly subordinated to our preferred stock.

Our Board of Directors may change our investment and financing policies without stockholder approval.

Our board of directors, without the approval of our stockholders, may alter our investment strategies and policies with respect to acquisitions, financing, borrowing and other activities, including our growth, debt-to-capital ratio, distributions, REIT status and operations. Investment and policy changes could materially adversely affect our financial condition, results of operations and ability to pay dividends to holders of our preferred stock.

The composition of our Board of Directors may be altered at any time by Messrs. Gottlieb and Lebowitz.

The composition of the board of directors can be changed at any time by Messrs. Gottlieb and Lebowitz, as the owners of all of our outstanding common stock.

Our articles of incorporation contain ownership limitations that may prevent transactions that may be beneficial to the Company.

In order to maintain our qualification as a REIT, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of each taxable year. To preserve our REIT status, our articles of incorporation restrict direct or constructive ownership of more than 8% of the capital stock (in value or in number) by any single individual stockholder (including certain entities) other than Messrs. Gottlieb and Lebowitz. The constructive ownership rules are complex and may cause common stock or preferred stock owned, directly or constructively, by a group of related individuals or entities to be aggregated for purposes of the ownership limitation. The ownership limitation could have the effect of delaying, deterring or preventing a change in control or other transaction that may be beneficial to our stockholders.

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Our debt level reduces the cash available for distribution.

We currently use and intend to continue to use debt financing for new investments. Debt financing may include our credit facility or permanent secured or unsecured long-term debt. Our use of debt financing presents the risk to holders of our preferred stock that payments of principal and interest on borrowings will leave us with insufficient cash resources to pay dividends required by the terms of our preferred stock or distributions in respect of capital stock required to be paid in order for us to maintain our qualification as a REIT.

Failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock.

We intend to continue to operate as a REIT under the Code. Although our management believes that we are organized and are able to operate in such a manner, no assurance can be given that we will continue to qualify as a REIT or that the Internal Revenue Service will not take issue with our view that we so qualify. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations and the determination of various factual matters and circumstances not entirely within our control may impact our ability to qualify as a REIT. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of such qualification. We are not aware of any proposal to amend the tax laws that would significantly and adversely affect our ability to operate as a REIT.

If we fail to qualify as a REIT, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. In addition, unless entitled to relief under certain statutory provisions, we will also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This treatment would significantly reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability to us for the year or years involved. In addition, we would no longer be required to make distributions.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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 and an adjacent parking facility. As of January 31, 2006, the MOB Properties were approximately 98.8% leased to 404 tenants. The Company’s MOB tenants are primarily established medical practitioners representing a cross section of medical practices.

Description of the MOB Properties

The following tables set forth certain information regarding each of the MOB Properties as of January 31, 2006. Although the Company’s sole asset is its interest in the Operating Partnership, all of the MOB Properties are ultimately held in fee by the applicable special purpose limited partnership or limited liability company through which we hold our ownership interest. Except as noted below, the Operating Partnership owns 100% of each property.

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MOB Properties—Summary Data

Property	Number of Buildings	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	45,346	45,346	100.0	%	$	2,173,000	$	47.92
415 N. Bedford, Beverly Hills (4)	1	1955	5,720	5,720	100.0			330,000		57.69
416 N. Bedford, Beverly Hills	1	1946/1986	40,244	38,928	96.7			1,772,000		45.52
435 N. Bedford, Beverly Hills	1	1950/63/84	54,054	54,054	100.0			2,386,000		44.14
435 N. Roxbury, Beverly Hills (5)	1	1956/1983	40,865	40,865	100.0			1,790,000		43.80
436 N. Bedford, Beverly Hills	1	1987	74,321	74,321	100.0			3,813,000		51.30
Sherman Oaks Medical Plaza 4955 Van Nuys Blvd. Sherman Oaks	1	1969/1993	68,840	68,840	100.0			1,787,000		25.96
Holy Cross Medical Plaza 11550 Indian Hills Road Mission Hills	1	1985	72,476	72,476	100.0			2,249,000		31.03
Lyons Avenue Medical Building 24355 Lyons Avenue, Santa Clarita	1	1990	49,710	49,710	100.0			1,285,000		25.85
Tustin—Medical Office I 14591 Newport Avenue, Tustin	1	1969	18,193	18,193	100.0			387,000		21.27
Tustin—Medical Office II 14642 Newport Avenue, Tustin	1	1985	48,753	48,753	100.0			1,239,000		25.41
Regents Medical Center 4150 Regents Park Row , La Jolla	1	1989	66,689	64,355	96.5			1,931,000		30.01
San Pedro Medical Plaza (6) 1360 West 6th Street, San Pedro	3	1963/1979	62,021	56,438	91.0			1,292,000		22.89
Santa Clarita Valley Medical Center 23861 McBean Pkwy, Santa Clarita	5	1981	42,499	42,499	100.0			1,123,000		26.42
Santa Clarita Valley Medical Center, F 23929 McBean Pkwy, Santa Clarita	1	1999	43,912	43,912	100.0			1,292,000		29.42
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	22		741,668	732,435	98.8		$	24,979,000		34.22

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 2006.

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) The Company owns 50% of the limited liability company that owns this property and does not control the limited liability companys. As of March 31, 2006, the property was under contract to be sold.

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 Drive and 435 North Roxbury Drive. 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.

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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 330 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.

Sherman Oaks Medical Plaza

The Sherman Oaks Medical Plaza is a seven-story, approximately 69,000 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.

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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 50,000 rentable square foot MOB located in Valencia, California only  ¹/2 mile from the Henry Mayo Newhall Memorial Hospital. The building has subterranean parking and a two-story atrium entry. The building’s excellent market position provides first class medical space for those doctors that do not need an association with the hospital.

Tustin—MOB I

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

Tustin—MOB II

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

Regents Medical Center

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

San Pedro Medical Plaza

The San Pedro Medical Plaza in San Pedro, California is an approximately 62,000 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. As of March 31, 2006, the property was under contract to be sold.

Santa Clarita Valley Medical Center, Buildings A-E

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, Building 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.

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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, 2006, the MOB Properties were approximately 98.8% 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 that require 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
2006	96	167,733	$	5,914,000	25.3	%
2007	66	121,428		4,467,000	19.1	%
2008	55	104,720		3,596,000	15.4	%
2009	57	116,536		3,909,000	16.8	%
2010	52	90,533		2,841,000	12.2	%
2011	12	18,994		782,000	3.4	%
2012	8	18,968		534,000	2.3	%
2013	5	10,311		305,000	1.3	%
2014	5	8,518		379,000	1.6	%
2015 or later	10	19,082		599,000	2.6	%
Total	366	676,823	$	23,326,000	100.0	%

1) Does not include month-to-month leases or vacant space. There are 38 month-to-month tenants who occupy approximately 56,000 square feet of space and pay approximately $138,000 per month in rent.

The Company has generally enjoyed strong lease renewals, achieving a weighted average renewal rate of approximately 90.6% on MOB leases that expired during 2005. 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.

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 $60 million on the

16

MOB Properties, which amount represents approximately 71% of the net book value of these properties. This coverage is subject to a 5% deductible up to the amount of insured loss. All of the properties 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.

During 2004, the Company and its directors reached a settlement of the various stockholder litigation growing out of the acquisition by Daniel M. Gottlieb and Steven D. Lebowitz in 2001 of all of the common stock in our Company that they did not already own. These cases were entitled Lukoff v. G & L Realty Corp. et al., case number BC 241251, filed in the Superior Court for the State of California, County of Los Angeles, on December 4, 2000; Abrons v. G & L Realty Corp. et al., case number 24-C-00-006109, filed in the Circuit Court for Baltimore City, Maryland, on December 14, 2000; Morse v. G & L Realty Corp. et al., case number 221719-V, filed in the Circuit Court for Montgomery County, Maryland, on May 17, 2001; and Harbor Finance Partners v. Daniel M. Gottlieb et al., case number BC 251593, filed in the Superior Court for the State of California, County of Los Angeles, on June 1, 2001. 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

All of the Company’s common stock is owned by Daniel M. Gottlieb and Steven D. Lebowitz. Accordingly, there is no established public market for our common stock.

The Company paid cash common stock dividends of $10 million in the first quarter of 2005 and $3 million in the third quarter of 2004. The Company also distributed property to its common stockholders in the second quarter of 2005 and the fourth quarter of 2004 as part of the spin off of its management company and its senior care properties valued for tax purposes at $4.3 million and $3.1 million, respectively.

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. The Company’s Series A and Series B Preferred Stock is listed on the New York Stock Exchange.

The Company is currently exploring its options with respect to the redemption of its outstanding preferred stock so as to be able to operate as a private company. Like many other public companies of our size, we have found the costs of complying with the requirements of Sarbanes Oxley to be burdensome. The Company’s Series A and Series B preferred stock are both currently redeemable at a price of $25 per share upon thirty days notice to the

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preferred stockholders. No assurances can be given at this time as to whether we will ultimately elect to redeem the outstanding preferred stock and go private, or to continue as a public company, or participate in some other transaction.

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, 2005, 2004, 2003, 2002 and 2001. 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, 2005, 2004, 2003, 2002 and 2001 and for each of the years ended December 31, 2005, 2004, 2003, 2002 and 2001 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 membership interest in G&L Realty Corp., LLC on June 30, 2005 as well as the spin off of its skilled nursing facility and assisted living facility assets on November 1, 2004.

	Year ended December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share amounts)
Operating Data:
Revenues:
Rental	$	22,316		$	26,598		$	23,016		$	23,164		$	21,494
Patient revenues		—			6,736			26,129			24,261			21,057
Tenant reimbursements		3,483			3,381			3,055			2,497			1,606
Reimbursements from related party		949			—			—			—			—
Parking		1,817			1,722			1,644			1,472			1,439
Interest and loan fees		1,501			1,905			787			2,459			2,801
Other income		246			1,529			2,563			1,413			1,790
Total revenues		30,312			41,871			57,194			55,266			50,187
Expenses:
Property operations		7,754			7,747			7,748			7,329			7,428
Skilled nursing operations		—			6,287			23,901			21,421			19,004
Depreciation and amortization		3,106			4,544			4,876			4,908			4,792
Interest		11,146			10,592			25,122			13,606			10,490
Loss on sale of bonds receivable		—			—			120			—			—
General and administrative		4,142			5,641			4,551			3,280			3,953
Provision for doubtful accounts, notes and bonds receivable		414			1,401			975			1,542			1,004
Impairment of assets		4,094			8,139			—			—			—
Total expenses		30,656			44,351			67,293			52,086			46,671
(Loss) income from operations before minority interests, equity in earnings (loss) of unconsolidated affiliates and income (loss) from discontinued operations		(344	)		(2,480	)		(10,099	)		3,180			3,516
Equity in earnings (loss) of unconsolidated affiliates		591			9			3,743			(140	)		205
Minority interest in consolidated affiliates		(533	)		(564	)		(150	)		(285	)		(302	)
Corporate income tax expense		—			—			(136	)		(295	)		(85	)
(Loss) income from operations before discontinued operations		(286	)		(3,035	)		(6,642	)		2,460			3,334
Net income (loss) from discontinued operations		76			(718	)		(185	)		(291	)		2,796
Gain from sale of discontinued operations		7,712			2,536			7,347			2,320			—
Total income from discontinued operations		7,788			1,818			7,162			2,029			2,796
Net income (loss)		7,502			(1,217	)		520			4,489			6,130
Dividends on preferred stock		(6,678	)		(7,162	)		(7,162	)		(7,162	)		(7,162	)
Net income (loss) to common stockholders	$	824		$	(8,379	)	$	(6,642	)	$	(2,673	)	$	(1,032	)

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	At or for the Year ended December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share amounts)
Cash Flow Data:
Net cash provided by (used in) operating activities	$	8,006		$	11,277		$	(936	)	$	3,871		$	15,482
Net cash (used in) provided by investing activities		(1,115	)		188			22,549			11,612			(2,809	)
Net cash used in financing activities		(2,603	)		(12,907	)		(12,029	)		(15,156	)		(13,425	)
Balance Sheet Data:
Land, buildings and improvements, net	$	84,944		$	86,096		$	125,718		$	123,645		$	118,594
Assets held for sale		—			10,410			30,337			50,695			50,009
Mortgage loans and bonds receivable, net		10,088			7,658			764			1,829			11,976
Total investments		95,032			104,164			156,819			176,169			180,579
Total assets		117,490			125,722			188,217			198,008			205,024
Total debt		159,346			157,690			196,327			194,092			192,698
Total stockholders’ (deficit) equity		(43,545	)		(35,144	)		(14,293	)		(2,272	)		901

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other comparable terminology. Any one factor or combination of factors could cause the Company’s actual operating performance or financial results to differ substantially from those anticipated by management. Factors influencing the Company’s operating performance and financial results include, but are not limited to, changes in the general economy, the supply of, and demand for, healthcare related real estate in markets in which the Company has investments, the availability of financing, governmental regulations concerning, but not limited to, new construction and development, the creditworthiness of tenants and borrowers, environmental issues, healthcare services and government participation in the financing thereof, and other risks and unforeseen circumstances affecting the Company’s investments which may be discussed elsewhere in this Annual Report on Form 10-K.

Recent Developments

Over the past two years, we have endeavored to re-focus our activities on the development, ownership and operation of MOBs in Southern California and to generally clean up our balance sheet by removing assets not related to that core focus. Consequently, since the beginning of 2004, we have either sold to third parties or spun-off to our Founding Stockholders (i) our retail properties (other than those retail areas located within or specifically ancillary to our MOBs), (ii) our skilled nursing facility and assisted care living facility assets, (iii) certain minority interests in entities owning or managing residential real estate, (iv) certain non-management minority interests in MOB development projects located outside of our core southern California base, and (v) certain related party promissory notes. In order to reduce the potential for conflicts of interest and to provide more flexibility to our management company, we have also spun-off our management company operations to our Founding Stockholders, and are now managed under a long term management agreement with that company. In order to protect the interests of our preferred stockholders, that management agreement specifically subordinates all management fees to the payment of dividends on our preferred stock and to the liquidation preference of the holders of our preferred stock. Since the spin-off of our skilled nursing facility and assisted living facility assets, we have operated in only one business segment – the ownership, acquisition, development and management of medical office buildings.

On November 1, 2004, the Company spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders in order to focus our activities on the medical office building segment of our business. Assets with a net asset value (based on independent fair market valuations of these skilled nursing and assisted living facilities) of approximately $5.03 million were distributed in this spin-off. These assets are now held by G&L Senior Care Properties, LLC, a company controlled by our common stockholders. Sometimes we refer to our skilled nursing facilities as “SNFs”, to our assisted living facilities as “ALFs” and generally to our SNFs and ALFs as our “senior care properties” or “senior care assets.”

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On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company, to its common stockholders. G&L Realty Corp., LLC provides management services to both the Company and G&L Senior Care Properties, LLC. As part of the distribution of G&L Realty Corp., LLC to the Company’s stockholders, the Company entered into a management agreement with G&L Realty Corp., LLC. The management agreement calls for G&L Realty Corp., LLC to continue to provide management services to the Company in exchange for the reimbursement of the costs associated with such services through the end of 2005. These costs represented approximately 35% of the total overhead costs of G&L Realty Corp., LLC during 2005.

Effective January 1, 2006, the Company began paying fees to G&L Realty Corp., LLC based on a schedule of fixed fees as provided for in the management agreement. In addition, the Company, commencing January 1, 2006, began reimbursing G&L Realty Corp., LLC for all reasonable out-of-pocket expenses, including the cost of any on-site managers or on-site personnel provided at the request of our Company, but not any home office or general and administrative personnel. G&L Realty Corp., LLC also provides leasing services, but receives no additional compensation with respect to the provision of such services. Historically, the Company has made only limited use of outside brokers to obtain tenants. As a result of the management agreement with G&L Realty Corp., LLC, the Company has no employees and has effectively out-sourced all of its day-to-day operating functions.

Messrs. Gottlieb and Lebowitz, the Chief Executive Officer and President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making of G&L Realty Corp., LLC. Thus, the controlling stockholders of the Company will continue to have significant involvement in the management and operations of G&L Realty Corp., LLC.

Prior to the distribution of G&L Realty Corp., LLC, the Operating Partnership contributed to that company (i) the two notes receivable due from Messrs. Gottlieb and Lebowitz totaling $5.1 million to G&L Realty Corp., LLC, (ii) its $1 million investment in a company engaged in the business of managing and acquiring low cost housing, and (iii) its $2.7 million limited partnership investment in a limited partnership formed to acquire and develop a vacant

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parcel of land in Northern California. Accordingly, these assets were distributed to the Company’s common stockholders as part of the distribution of G&L Realty Corp., LLC on June 30, 2005. In connection with the distribution, the Company obtained an independent appraisal of the fair market value of G&L Realty Corp., LLC as an independent company. The appraisal valued G&L Realty Corp., LLC at $4.3 million, compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss on the Company’s financial statements.

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. Prior to April 1, 2004, the Company’s revenue also consisted of patient revenue derived from its operation of three skilled nursing facilities located in Massachusetts. Patient revenue was 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 has not derived any revenues from patients. The Massachusetts facilities were among the assets of G&L Senior Care Properties, LLC that were spun off to the Company’s common stockholders in November 2004.

Allowances for doubtful accounts, notes and bonds receivable. Tenant rents and reimbursements receivable, unbilled rent receivable and mortgage loans and bonds receivable are carried net of the allowances for doubtful accounts, notes and bonds receivable. Management’s determination of the adequacy of these allowances requires significant judgments and estimates. Tenant rents and reimbursements receivable consist of amounts due for contractual lease payments and reimbursements for common area maintenance, property taxes, insurance and other expenses due from tenants. Management regularly reviews its tenant receivables and adjusts the allowance based on specific identification, in management’s opinion, of an individual tenant’s ability to pay its obligations under the terms of its lease. Unbilled rent receivable consists of the cumulative straight-line rental income recorded to date that exceeds the actual amounts billed to date under the Company’s lease agreements. Based on historical loss experience, management has typically maintained a reserve for unbilled rent receivable equal to 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. During 2005, the Company recorded an impairment loss of $4.1 million associated with the distribution of the Company’s interest in G&L Realty Corp., LLC to its common stockholders as of June 30, 2005. In 2004, the Company recorded an impairment loss of $8.1 million associated with the senior care spin-off. The Company recorded no impairment losses in 2003.

Results of Operations

Comparison of the Year Ended December 31, 2005 Versus the Year Ended December 31, 2004

Total revenues decreased by $11.6 million, or 28%, from $41.9 million for the year ended December 31, 2004, to $30.3 million for the same period in 2005. The decrease was due to a $6.7 million decrease in patient revenues, a $4.3 million decrease in rental revenue, a $1.3 million decrease in other income and a $0.4 million decrease in interest income. These decreases were offset by a $0.9 million increase in reimbursements from G&L Senior Care Properties, LLC, following the spin-off of that company to our common stockholders in November 2004.

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Patient revenues decreased by $6.7 million, or 100%, from $6.7 million for the year ended December 31, 2004, to $0 for the same period in 2005. On April 1, 2004, the licenses to operate the three SNFs in Massachusetts were transferred to the manager of those facilities. Upon the transfer of these 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. As of April 1, 2004 and through the date of the spin-off on November 1, 2004, the Company recorded rental income per the terms of the leases it entered into with the new owners of the operating licenses for these facilities. The Company’s other skilled nursing and assisted living facilities had triple net leases in place prior to April 1, 2004.

Rents, tenant reimbursements, reimbursements from related party and parking revenues decreased by $3.1 million, or 10%, from a combined total of $31.7 million for the year ended December 31, 2004, to $28.6 million for the same period in 2005. The $5.1 million decrease in rental revenues was the natural consequence of the spin-off of the Company’s skilled nursing facility and assisted living facility assets on November 1, 2004. After the spin-off, the Company no longer has any ownership in those assets, and thus does not recognize any rental revenue related to those facilities. This decrease was offset by an increase in reimbursements from related party of $0.9 million due to amounts billed to G&L Senior Care Properties, LLC under the cost sharing agreement discussed above under Recent Developments. The cost sharing agreement called for the Company to be reimbursed by G&L Senior Care Properties, LLC for approximately 65% of the Company’s general and administrative expenses. During the first two quarters of 2005, the Company billed $0.9 million to G&L Senior Care Properties, LLC pursuant to this cost sharing agreement. In addition, rental revenue increased an additional $1.1 million due to the non-fixed rent increases pursuant to the Company’s MOB leases.

Interest and loan fee income decreased by $0.4 million, or 21%, from $1.9 million for the year ended December 31, 2004 to $1.5 million for the same period in 2005. Approximately $1.1 million of this decrease was due to additional interest earned in 2004, 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 not been recognizing the interest income due under 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 the accrued interest as interest income. This decrease was offset by a $0.4 million increase in interest income reflecting interest earned on the two promissory notes from G&L Senior Care Properties, LLC. The $2 million promissory note due from G&L Senior Care Properties, LLC was repaid in full on April 1, 2005. In addition, $0.3 million of the increase in interest income was due to interest earned on the Company’s cash on hand which was higher than during the year ended December 31, 2004.

Total expenses decreased by $13.7 million, or 31%, from $44.4 million for the year ended December 31, 2004, to $30.7 million for the same period in 2005. The decrease was due to a decrease in skilled nursing operation costs of $6.3 million, a decrease in the impairment of assets of $4.0 million, a decrease in depreciation and amortization expense of $1.4 million, a decrease in provisions for doubtful accounts, notes and bonds receivable of $1.0 million and a decrease in general and administrative costs of $1.5 million. These decreases were offset by an increase in interest expense of $0.5 million.

Skilled nursing operations decreased by $6.3 million, or 100%, from $6.3 million in for the year ended December 31, 2004, to $0 for the same period in 2005. On April 1, 2004, the licenses to operate the three SNFs in Massachusetts were transferred to the manager of the facilities. Upon the transfer of these 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.

Depreciation and amortization expense decreased $1.4 million, or 36%, from $4.5 million for the year ended December 31, 2004, to $3.1 million for the same period in 2005. This decrease was a natural consequence of the spin-off of the Company’s skilled nursing facility and assisted living facility assets on November 1, 2004. The Company recorded $1.3 million of depreciation and amortization expense related to its skilled nursing and assisted living facilities in the year ended December 31, 2004. After the spin-off, the Company no longer has any ownership interest in those assets, and thus does not record any depreciation or amortization expense related to those assets. On March 24, 2005, the Company sold an office and retail complex located in Coronado, California which accounted for the remaining decrease in depreciation and amortization expense.

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Interest expense increased $0.5 million, or 5%, from $10.6 million for the year ended December 31, 2004, to $11.1 million for the same period in 2005. Interest expense increased $2.1 million due to pre-payment fees and the write-off of deferred loan fees relating to the early repayment of two separate loans totaling $14.0 million. On March 23, 2005, the Company refinanced the existing loan secured by its MOB located in Mission Hills, California with a new $17.8 million loan. In connection with the early repayment of the existing loan, the Company paid a prepayment penalty and wrote off loan fees totaling $0.8 million. In addition, on October 14, 2005, the Company refinanced the existing loan secured by two of its properties located in Tustin, California with a new $13.5 million loan. In connection with the early repayment of the existing loan, the Company incurred a prepayment penalty and wrote off loan fees totaling $1.3 million. These increases were offset by a $1.9 million decrease in interest expense due to the spin-off of the Company’s skilled nursing facility and assisted living facility assets on November 1, 2004.

General and administrative costs decreased by $1.5 million, or 27%, from $5.6 million for the year ended December 31, 2004, to $4.1 million for the same period in 2005. This decrease was attributed to the June 30, 2005 distribution to our common stockholders of the Company’s interest in G&L Realty Corp., LLC which provides management services to both the Company and G&L Senior Care Properties, LLC. Prior to the distribution of G&L Realty Corp., LLC, the Company recorded 100% of the general and administrative costs incurred by G&L Realty Corp., LLC under general and administrative expenses in its financial statements and recognized the percentage of general and administrative expenses reimbursed by G&L Senior Care Properties, LLC as reimbursement revenue. Incident to the distribution of G&L Realty Corp., LLC, the Company entered into the management agreement with G&L Realty Corp., LLC discussed above under Recent Events. These reimbursed costs represent approximately 35% of the total overhead costs of G&L Realty Corp., LLC. Subsequent to June 30, 2005, general and administrative expenses consist solely of amounts paid or reimbursed by the Company to G&L Realty Corp., LLC.

Provisions for doubtful accounts, notes and bonds receivable decreased by $1.0 million, or 71%, from $1.4 million for the year ended December 31, 2004, to $0.4 million for the same period in 2005. This decrease is mainly the result of a decrease in reserves associated with the skilled nursing facility and assisted living facility assets spun-off on November 1, 2004.

Impairment of assets decreased by $4.0 million, or 49%, from $8.1 million for the year ended December 31, 2004, to $4.1 million for the same period in 2005. 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. During 2005, the Company recorded an impairment loss in the amount of $4.1 million associated with the distribution of the Company’s membership interest in G&L Realty Corp., LLC to its common stockholders as of June 30, 2005.

Equity in earnings of unconsolidated affiliates increased $0.6 million from the year ended December 31, 2004 compared to the same period in 2005. This increase was due to the spin-off of the Company’s skilled nursing facility and assisted living facility assets on November 1, 2004. During 2004, the Company realized losses totaling $0.1 million related to its investments in certain unconsolidated entities which owned skilled nursing or assisting living facilities. Subsequent to the spin-off, the Company no longer has any ownership interest in those entities and thus does not recognize any income or loss related to those entities. In addition, in 2005, the Company recognized $0.5 million of income related to its investment in G&L Grabel San Pedro, LLC, a joint venture in which the Company owns a 50% interest. On April 7, 2005, G&L Grabel San Pedro, LLC refinanced its MOBs and distributed $2.5 million to the Company. The $2.5 million distribution was $0.5 million in excess of the Company’s basis in that limited liability company and was recorded as income because the Company has no obligation to return such distribution.

Total income from discontinued operations increased $6 million from $1.8 million for the year ended December 31, 2004 to $7.8 million for the same period in 2005. The main reason for this increase was the sale of Coronado Plaza, an office and retail center located in Coronado, California for $18.2 million on March 24, 2005. The Company recognized a gain of $7.7 million in connection with the sale. In 2004, income from discontinued operations consisted of a $0.3 million gain from the sale of the Company’s membership interest in a limited liability company that owned an ALF located in Tarzana, California in January 2004, a $0.3 million gain from sale of a research and development building located in Irwindale, California in March 2004 as well as a $2.1 million gain from the sale of an MOB located in Tustin, California in August 2004. These gains were offset by a loss of $0.2 million associated with the June 2004 sale of a 59-bed SNF located in Chico, California.

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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 in Massachusetts were transferred to the manager of those 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 acquisition of a 155-bed SNF located in Goodyear, Arizona, in June 2004 and spun-off to our common stockholders in November of that same year. 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. 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.

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 located in Massachusetts were transferred to the manager of those 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.

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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 with the natural result of the spin-off of all of the Company’s senior care assets to its common stockholders on November 1, 2004.

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 stockholders other than Messrs. Daniel M. Gottlieb and Steven D. Lebowitz. 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 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.

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 certain potential refinancing and capital raising transactions that were 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 included among the skilled nursing facilities 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 on November 1, 2004.

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 limited liability company that owned an ALF. The sale, in January 2004, of the Company’s membership interest in a limited liability company 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

25

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 limited liability company 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.

Liquidity and Capital Resources

As of December 31, 2005, the Company had approximately $14.8 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 MOB properties. The Company’s MOB Properties contain approximately 742,000 rentable square feet and, as of January 31, 2006 were approximately 98.8% leased to over 400 tenants with lease terms typically ranging from three to ten years.

The Company’s principal external sources of capital consist of various secured loans and selective asset sales. As of December 31, 2005, the Company had secured loans outstanding of approximately $159.3 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. In April 2005, the line of credit was increased to $4 million. As of December 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 2005, the Company received net proceeds of $4.4 million from the sale of an office and retail center located in Coronado, California. The Company’s 2005 asset sales and refinancings are discussed below.

• 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.

• On March 24, 2005, the Company sold Coronado Plaza, a 47,000 square foot office and retail center located in Coronado, California for $18.2 million. The buyer assumed the existing mortgage loan of $13.6 million and the Company received net proceeds of $4.4 million after all closing costs. The Company recognized a gain of $7.7 million.

• On April 7, 2005, G&L Grabel San Pedro, LLC, in which the Company owns a 50% interest, refinanced three MOBs with a new $7.7 million loan. The Company received net proceeds of $2.4 million G&L Grabel San Pedro, LLC repaid the existing $4.6 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 5.64% per annum.

• On October 14, 2005, the Company refinanced its two properties located in Tustin, California with a new $13.5 million loan. The Company received proceeds of $5.3 million from the refinancing after repayment of the existing $6.9 million mortgage loan, prepayment penalties and closing costs. The new loan bears interest at a fixed rate of 5.29% and is due on October 8, 2015.

The Company paid monthly dividends of $0.56 million to holders of the Company’s Preferred Stock on the fifteenth day of each month during 2005 to holders of record on the first day of each month. On March 31, 2005, the Company distributed $10.0 million to holders of the Company’s Common Stock.

On June 30, 2005, the Company distributed to the holders of its common stock, its membership interests in G&L Realty Corp., LLC, which provides management services to both the Company and G&L Senior Care Properties, LLC. The appraised value of G&L Realty Corp., LLC at the time of the distribution was $4.3 million, as compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss on the Company’s financial statements.

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While the Company is highly leveraged, the Company expects to continue meeting its short-term liquidity requirements through its working capital and cash flow provided by operations 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. While we may sell assets from time to time to take advantage of market opportunities, we do not currently foresee any need to sell assets in order to meet our short or medium term liquidity needs.

Sources and Uses of Funds

The Company’s net cash from operating activities decreased $3.3 million from $11.3 million for the year ended December 31, 2004 to $8.0 million for the same period in 2005. The decrease is due to an increase in net gains from the sale of discontinued operations of $5.2 million, a decrease in the impairment of assets of $4.0 million, a decrease in depreciation and amortization of $1.9 million, a $0.9 million increase in the change in tenant rent and reimbursements receivable, an increase in earnings of unconsolidated affiliates of $0.6 million and a $1.0 million decrease in provisions for doubtful accounts, notes and bonds receivable. These were offset by an $8.7 million increase in net income and a $1.5 million decrease in the change in deferred charges and other assets.

Net cash used in investing activities decreased $0.2 million from net cash used of $1.3 million for the year ended December 31, 2004 to net cash used of $1.1 million for the same period in 2005. The decrease was due to a $9.3 million decrease in sales of real estate assets, a $1.6 million increase in investments in notes and bonds receivable and a $2.5 million increase in pre-acquisition costs. These decreases were offset by a $2.3 million increase in principal payments received from notes and bonds receivable, a $7.7 million decrease in purchases of real estate assets, a $0.7 million decrease in projects under development costs, a $1.0 million decrease in contributions to unconsolidated affiliates, a $1.2 million increase in restricted cash and a $0.7 million decrease in additions to rental properties.

Net cash flows used in financing activities decreased approximately $8.8 million, or 77%, from $11.4 million for the twelve months ended December 31, 2004, to $2.6 million for the same period in 2005. The decrease was due to a $10.1 million increase in notes payable proceeds, a $0.6 million decrease in the repayment of notes payable and a $4.4 million decrease in purchases of preferred stock. These were offset by a $6.3 million increase in distributions to stockholders.

Off- Balance Sheet Arrangements

The Company was 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 was 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 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 and the Company was required to make a payment of $410,000. 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 against which the March 2005 payment was applied.

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As of December 31, 2005, the Company had investments in one unconsolidated limited liability company, G&L Grabel San Pedro, LLC, which was formed for the purpose of acquiring and owning three medical office buildings in San Pedro, California. Per the terms of that company’s operating agreement, the Company could be required to advance additional funds to this company if the operating activities of the company are insufficient to satisfy the obligations of the company. Any additional funds advanced to the company would be treated as additional equity contributions and would be recorded as an investment in unconsolidated affiliates on the Company’s balance sheets. As of March 31, 2006, all of the assets of G&L Grabel San Pedro, LLC were under contract to be sold. Accordingly, we believe it unlikely that our Company will be called upon to advance any funding under this agreement.

Contractual Obligations

As of December 31, 2005, the Company had the following contractual obligations outstanding:

	2006		2007		2008		2009		2010		Thereafter		Total
			(in thousands)
Obligations:
Fixed rate mortgage debt:
Interest	$	8,940	$	8,804	$	8,669	$	8,280	$	7,287	$	14,881	$	56,861
Principal		2,262		2,552		2,744		10,090		55,578		86,120		159,346
	$	11,202	$	11,356	$	11,413	$	18,370	$	62,865	$	101,001	$	216,207

Debt Structure

As of December 31, 2005, the Company had twelve loans totaling $159.3 million. The terms of these loans are described below.

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 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 $8.5 million as of December 31, 2005.

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 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, 2005 the outstanding balance on this loan was $7.9 million.

On May 22, 2003, the Company refinanced its 49,000 square foot MOB located in Valencia, California with a new $8.6 million loan from Morgan Stanley Dean Witter Mortgage Capital, Inc. The new loan bears interest at a fixed rate of 5.48% per annum and is due on June 1, 2013. As of December 31, 2005, the unpaid balance on this new loan was $8.3 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 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 $45.6 million as of December 31, 2005.

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

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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 new loans bear interest at a fixed rate of 5.34% per annum and are due on October 1, 2010. As of December 31, 2005, the combined outstanding balance on the three loans was approximately $57.8 million.

On March 23, 2005, the Company refinanced a mortgage loan that was secured by the Holy Cross Medical Plaza with a new $17.8 million mortgage loan from Countrywide Commercial Real Estate Finance, Inc. 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. As of December 31, 2005, the unpaid balance on this note was $17.8 million.

On October 14, 2005, the Company refinanced the mortgage loan that was secured by two of its properties located in Tustin, California with a new $13.5 million loan from Countrywide Commercial Real Estate Finance, Inc. The Company used the proceeds to repay the remaining balance on the old loan of $6.9 million along with a prepayment penalty of $1.2 million. The new loan bears interest at a fixed rate of 5.29% and is due on October 8, 2015. As of December 31, 2005, the unpaid balance on this note was $13.5 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 or other entities, although the Company may also incur indebtedness that may be re-borrowed by the Operating Partnership on the same terms and conditions as are applicable to the Company’s borrowing of such funds. Except as required pursuant to existing financing agreements, the Company has not established any limit on the number or amount of mortgages or unsecured debt that may be placed on any single property or on its portfolio as a whole.

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

Inflation

The majority of the Company’s leases are long-term leases designed to mitigate the adverse effect of inflation. All of the Company’s long-term leases contain provisions that call for either annual rent increases equal to the increase in the Consumer Price Index or for specific annual rent increases usually ranging from 3-4%. 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 Financial Accounting Standard Board (“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 annual reporting period beginning after December 15, 2005. The Company does not anticipate that the adoption of this Statement will have a material impact on our financial statements.

In March 2005, FASB Interpretation No. (“FIN”) 47 was issued to clarify that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a

29

legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred-generally upon acquisition, construction, or development and (or) through the normal operation of the asset. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Statement 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The adoption of this Statement has not had a material impact on our financial statements and no liability has been recorded as of December 31, 2005 with respect to any conditional asset retirement obligations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. This new standard replaces APB Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company does not believe that the adoption of this Statement will have a material impact on its financial statements.

In June 2005, the FASB issued Emerging Issues Task Force (“EITF”) Abstract No.05-06, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination”, to address issues related to the amortization period of leasehold improvements acquired in a business combination or placed in service after and not contemplated at the beginning of the lease term. The Task Force reached a consensus that these types of leasehold improvements should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of the acquisition or the date the leasehold improvements are purchased. This consensus does not apply to preexisting leasehold improvements, but should be applied to leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of this Statement has not had 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 since the Operating Partnership’s net income is allocated proportionately among all owners of Operating Partnership units. The combined number of Operating Partnership units held by the Company is identical to the number of outstanding shares of the Company’s Common Stock, and owners of Operating Partnership units may, at their discretion, convert their units into shares of Common Stock on a one-for-one basis.

The Company believes that, in order to facilitate a clear understanding of the operating results of the Company, FFO should be examined in conjunction with the Company’s net income as presented in the Selected Financial Data and Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K and the additional data presented below. The table on the following page presents an analysis of FFO and additional data for each of the four quarters and the year ended December 31, 2005 for the Operating Partnership:

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FUNDS FROM OPERATIONS

FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 2005

	2005 Fiscal Quarter												Year
	1st			2nd			3rd			4th			2005
	(In thousands, except per share data)
Funds from Operations (1):
Net income (loss)	$	8,679		$	(2,498	)	$	1,574		$	(253	)	$	7,502
Depreciation of real estate assets		731			727			726			732			2,916
Amortization of deferred lease costs		34			33			36			35			138
(Gain) loss on sale of assets		(7,712	)		—			—			—			(7,712	)
Impairment of assets		—			4,094			—			—			4,094
Depreciation of real estate assets from unconsolidated affiliates		41			20			31			10			102
Adjustment for minority interest in consolidated affiliates		(23	)		(23	)		(22	)		(24	)		(92	)
Dividends paid on preferred stock		(1,670	)		(1,669	)		(1,670	)		(1,669	)		(6,678	)
Operating Partnership funds from operations		81			684			675			(1,169	)		271
Minority interest in Operating Partnership		(4	)		(36	)		(36	)		62			(14	)
Funds from operations	$	77		$	648		$	639		$	(1,107	)	$	257
Dividends declared	$	13.33		$	—		$	—		$	—		$	13.33
Cash dividends paid on Common Stock		10,000			—			—			—			10,000
Additional Data
Cash Flows:
Operating activities		1,164			3,909			1,310			1,623			8,006
Investing activities		3,130			(2,811	)		(543	)		(891	)		(1,115	)
Financing activities		(1,787	)		(2,475	)		(2,608	)		4,267			(2,603	)
Capital Expenditures:
Building improvements		95			283			260			21			659
Tenant improvements		207			362			215			192			976
Furniture, fixtures & equipment		5			12			45			8			70
Leasing commissions		18			11			13			57			99
Depreciation and Amortization:
Depreciation of real estate assets		732			727			726			731			2,916
Depreciation of non-real estate assets		12			14			12			16			54
Amortization of deferred lease costs		34			33			36			35			138
Amortization of capitalized financing costs		63			57			57			77			254
Rents:
Straight-line rent		5,768			5,458			5,656			5,741			22,623
Billed rent		5,761			5,411			5,564			5,683			22,419

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.

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, 2005 and December 31, 2004, the Company had no floating rate debt outstanding. The tables below provide information as of December 31, 2005 and 2004 about the Company’s long-term debt obligations that are sensitive to changes in interest rates, including principal cash flows by scheduled

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maturity, weighted average interest rate and estimated fair value. The weighted average interest rates presented are the actual rates as of December 31, 2005 and 2004.

	PRINCIPAL MATURING IN:																		Total			Fair Market Value December 31, 2005
	2006			2007			2008			2009			2010			Thereafter
				(in thousands)
Liabilities:
Mortgage debt:
Fixed rate	$	2,262		$	2,552		$	2,744		$	10,090		$	55,578		$	86,120		$	159,346		$	147,031
Average interest rate		5.58	%		5.58	%		5.58	%		5.58	%		5.58	%		5.58	%		5.58	%
	$	2,262		$	2,552		$	2,744		$	10,090		$	55,578		$	86,120		$	159,346		$	147,031

	PRINCIPAL MATURING IN:																		Total			Fair Market Value December 31, 2004
	2005			2006			2007			2008			2009			Thereafter
				(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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

See Index to Consolidated Financial Statements and Schedules on Page 43.

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

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

ITEM 9B. OTHER INFORMATION

None.

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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, 2006, based on information furnished to us by each director.

Name	Age	Position	Director Since
Daniel M. Gottlieb	65	Chief Executive Officer, Co-Chairman of the Board and Director	1993
Steven D. Lebowitz	65	President, Co-Chairman of the Board and Director	1993
Richard L. Lesher	72	Director	1993
Charles P. Reilly	63	Director	1993
S. Craig Tompkins	55	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 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

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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, and G&L Realty Corp. LLC, which provides various management services to the Company and to G&L Senior Care Properties, LLC.. 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 and New Zealand. He is also 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 as of December 31, 2005.

Name	Age	Position	Director Since
Daniel M. Gottlieb	65	Chief Executive Officer, Co-Chairman of the Board	1993
Steven D. Lebowitz	65	President, Co-Chairman of the Board	1993
John H. Rauch	75	Senior Vice President, Operations	1996
David E. Hamer	32	Vice President, Chief Accounting Officer, and Secretary	1998
Richard J. Gottlieb	36	Vice President	2002
Andrew S. Lebowitz	29	Vice President	2003

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

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

Mr. Hamer has been our Controller and Chief Accounting Officer since 1998. The board of directors elected Mr. Hamer as a Vice President in March 2000 and as Secretary in May 2001. Mr. Hamer worked for Deloitte & Touche, LLP, 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.

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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, 2005 have been filed by its officers, directors and 10% beneficial owners.

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 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. A copy of the Company’s code of ethics is filed as an exhibit to this Annual Report.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to our executive officers during the year ended December 31, 2005. The Company 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, 2005. On June 30, 2005, the Company distributed its membership interest in G&L Realty Corp., LLC, the entity that employs the Company’s employees, to its common stockholders. Concurrent with the distribution, the Company entered into a management agreement with G&L Realty Corp., LLC, in order to retain the services of the employees that had previously worked directly for the Company. Subsequent to the distribution, the Company does not employ any individuals directly and is managed by G&L Realty Corp., LLC for which the Company compensates G&L Realty Corp., LLC based upon the terms of the management agreement that was entered into at the time of the distribution.

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	Fiscal Year Ended December 31		Annual Compensation				All Other Compensation
Name and Principal Position			Salary($)		Bonus($)	Other Annual Compensation($)
Daniel M. Gottlieb Chief Executive Officer, Co-Chairman of the Board and Director	2005 2004 2003	(1)	$	325,000 390,000 390,000	—   100,000 100,000	—   —   —	—   —   —
Steven D. Lebowitz President, Co-Chairman of the Board and Director	2005 2004 2003	(1)	$	325,000 390,000 390,000	—   100,000 100,000	—   —   —	—   —   —
John H. Rauch Senior Vice President	2005 2004 2003	(1)	$	71,000 135,000 128,000	—   45,000 40,000	—   —   —	—   —   —
David E. Hamer Vice President, Chief Accounting Officer and Secretary	2005 2004 2003	(1)	$	75,000 142,500 135,000	—   33,000 27,500	—   —   —	—   —   —
Richard J. Gottlieb Vice President	2005 2004 2003	(1)	$	62,500 110,000 100,000	65,000 17,500	—   —   —	—   —   —
Andrew S. Lebowitz Vice President	2005 2004 2003	(1)	$	62,500 93,500 85,000	—   65,000 15,000	—   —   —	—   —   —

(1) 2005 Salary represents salary paid by the Company through June 30, 2005. All salaries for the executive officers were paid by G&L Realty Corp., LLC subsequent to the distribution of the Company’s membership interest in G&L Realty Corp., LLC to its common stockholders on June 30, 2005. All bonuses paid during 2005 were paid by G&L Realty Corp., LLC.

Employment Agreements and Arrangements

In March 2005, each of Daniel M. Gottlieb and Steven D. Lebowitz entered into separate but identical employment agreements with G&L Realty Corp., LLC for a term of three years. The agreements provide for automatic renewal for succeeding terms of one year unless G&L Realty Corp., LLC or Messrs. Gottlieb or Lebowitz give notice at least three months prior to expiration of any term. The employment agreements provide for a minimum annual base compensation equal to $650,000 per annum with annual increases subject to the approval of the Company’s board of directors. In addition, each of Messrs. Gottlieb and Lebowitz are entitled to receive an annual bonus subject to approval by the board of directors in an amount not less than 5% or more than 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 three times their then-current annual compensation.

Subsequent to the distribution of the Company’s membership interest in G&L Realty Corp., LLC on June 30, 2005, Messrs. Gottlieb and Lebowitz are no longer employees of the Company and their services are only available to the Company through the management agreement between the Company and G&L Realty Corp., LLC. Furthermore, the Company is no longer a party to the employment agreements with Messrs. Gottlieb and Lebowitz.

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Option Grants for 2005

The Company granted no options in 2005.

Aggregated Option Exercises in 2005 and Options Values at December 31, 2005

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 directors who are also officers are not paid any director fees. Messrs. Gottlieb and Lebowitz are the only directors who are also our officers. The reasonable expenses incurred by each director in connection with the performance of the director’s duties are also reimbursed by us.

Compensation Committee Interlocks and Insider Participation

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, 2006 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, 2006 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. Gottlieb 439 N. Bedford Drive Beverly Hills, CA 90210	383,582	54.0	%	14,400	1.9	%	53.1	%	900
Steven D. Lebowitz 439 N. Bedford Drive Beverly Hills, CA 90210	326,617	46.0		12,404	1.7		45.2		6,800
Richard L. Lesher 1126 Cider Press Road Chambersburg, PA 17201	—	—		—	—		—		26,906

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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
Charles P. Reilly 1721 Chevy Chase Drive Beverly Hills, CA 90210	—	—		—	—		—		—
S. Craig Tompkins 500 Citadel Drive Suite 300 Commerce, CA 90040	—	—		—	—		—		5,600
John H. Rauch 439 N. Bedford Drive Beverly Hills, CA 90210	—	—		—	—		—		—
David E. Hamer 439 N. Bedford Drive Beverly Hills, CA 90210	—	—		—	—		—		—
Richard J. Gottlieb 439 N. Bedford Drive Beverly Hills, CA 90210	—	—		—	—		—		—
Andrew S. Lebowitz 439 N. Bedford Drive Beverly Hills, CA 90210	—	—		—	—		—		1,495
Directors and Executive Officers as a group (9 persons)	710,199	100.0	%	26,804	3.6	%	98.3	%	41,701

(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, 2006. 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, 2006.

(4) Assumes that all operating partnership units held by the person or group and all options exercisable within 60 days of March 31, 2006 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.

Certain Pre-Sarbanes Oxley Loans to Our Officers and Directors

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. These notes were, in effect, distributed to our common stockholders during 2005 as part of the distribution of the Company’s membership interest in G&L Realty Corp., LLC which is discussed below.

Certain Asset Distributions to Our Common Stockholders.

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 were then and are today 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.

Our Company continues to hold one promissory note issued by G&L Senior Care Properties, LLC, a long term promissory note in the amount of $4 million 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. A short term promissory note in the amount of $2 million, with interest only payable monthly and which was unsecured, was repaid on April 1, 2005. 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 June 30, 1005, our Company distributed to Messrs. Gottlieb and Lebowitz all of our Company’s interest in G&L Realty Corp, LLC, the management company which provides management services to our Company and to G&L Senior Care Properties LLC. At the time of the distribution, G&L Realty Corp., LLC’s assets included (i) two promissory notes from Messrs. Gottlieb and Lebowitz totaling $5.1 million, (ii) a $1 million investment in a company specializing in the management and ownership of low cost housing, and (iii) a $2.7 million minority investment as a limited partner in a limited partnership formed by unrelated parties to acquire and develop a vacant parcel of land Northern California. An independent appraisal conducted at the time of the distribution valued G&L Realty Corp., LLC at $4.3 million, as compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss in the Company’s financial statements.

Incident to the distribution, we also agreed to guarantee or otherwise lend certain funds to the Northern California limited partnership on a secured basis pending the procurement of construction finance by that limited

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partnership. Loans totaling $4.6 million were made during 2005, accruing interest at 9-10% per annum. These loans were repaid in full February 2006 as a part of the first funding under the limited partnership’s construction finance, and we have no further relationship with or commitments to that limited partnership.

Certain Stock Repurchases from Messrs. Gottlieb and Lebowitz.

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. Our Company completed the repurchase on December 30, 2004. Our Board considered the transaction as essentially the same as a dividend on our Company’s common stock, given that at this time all of our Common Stock was owned by Messrs. Gottlieb and Lebowitz.

Certain Cost Sharing and Management Agreements with Entities Owned by Messrs. Gottlieb and Lebowitz.

Following the spin-off, G&L Senior Care Properties, LLC is now owned and managed primarily by Daniel M. Gottlieb and Steven D. 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, incident to the spin-off, entered into a cost sharing agreement to allocate between them each year the general and administrative costs of the two companies. At that time, management estimated that the skilled nursing facility and the assisted care living facility assets now owned by G&L Senior Care Properties, LLC, accounted for approximately 65% of the general and administrative costs of the two companies. Accordingly, under the cost sharing agreement, 65% of the Company’s general and administrative costs were reimbursed by G&L Senior Care Properties, LLC. Subsequent to the spin-off, general and administrative costs totaling $243,723 were allocated to and paid by G&L Senior Care Properties, LLC. As of December 31, 2005, G&L Senior Care Properties, LLC did not owe any money to the Company.

Incident to the spin-off on June 30, 2005 of G&L Realty Corp., LLC, the Company’s consolidated subsidiary through which management services were provided to the Company and G&L Senior Care Properties, LLC, a management agreement was put into place between the Company and G&L Realty Corp., LLC, providing for the ongoing provision of management services by G&L Realty Corp., LLC, to the Company. Initially, through December 31, 2005, this management agreement provided for essentially the same allocation of costs to the Company as under the cost sharing agreement discussed in the preceding paragraph. During the period July 1, 2005 through December 31, 2005, fees in the amount of approximately $730,000 were paid by the Company to G&L Realty Corp., LLC.

Effective January 1, 2006, the Company began paying fees to G&L Realty Corp., LLC based on a schedule of fixed fees as provided for in the management agreement. In addition, the Company, commencing January 1, 2006, began reimbursing G&L Realty Corp., LLC for all reasonable out-of-pocket expenses, including the cost of any on-site managers or on-site personnel provided at the request of our Company, but not any home office or general and administrative personnel. G&L Realty Corp., LLC also provides leasing services, but receives no additional compensation with respect to the provision of such services. Historically, the Company has made only limited use of outside brokers to obtain tenants. As a result of the management agreement with G&L Realty Corp., LLC, the Company has no employees and has effectively out-sourced all of its day-to-day operating functions.

Messrs. Gottlieb and Lebowitz, the Chief Executive Officer and President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making of that company. Thus, our Founding Stockholders continue to have significant involvement in the management and operations of our Company through G&L Realty Corp., LLC.

Certain Compensation Paid to Directors.

During 2005, the Company paid Mr. S. Craig Tompkins, a director of our Company, $400,000 for services provided to the Company, principally $300,000 for his services as lead director in connection with the defense between 2000 and 2004 of certain litigation brought against the Company, our Directors and Messrs. Gottlieb and Lebowitz relating to the 2001 merger transaction in which Messrs. Gottlieb and Lebowitz acquired all of the outstanding common stock of the Company which they did not already own. These fees were in addition to the regular fees paid to the members of the Board of Directors.

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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 2005 were $210,500 and for 2004 were $198,700.

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 2005 and 2004 were $0.

Tax Fees

The aggregate fees for professional services rendered by Deloitte & Touche LLP for tax compliance, tax advice and tax planning for 2005 were $92,950 and for 2004 were $205,734. Most of the fees relate to preparation of the Company’s tax returns. During 2005, the Company paid Deloitte & Touche LLP $850 for tax advice. 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.

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 2005 were $5,300 and for 2004 were $1,950. The other services provided to the Company by Deloitte & Touche during 2005 and 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 2005 and 2004.

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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, 2005 and 2004	F-2
	Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003	F-3
	Consolidated Statement of Stockholders’ Equity For the Years Ended December 31, 2005, 2004 and 2003	F-4
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-5 to 6
	Notes to Consolidated Financial Statements	F-7 to 29
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.

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(a) (3) Exhibits

Exhibit No.	Note	Description
2.1	(6)	The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L realty Corp.
2.2	(7)	Amendment No. 1 to the Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp. dated September 28, 2001.
2.3	(8)	Amendment No. 2 to the Agreement and Plan of Merger between G&L Acquisition, LLC and G&L Realty Corp. dated October 26, 2001.
2.4	(10)	Partnership Merger Agreement dated as of May 10, 2001 by and among G&L Acquisition, LLC, G&L Partnership, LLC, G&L Realty Corp. and G&L Realty Partnership, L.P.
3.1.1	(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	(12)	Articles Supplementary of G&L Realty Corp. Series C Preferred Stock
3.1.5	(12)	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	(9)	Amendment to Agreement of Limited Partnership of G&L Realty Partnership, L.P. dated as of July 31, 2001.
10.5	(1)	Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.
10.6		Executive Employment Agreement between G&L Realty Corp., LLC and Daniel M. Gottlieb
10.7		Executive Employment Agreement between G&L Realty Corp., LLC and Steven D. Lebowitz
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.
10.84	(11)	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	(11)	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
10.86	(11)	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	(11)	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.
10.88		Management Agreement between G&L Realty Corp. and G&L Realty Corp., LLC
10.89		Note Dividend Agreement, dated as of March 30, 2005, among G&L Realty Corp., Daniel Gottlieb and Steven Lebowitz
14		Code of Ethics
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.

43

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 Quarterly Report on Form 10-Q (filed as of May 15, 2001) for the quarter ended March 31, 2001 and incorporated herein by reference.

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

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

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

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

11) 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.

12) 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.

44

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, 2005 and 2004 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, 2005. 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, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Los Angeles, California

March 31, 2006

F-1

G&L REALTY CORP.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 31,
	2005			2004
ASSETS
Rental properties (Note 17):
Land	$	18,012		$	18,012
Building and improvements, net (Note 3)		66,539			67,796
Projects under development		393			288
Total rental properties		84,944			86,096
Assets held for sale (Note 3)		—			10,410
Cash and cash equivalents		14,796			10,508
Restricted cash		2,426			2,177
Tenant rent and reimbursements receivable, net (Note 4)		478			625
Unbilled rent receivable, net (Note 5)		2,268			2,472
Mortgage loans, bonds and notes receivable, net (Note 6)		928			1,116
Notes receivable from related parties (Notes 1 and 6)		9,160			6,542
Investments in unconsolidated affiliates (Note 7)		—			2,461
Deferred charges and other assets, net (Note 8)		2,490			3,315
TOTAL ASSETS	$	117,490		$	125,722
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES:
Notes payable (Note 9)	$	159,346		$	144,140
Liabilities of assets held for sale (Note 3)		—			13,629
Accounts payable and other liabilities (Note 14)		1,587			3,018
Tenant security deposits		1,488			1,460
Total liabilities		162,421			162,247
Commitments and Contingencies (Note 10)
Minority interest in consolidated affiliate		(1,386	)		(1,381	)
Minority interest in Operating and Senior Care Partnerships		—			—
STOCKHOLDERS’ DEFICIT (Notes 11 and 12):
Preferred shares - $.01 par value, 10,000,000 shares authorized, liquidation preference of $25.00 per share, aggregate liquidation preference of $67,047,825
•      Series A Preferred - 1,404,203 shares issued and outstanding as of December 31, 2005 and 2004		14			14
•      Series B Preferred – 1,277,710 shares issued and outstanding as of December 31, 2005 and 2004		13			13
Common shares - $.01 par value, 50,000,000 shares authorized, 710,199 shares issued and outstanding as of December 31, 2005 and 2004		7			7
Additional paid-in capital		36,388			36,388
Distributions in excess of net income		(79,967	)		(66,452	)
Notes receivable from stockholders		—			(5,114	)
Total stockholders’ deficit		(43,545	)		(35,144	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	117,490		$	125,722

See accompanying notes to Consolidated Financial Statements

F-2

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

	Year Ended December 31,
	2005			2004			2003
REVENUES:
Rent (Notes 5 and 13)	$	22,316		$	26,598		$	23,016
Patient revenues		—			6,736			26,129
Tenant reimbursements		3,483			3,381			3,055
Reimbursements from related party		949			—			—
Parking		1,817			1,722			1,644
Interest and loan fees		1,501			1,905			787
Other income		246			1,529			2,563
Total revenues		30,312			41,871			57,194
EXPENSES:
Property operations		7,754			7,747			7,748
Skilled nursing operations		—			6,287			23,901
Depreciation and amortization		3,106			4,544			4,876
Interest		11,146			10,592			25,122
Loss on sale of bonds receivable (Note 6)		—			—			120
General and administrative		4,142			5,641			4,551
Provision for doubtful accounts, bonds and notes receivable (Notes 4 and 6)		414			1,401			975
Impairment of assets (Note 1)		4,094			8,139			—
Total expenses		30,656			44,351			67,293
Loss from operations before minority interests and equity in earnings of unconsolidated affiliates and discontinued operations		(344	)		(2,480	)		(10,099	)
Equity in earnings of unconsolidated affiliates		591			9			3,743
Minority interest in consolidated affiliates		(533	)		(564	)		(150	)
Corporate income tax expense		—			—			(136	)
Loss from operations before discontinued operations		(286	)		(3,035	)		(6,642	)
Discontinued operations (Note 15):
Net income (loss) from operations of discontinued operations		76			(718	)		(185	)
Gain from sale of discontinued operations		7,712			2,536			7,347
Total income from discontinued operations		7,788			1,818			7,162
Net income (loss)		7,502			(1,217	)		520
Dividends on preferred stock		(6,678	)		(7,162	)		(7,162	)
Net income (loss) available to common stockholders	$	824		$	(8,379	)	$	(6,642	)

See accompanying notes to Consolidated Financial Statements

F-3

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

	Preferred Stock Series A & Series C					Preferred Stock Series B & Series D					Common Stock			Additional Paid-in Capital			Distributions in excess of net income			Notes receivable from stockholders			Total stockholders’ deficit
	Shares		Amount			Shares		Amount			Shares	Amount
BALANCE JANUARY 1, 2003	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	)
Net income																		7,502						7,502
Distribution of notes receivable from stockholders																					5,114			5,114
Distributions declared																		(21,017	)					(21,017	)
BALANCE DECEMBER 31, 2005	1,404		$	14		1,278		$	13		710	$	7	$	36,388		$	(79,967	)	$	—		$	(43,545	)

See accompanying notes to Consolidated Financial Statements

F-4

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	7,502		$	(1,217	)	$	520
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,108			5,049			5,653
Amortization of deferred financing costs		254			344			638
Write-off of deferred loan costs		140			69			1,984
Net gain from sale of discontinued operations		(7,712	)		(2,536	)		(7,347	)
Impairment of assets		4,094			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
Minority interests		533			564			150
Unbilled rent receivable		204			108			(73	)
Equity in (earnings) loss of unconsolidated affiliates		(591	)		(9	)		(3,743	)
Distributions from operations of investments in unconsolidated affiliates		50			—			—
Provision for doubtful accounts, notes and bonds receivables		414			1,401			975
(Increase) decrease in:
Prepaid expense and other assets		775			(667	)		(570	)
Tenant rent and reimbursements receivable		(121	)		767			(53	)
Accrued interest and loan fees receivable		(13	)		(15	)		278
Increase (decrease) in:
Accounts payable and other liabilities		(661	)		(807	)		163
Tenant security deposits		30			87			59
Net cash provided by (used in) operating activities		8,006			11,277			(936	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental properties		(1,705	)		(2,444	)		(1,904	)
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		4,535			13,808			25,963
Projects under development		(147	)		(828	)		(1,140	)
(Increase) decrease in restricted cash		(293	)		(1,496	)		225
Pre-acquisition costs, net		(2,729	)		(205	)		6
Contributions to unconsolidated affiliates		(489	)		(1,490	)		(248	)
Distributions from unconsolidated affiliates		2,475			2,568			3,053
Leasing commissions		(99	)		(120	)		(134	)
Investments in notes and bonds receivable		(5,092	)		(3,512	)		—
Principal payments received from notes and bonds receivable		2,429			72			126
Net cash (used in) provided by investing activities		(1,115	)		(1,308	)		22,774
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds		31,300			21,150			123,925
Repayment of notes payable		(16,094	)		(16,654	)		(121,690	)
Payment of deferred loan costs		(390	)		(550	)		(1,489	)
Minority interest equity contribution		—			164			—
Purchase of preferred stock		—			(4,441	)		—
Distributions to minority interests		(538	)		(470	)		(333	)
Distributions to stockholders		(16,881	)		(10,610	)		(12,667	)
Net cash used in financing activities		(2,603	)		(11,411	)		(12,254	)

Continued…

F-5

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		4,288			(1,442	)		9,584
BEGINNING CASH AND CASH EQUIVALENTS		10,508			11,950			2,366
ENDING CASH AND CASH EQUIVALENTS	$	14,796		$	10,508		$	11,950
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest	$	8,928		$	11,278		$	13,496
Cash paid during the year for mortgage loan prepayment penalties	$	1,983		$	894		$	11,194
NONCASH INVESTING AND FINANCING ACTIVITIES
Assumption of notes payable by buyer upon sale of real estate assets	$	13,550		$	8,687		$	—
Preferred distributions due to minority partner	$	—		$	—		$	105
Spin-off of Senior Care assets and liabilities to common stockholders:
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, net of cash and cash equivalents of $448				$	4,583
Spin-off of Senior Care assets and liabilities to common stockholders:
Distributions				$	4,583
Distribution of G&L Realty Corp., LLC:
Tenant rent, reimbursements and other receivables, net	$	170
Investments in unconsolidated affiliates		994
Mortgage loans, bonds and notes receivable, net		(54	)
Deferred charges and other assets, net		2,765
Accounts payable and other liabilities		(759	)
Notes receivable from stockholders		5,114
Distributions in excess of net income		(4,094	)
Total, net of cash and cash equivalents of $203	$	4,136
Distribution of G&L Realty Corp, LLC:
Distributions	$	4,136

Concluded

F-6

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2005

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”)

435 North Roxbury Drive, Ltd., a California limited partnership (the “Roxbury Partnership”)

G&L Valencia, LLC, a California limited liability company (“Valencia”)

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”) (until March 24, 2005)

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”)

G&L Realty Corp., LLC, a Nevada limited liability company (until June 30, 2005)

Prior to November 1, 2004, the Company also held interests in the following entities, which were, in effect, distributed to our common stockholders with the spin-off on that date of G&L Senior Care Properties, LLC:

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”)

St. Thomas More, LLC, a Nevada limited liability company (“St. Thomas More”)

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”)

G&L Senior Care Properties, LLC, a Nevada limited liability company

The Company, as the sole general partner and as owner of an approximately 95% ownership interest, controls the Operating Partnership and the Senior Care Partnership. 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 Roxbury Partnership (in which the Operating Partnership owns a 32.81% partnership interest and is the sole general partner), Valencia, Holy Cross, Lyons, Coronado, Tustin II, Tustin III, 405 Bedford, 415 Bedford, 416

F-7

Bedford, 435 Bedford, 436 Bedford, Sherman Oaks, Regents and G&L Realty Corp., LLC (until June 30, 2005) 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, Palm Valley (in which the Senior Care Partnership owned a 75% membership interest) and G&L Senior Care Properties, LLC.

In addition to the entities listed above, 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”)

Paradigm Housing, LLC (“Paradigm”) (until June 30, 2005)

On June 27, 2005, the Operating Partnership contributed its investment in Paradigm to G&L Realty Corp., LLC, a wholly-owned subsidiary of the Company. On June 30, 2005, the Company distributed its membership interests in G&L Realty Corp., LLC to its common stockholders. See footnote 14 for further discussion.

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”)

Prior to October 1, 2004, the Company also held interests in the following entity:

Lakeview Associates, LLC (“Lakeview”)

San Pedro, and prior to June 30, 2005, Paradigm, and prior to November 1, 2004, Penasquitos, Radius and Encanto and, prior to October 1, 2004, Lakeview, are herein collectively referred to as the “Unconsolidated Affiliates” and individually as an “Unconsolidated Affiliate.”

In 2004, the Company 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. The spin-off has not been presented as discontinued operations in the financial statements due to the Company’s continuing involvement in the operations of G&L Senior Care Properties, LLC as discussed below. 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 was recognized as an impairment loss.

Incident to the spin-off, the Company 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 held 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 had entered into a cost sharing

F-8

agreement to allocate to G&L Senior Care Properties, LLC each year the general and administrative costs incurred by the Company on behalf of G&L Senior Care Properties, LLC. Under this agreement, the Company, through June 30, 2005, had a significant continuing involvement in the management and operations of G&L Senior Care Properties, LLC. Both the Company and G&L Senior Care Properties, LLC share the same offices, accounting and administrative personnel and key decision makers. Management estimates that, through the date of the spin off of G&L Realty Corp., LLC on June 30, 2005 as discussed in Note 14, the skilled nursing facility and the assisted care living facility assets now owned by G&L Senior Care Properties, LLC, accounted for approximately 65% of the general and administrative costs of the Company. Following the distribution to the Company’s stockholders on June 30, 2005, of the management company through which these services were provided, there remains significant continuing involvement due to the commonality of ownership of the Company, G&L Senior Care Properties, LLC and G&L Realty Corp., LLC.

Upon the spin-off of G&L Senior Care Properties, LLC, the Company held 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. The short term promissory note had a term of six months, interest only payable monthly, and was unsecured. This note was repaid in full by G&L Senior Care Properties, LLC on April 1, 2005. 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 $3.3 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. As of December 31, 2005, the unpaid balance on this note was $3.97 million. The Company will continue to be a creditor of G&L Senior Care Properties, LLC for some time.

2. Summary of Significant Accounting Policies

Business— The Company is a 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.

Reclassification— Certain prior year amounts have been reclassified to conform to the current year’s presentation. In our consolidated statements of cash flows, we changed the classification of changes in restricted cash balances to present such changes as an investing activity. We previously presented such changes as a financing activity.

Properties— The Operating Partnership, the Senior Care Partnership, the Roxbury Partnership, Valencia, Holy Cross, Lyons, Coronado, Tustin II, Tustin III, 405 Bedford, 415 Bedford, 416 Bedford, 435 Bedford, 436 Bedford, Sherman Oaks and Regents own a 100% fee simple interest in all of the properties.

Income taxes— The Company expects to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, the Company is generally not subject to corporate Federal income taxes so long as it distributes at least 90% of its taxable income to stockholders and meets certain other requirements relating to its income and assets. For the years ended December 31, 2005, 2004 and 2003, 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 included $136,000 of corporate income tax expense in its financial statements for the year ended December 31, 2003 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

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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 or 2005.

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

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

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

Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was $2,970,000, $4,854,000 and $5,382,000 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 affiliate— 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’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

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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. During 2005, the Company recorded an impairment loss of $4.1 million associated with the distribution of the Company’s membership interest in G&L Realty Corp., LLC to its common stockholders on June 30, 2005. In 2004, the Company recorded an impairment loss of $8.1 million associated with the senior care spin-off. The Company recorded no impairment loss in 2003.

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, 2005 and 2004. The fair value of the Company’s fixed rate notes payable as of December 31, 2005 and 2004 was $147.0 million and $162.8 million, respectively because the interest rates on the Company’s fixed rate notes payable were higher for both 2005 and 2004 than the rates being offered to the Company at that time. The estimated fair values of the Company’s mortgage loans and bonds receivable, are based upon market values of loans and bonds receivable with similar characteristics adjusted for risk inherent in the underlying transactions. Management estimates that the fair value of the Company’s mortgage loans and bonds receivable approximate their amortized cost basis, after adjustment for the allowance for amounts deemed to be uncollectible.

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

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

In November 2001, the Company purchased an interest rate cap for $905,000 to protect against an increase in the one month LIBOR rate on a $35 million variable rate loan the Company obtained in October 2001. SFAS 133 requires the Company to record the interest rate cap on the balance sheet at fair value and to record changes in the fair value of the interest rate cap in the statement of operations. For the year ended December 31, 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. During 2004 and 2005, the Company did not enter into any derivative transactions and no derivative instruments were outstanding as of December 31, 2005.

Recent accounting pronouncements— In December 2004, the Financial Accounting Standards Board (“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 annual reporting period beginning after December 15, 2005. The Company does not anticipate that the adoption of this Statement will have a material impact on our financial statements.

In March 2005, FASB Interpretation No. (“FIN”) 47 was issued to clarify that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to

F-11

perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred-generally upon acquisition, construction, or development and (or) through the normal operation of the asset. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Statement 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The adoption of this Statement has not had a material impact on our financial statements and no liability has been recorded as of December 31, 2005 with respect to any conditional asset retirement obligations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. This new standard replaces APB Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company does not believe that the adoption of this Statement will have a material impact on its financial statements.

In June 2005, the FASB issued Emerging Issues Task Force (“EITF”) Abstract No.05-06, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination”, to address issues related to the amortization period of leasehold improvements acquired in a business combination or placed in service after and not contemplated at the beginning of the lease term. The Task Force reached a consensus that these types of leasehold improvements should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of the acquisition or the date the leasehold improvements are purchased. This consensus does not apply to preexisting leasehold improvements, but should be applied to leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of this Statement has not had a material impact on our financial statements.

3. Buildings and Improvements

Buildings and improvements consist of the following:

	December 31,
	2005			2004
	(in thousands)
Buildings and improvements	$	90,452		$	89,790
Tenant improvements		12,615			11,639
Furniture, fixtures and equipment		1,092			1,022
		104,159			102,451
Less accumulated depreciation and amortization		(37,620	)		(34,655	)
Total	$	66,539		$	67,796

As of December 31, 2004, the Company was under contract to sell its three-story, 47,000 square foot office and retail complex located in Coronado, California (“Coronado”). On March 24, 2005, the Company sold Coronado Plaza for $18.2 million and recognized a gain of $7.7 million from the sale. For presentation purposes, the assets and liabilities relating to this property have been included in assets held for sale and liabilities of assets held for sale, respectively, on the balance sheet

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as of December 31, 2004. The following table summarizes assets held for sale and liabilities of assets held for sale for Coronado Plaza as of December 31, 2004:

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

4. Tenant Rent and Reimbursements Receivable

Tenant rent and reimbursements receivable are net of an allowance for uncollectible amounts of $92,000 and $53,000 as of December 31, 2005 and 2004, respectively. The activity in the allowance for uncollectible tenant accounts for the three years ending December 31, 2005, was as follows:

	Year ended December 31,
	2005			2004			2003
	(in thousands)
Balance, beginning of year	$	53		$	750		$	1,142
Additions		114			1,108			908
Spin-off of senior care assets		—			(1,195	)		—
Charge-offs		(75	)		(610	)		(1,300	)
Balance, end of year	$	92		$	53		$	750

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, 2005:

Year Ending December 31,	Future Minimum Rent		Straight-line Rent		Unbilled Rent Receivable
	(in thousands)
2006	$	16,388	$	15,967	$	421
2007		11,763		11,441		322
2008		8,935		8,539		396
2009		6,396		5,997		399
2010		3,369		3,120		249
Thereafter		6,565		5,873		692
Total	$	53,416	$	50,937	$	2,479

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The activity in the allowance for unbilled rent, recorded as a reduction of rental revenue for the three years ending December 31, 2005, consisted of the following:

	Year ended December 31,
	2005			2004			2003
	(in thousands)
Balance, beginning of year	$	204		$	224		$	365
Additions		62			40			—
Charge-offs		(55	)		(60	)		(141	)
Balance, end of year	$	211		$	204		$	224

6. Mortgage Loans, Bonds and Notes Receivable

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

	December 31,
	2005			2004
	(in thousands)
Secured subordinated bond receivable due December 15, 2029, interest payable semiannually at 8.75% per annum)	$	—		$	1,218
Unsecured promissory note due January 31, 2010, principal and interest payable monthly at 10% per annum		—			567
Unsecured promissory note payable upon demand		—			262
Unsecured promissory note payable upon demand, interest payable monthly at 2.5% per annum		50			50
Unsecured promissory note due December 31, 2004, interest payable upon repayment at 10% per annum (This note is currently in default)		69			100
Secured promissory note due May 24, 2005, monthly interest only payments at 10% per annum (This note is currently in default)		25			—
Unsecured promissory note due June 23, 2005, monthly interest only payments at 10% per annum (This note is currently in default)		23			—
Secured promissory note due October 8, 2005, monthly interest only payments at 10% per annum (This note is currently in default)		45			—
Secured promissory note due April 1, 2006, monthly interest only payments at 10% per annum (This note is currently in default)		65			—
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).		1,016			1,377
Face value of mortgage loans, bonds and notes receivable		1,443			3,724
Accrued interest		273			281
Allowance for uncollectible amounts		(788	)		(2,889	)
Total mortgage loans, bonds and notes receivable	$	928		$	1,116

F-14

The activity in the allowance for uncollectible mortgage loans, bonds and notes receivable for the three years ending December 31, 2005, is as follows:

	Year ended December 31,
	2005			2004			2003
	(in thousands)
Balance, beginning of year	$	2,889		$	3,465		$	4,475
Additions		300			293			67
Spin-off of senior care assets		—			(22	)		—
Charge-offs		(2,401	)		(847	)		(1,077	)
Balance, end of year	$	788		$	2,889		$	3,465

Notes receivable from related parties consist of the following:

	December 31,
	2005		2004
	(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 May 30, 2008, interest payable at 9% per annum (Amount was repaid on February 8, 2006)		3,000		—
Secured promissory note due March 31, 2006, interest payable at 9% per annum (Amount was repaid on February 8, 2006)		1,646		—
Secured promissory note due November 1, 2016, interest payable at 10.75% per annum, due from G&L Senior Care Properties, LLC		3,970		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		500
Face value of mortgage loans and notes receivable from related parties		9,116		6,497
Accrued interest		44		45
Total notes receivable from related parties	$	9,160	$	6,542

See Note 14 for further discussion of notes receivable from related parties.

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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, 2005 and 2004 (in thousands).

	San Pedro			Paradigm			2005 Total
Balance at beginning of year	$	783		$	550		$	1,333
Equity in earnings of affiliates		541			50			591
Non-cash distributions		—			(994	)		(994	)
Cash contributions.		—			431			431
Cash distributions		(2,488	)		(37	)		(2,525	)
Balance at end of year, before intercompany adjustments		(1,164	)		—			(1,164	)
Intercompany adjustments:
Receivable, net		1,164			—			1,164
Investments in unconsolidated affiliates	$	—		$	—		$	—

The Company’s investment in Paradigm was distributed to its common stockholders on June 30, 2005 as part of the distribution of G&L Realty Corp., LLC.

	San Pedro		Penasquitos			Heritage Place		Radius			Paradigm		Encanto			Lakeview			2004 Total
Balance at beginning of year	$	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	)
Balance at end of year before intercompany adjustments		783		—			—		—			550		—			—			1,333
Intercompany adjustments:
Receivable, net		1,114		—			14		—			—		—			—			1,128
Investments in unconsolidated affiliates	$	1,897	$	—		$	14	$	—		$	550	$	—		$	—		$	2,461

F-16

Following is a summary of the condensed financial information of each of the unconsolidated affiliates as of and for the twelve months ended December 31, 2005. (In thousands).

	San Pedro			Paradigm			Total
Financial Position:
Land	$	2,017		$	—		$	2,017
Buildings		4,597			—			4,597
Other assets		376			—			376
Notes payable		(7,700	)		—			(7,700	)
Other liabilities		(196	)		—			(196	)
Net assets	$	(906	)	$	—		$	(906	)
Partner’s equity:
Company .	$	(1,164	)	$	—		$	(1,164	)
Others		258			—			258
Total equity	$	(906	)	$	—		$	(906	)
Operations:
Revenues	$	1,267		$	843		$	2,110
Expenses		(1,622	)		(543	)		(2,165	)
Net (loss) income	$	(355	)	$	300		$	(55	)
Allocation of net (loss) income:
Company.	$	541		$	50		$	591
Others		(896	)		250			(646	)
Net (loss) income	$	(355	)	$	300		$	(55	)

The Company’s investment in Paradigm was distributed to its common stockholders on June 30, 2005 as part of the distribution of G&L Realty Corp., LLC.

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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).

	San Pedro			Penasquitos			Heritage Place			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	)

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8. Deferred Charges and Other Assets

Deferred charges and other assets consist of the following:

	December 31,
	2005			2004
	(in thousands)
Deferred financing costs	$	2,105		$	2,024
Leasing commissions		1,644			1,552
Prepaid expense and other assets		622			1,401
		4,371			4,977
Less accumulated amortization		(1,881	)		(1,662	)
Total	$	2,490		$	3,315

9. Notes Payable

Notes payable consist of the following:

	December 31,
	2005		2004
	(in thousands)
$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.	$	8,493	$	8,773
$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.		7,905		8,019
$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.		8,340		8,460
$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.		13,744		13,932
$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.		5,914		5,995
$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.		10,981		11,130
$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.		14,932		15,136
$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.		29,239		29,659
$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.		12,051		12,224
$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.		16,476		16,713
$17,800,000 Note due April 1, 2015 collateralized by deed of trust, monthly interest only payments at 5.71% per annum.		17,800		—
$13,500,000 Note due October 8, 2015 collateralized by deed of trust, monthly principal and interest payments of $87,000, interest at 5.29% per annum.		13,471		—
$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
$13,550,000 Note due December 1, 2014 collateralized by deed of trust, monthly interest only payments at 5.24% per annum.		—		13,550
$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
Total	$	159,346	$	157,690

F-19

Aggregate future principal payments as of December 31, 2005 are as follows:

Years Ending December 31
(in thousands)
2006	$	2,262
2007		2,552
2008		2,744
2009		10,090
2010		55,578
Thereafter		86,120
Total	$	159,346

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.

The Company was 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, a new 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 and the Company was required to make a payment of $410,000. 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 against which the March 2005 payment was applied.

11. Stockholders’ Equity

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 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

F-20

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.

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 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.

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. In 2005, dividends paid to holders of the Company’s preferred stock were considered 80.36% taxable as a long-term capital gain, 16.70% taxable as Section 1250 unrecaptured gain on sale and the remaining 2.94% taxable as ordinary income. 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.

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 – As of December 31, 2005, these investments consist of 21 high quality MOBs and one parking facility totaling approximately 742,000 rentable square feet and all located in Southern California. These properties are owned either directly by the Company or indirectly through joint ventures.

F-21

• 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 financial statements of the Company and the segment information provided below. 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. As of December 31, 2005, the Company had eight loans outstanding with a net book value of $1.0 million, excluding notes receivable from related parties as discussed in footnote 6.

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 and 2003 and balance sheet data as of December 31, 2004.

F-22

2004 Reconciliation of Reportable Segment Information

	Medical Office			Skilled Nursing			Assisted Living			Debt Obligations		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 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
	Medical Office			Skilled Nursing			Assisted Living			Debt Obligations		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

F-23

2003 Reconciliation of Reportable Segment Information

	Medical Office			Skilled Nursing			Assisted Living			Debt Obligations		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
	Medical Office			Skilled Nursing			Assisted Living			Debt Obligations		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

F-24

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. 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 as of December 31, 2004.

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 were then and are today 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.

On June 30, 2005, the Company distributed all of its membership interests in G&L Realty Corp., LLC, the management company which provides management services to both the Company and to G&L Senior Care Properties, LLC. As part of the distribution of G&L Realty Corp., LLC, the Company entered into a management agreement with G&L Realty Corp., LLC. The management agreement called for G&L Realty Corp., LLC to provide management services to the Company in exchange for the reimbursement of the costs associated with such services through the end of 2005. These costs represented approximately 35% of the total overhead costs of G&L Realty Corp., LLC.

Effective January 1, 2006, the Company began paying fees to G&L Realty Corp., LLC based on a schedule of fixed fees as provided for in the management agreement. In addition, the Company, commencing January 1, 2006, began reimbursing G&L Realty Corp., LLC for all reasonable out-of-pocket expenses, including the cost of any on-site managers or on-site personnel provided at the request of our Company, but not any home office or general and administrative personnel. G&L Realty Corp., LLC also provides leasing services, but receives no additional compensation with respect to the provision of such services. Historically, the Company has made only limited use of outside brokers to obtain tenants. As a result of the management agreement with G&L Realty Corp., LLC, the Company has no employees and has effectively out-sourced all of its day-to-day operating functions.

Messrs. Gottlieb and Lebowitz, the Chief Executive Officer and President, respectively, of the Company, are the majority owners of G&L Realty Corp., LLC and have full control over the decision-making of that company. Thus, the controlling stockholders of the Company will continue to have significant involvement in the management and operations of G&L Realty Corp., LLC.

Prior to the distribution the Company’s interest in of G&L Realty Corp., LLC, the Operating Partnership contributed these assets to G&L Realty Corp., LLC: (i) two promissory notes from Messrs. Gottlieb and Lebowitz totaling $5.1 million, (ii) a $1 million investment in a company specializing in the management and ownership of low cost housing, and (iii) a $2.7 million minority investment as a limited partner in a limited partnership formed by unrelated parties to acquire and develop a vacant parcel of land Northern California. An independent appraisal conducted at the time of the distribution valued G&L Realty Corp., LLC at $4.3 million, as compared to a carrying value of $8.4 million. The excess of the carrying value of the net assets over the fair value in the amount of $4.1 million was recognized as an impairment loss on the Company’s financial statements.

F-25

Incident to the distribution, the Company agreed to guarantee or otherwise lend certain funds to the Northern California limited partnership on a secured basis pending the procurement of construction finance by that limited partnership. Loans totaling $4.6 million were made during 2005, accruing interest at 9-10% per annum. These loans were repaid in full February 2006 as a part of the first funding under the limited partnership’s construction finance, and we have no further relationship with or commitments to that limited partnership. In January 2006, the Company loaned an additional $0.6 million to the limited partnership The loans are included under notes receivable from related parties on the balance sheet as of December 31, 2005 and were repaid on February 8, 2006.

During the first two quarters of 2005, general and administrative costs totaling $949,367 were billed to G&L Senior Care Properties, LLC pursuant to the cost sharing agreement between the two companies discussed in Footnote 1 above, which is included in reimbursements from related party. Subsequent to the distribution on June 30, 2005, G&L Realty Corp., LLC now bills the Company and G&L Senior Care Properties, LLC for general and administrative expenses in the same ratio as was previously allocated between the two companies. During the third and fourth quarter of 2005, general and administrative costs totaling $730,859 were billed to the Company by G&L Realty Corp., LLC. As of December 31, 2005, the Company owed G&L Realty Corp., LLC $73,738 related to these allocated general and administrative costs. This amount is recorded under accounts payable and other liabilities on the balance sheet as of December 31, 2005 and was paid by the Company to G&L Realty Corp., LLC in January 2006.

During 2005, the Company paid Mr. S. Craig Tompkins, a director of the Company, $400,000 for services provided to the Company, principally $300,000 for his services as lead director in connection with the defense between 2000 and 2004 of certain litigation brought against the Company, the directors and Messrs. Gottlieb and Lebowitz relating to the 2001 merger transaction in which Messrs. Gottlieb and Lebowitz acquired all of the outstanding common stock of the Company which they did not already own. These fees were in addition to the regular fees paid to the members of the Board of Directors.

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, 2005, 2004 and 2003, 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 and a 47,000 square foot office and retail center located in Coronado, California that the Company sold in 2005. 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,
	2005		2004			2003
	(In thousands)
REVENUES:
Rent, tenant reimbursements and parking	$	394	$	1,942		$	4,344
Other income		8		—			33
Total revenues	$	402	$	1,942		$	4,377
EXPENSES:
Property operations		158		525			1,059
Depreciation and amortization		2		505			777
Interest		166		1,630			2,726
Total expenses		326		2,660			4,562
Net gain (loss) from discontinued operations		76		(718	)		(185	)
Gain from sale of discontinued operations		7,712		2,536			7,347
Total income from discontinued operations	$	7,788	$	1,818		$	7,162

F-26

16. Unaudited Consolidated Quarterly Information

Unaudited consolidated quarterly financial information for the periods as follows:

	2005 Fiscal Quarter
	1st			2nd			3rd			4th
	(In thousands, except per share amounts)
Revenue:
Rental	$	5,460		$	5,458		$	5,656		$	5,742
Reimbursements from related party		369			580			—			—
Tenant reimbursements		797			863			869			954
Parking		472			457			440			448
Interest and loan fees		388			389			370			354
Other income		70			—			93			83
Total revenues		7,556			7,747			7,428			7,581
Expenses:
Property operations		1,805			1,892			2,068			1,989
Depreciation and amortization		775			774			774			783
Interest		2,979			2,269			2,244			3,654
General and administrative		1,102			1,599			630			811
Provision for doubtful accounts		2			1			12			399
Impairment of assets		—			4,094			—			—
Total expenses		6,663			10,629			5,728			7,636
Income (loss) from operations before minority interests		893			(2,882	)		1,700			(55	)
Equity in earnings of unconsolidated affiliates		40			551			—			—
Minority interest in consolidated affiliates		(125	)		(141	)		(126	)		(141	)
Income (loss) before discontinued operations		808			(2,472	)		1,574			(196	)
Net income (loss) from operations of discontinued operations		159			(26	)		—			(57	)
Gain from discontinued operations		7,712			—			—			—
Net income (loss)		8,679			(2,498	)		1,574			(253	)
Dividends on preferred stock		(1,670	)		(1,669	)		(1,670	)		(1,669	)
Net income (loss) to common stockholders	$	7,009		$	(4,167	)	$	(96	)	$	(1,922	)
	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	)

F-27

17. SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2005 (In Thousands).

	Encumbrances (See Notes)			Initial Cost to Company				Cost Capitalized Subsequent to 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	$	13,744		$	2,186	$	4,076	$	452	$	10,582	$	2,638	$	14,658	$	17,296	$	6,544	1993	1947/1987
415 North Bedford Drive		5,914			292		573		—		631		292		1,204		1,496		737	1993	1955
416 North Bedford Drive		10,981			427		247		—		2,981		427		3,228		3,655		1,646	1993	1946/1986
435 North Bedford Drive		14,932			1,144		2,853		—		3,893		1,144		6,746		7,890		4,068	1993	1950/1963/1984
435 North Roxbury Drive		7,905			162		390		39		3,564		201		3,954		4,155		1,940	1993	1956/1983
436 North Bedford Drive		29,239			2,675		15,317		—		878		2,675		16,195		18,870		4,059	1990	1980
439 North Bedford Drive		—			—		109		—		596		—		705		705		505	1993	1956/1983
Holy Cross Medical Plaza		17,800			2,556		10,256		—		1,827		2,556		12,083		14,639		4,234	1994	1985
Sherman Oaks Medical Plaza		12,051			1,454		8,278		—		3,344		1,454		11,622		13,076		4,387	1994	1969/1993
Regents Medical Center		16,476			1,470		8,390		—		2,119		1,470		10,509		11,979		3,615	1994	1989
14591 Newport Avenue		(See Note A	)		160		36		—		549		160		585		745		261	1996	1969
14642 Newport Avenue		(See Note A	)		400		1,033		—		770		400		1,803		2,203		764	1996	1985
23861 – 23929 McBean Parkway		8,493			—		4,164		3,972		8,680		3,972		12,844		16,816		3,177	1998	1981/1999
24355 Lyons Avenue		8,340			623		6,752		—		1,271		623		8,023		8,646		1,683	1998	1990
Total	$	145,875		$	13,549	$	62,474	$	4,463	$	41,685	$	18,012	$	104,159	$	122,171	$	37,620
G&L Tustin III, LLC (Note A)		13,471
Per Above		145,875
Total encumbrances	$	159,346

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
	2005			2004			2003
Balance at beginning of year	$	130,879		$	195,168		$	209,155
Improvements and acquisitions		1,705			10,105			5,665
Spin-off of senior care assets		—			(51,678	)		—
Dispositions		(10,413	)		(22,716	)		(19,652	)
Balance at end of year	$	122,171		$	130,879		$	195,168
	Accumulated Depreciation
	2005			2004			2003
Balance at beg. of year	$	36,059		$	42,241		$	39,439
Depreciation		2,970			4,854			5,576
Spin-off of senior care assets		—			(7,582	)		—
Dispositions		(1,409	)		(3,454	)		(2,774	)
Balance at end of year	$	37,620		$	36,059		$	42,241

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

F-28

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, 2006	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. Gottlieb Daniel M. Gottlieb	Chief Executive Officer,     Co-Chairman of the Board and Director (Principal     Executive Officer)	March 31, 2006
/s/ Steven D. Lebowitz Steven D. Lebowitz	President, Co-Chairman of the     Board and Director	March 31, 2006
/s/ Richard L. Lesher Richard L. Lesher	Director	March 31, 2006
/s/ Charles P. Reilly Charles P. Reilly	Director	March 31, 2006
/s/ S. Craig Tompkins S. Craig Tompkins	Director	March 31, 2006

F-29

EX-10.6

EXHIBIT 10.6

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”) is made and entered into this 31^st of March, 2005, by and between G&L Realty Corp LLC, a Nevada limited liability company (the “Company”) and Daniel M. Gottlieb (“Executive”) with reference to the following facts

1. Employment and Duties.

(a) The Company hereby employs Executive who will serve as an executive officer of the Company. Executive acknowledges and agrees that the Company is a management company and that, as a part of his duties, he may be requested to serve as an executive officer of (i) the Company’s parent company, G&L Realty Corp, a Maryland corporation (“GLR”), (ii) one or more of GLR’s subsidiaries or affiliates, (iii) G&L Senior Care Properties, LLC, (“Senior Care LLC”), and/or any one or more of Senior Care LLC’s subsidiaries or affiliates (the entities referred to in clauses (i) through (iv) above being referred to as the “Client Entities”), and agrees, if so requested, to serve in such capacities.

(b) Executive shall devote a reasonable amount of his working time and his best efforts to the performance of his duties hereunder and to advance the interests of the Company and such one or more of the Client Entities as the Company may direct. Notwithstanding the above, Executive may spend a reasonable amount of time with respect to charitable and civic activities (including serving on the board of directors of charitable organizations) and, subject to the limitations set forth in Section 8 of this Agreement, may make personal investments or conduct private business affairs if such activities do not interfere with the services required of Executive under this Agreement. It is specifically recognized that Executive is the owner of membership units in Senior Care LLC, of limited partnership interests in G&L Realty Partnership, LP and G&L Senior Care Partnership, LP, and of shares in GLR, and that nothing in this Agreement is intended to prevent or limit Executive from serving on the management committee and/or board of directors of any one or more such entities or from pursuing his own interests as a member, partner and/or stockholder of such entities.

(c) Executive acknowledges and agrees that he is an employee only of the Company and that he is not an employee of any of the Client Entities to which he may provide services as an employee of the Company, and that he will look exclusively to the Company for the payment of any compensation that may be owed to him with respect to any such services.

2. Compensation.

(a) Annual Base Compensation. The Company shall pay to Executive for any and all services that Executive may render to the Company an annual base compensation of Six Hundred Fifty Thousand Dollars ($650,000), payable in equal installments on the Company’s regular payroll dates. The Compensation Committee of the Management Committee of the Company shall review Executives annual base compensation after the end of each calendar year commencing with the year ended December 31, 2005 in light of additional responsibilities which may be assumed by Executive, the result of operations and prospects of the Company, the compensation being paid to other persons holding similar positions with comparable companies and such other factors as it deems relevant; provided, however, that no such raise in compensation will be effective unless approved by the Company’s members acting through the Compensation Committee of the Board of Directors of GLR

(“Member Approval”). Following each such review, and subject to Member Approval, the annual base compensation of Executive may be increased but may not be decreased below its then existing level.

(c) Bonus Compensation. In addition, at the end of each year commencing with the year ended December 31, 2004, Executive, the Management Committee shall review, and may approve, a bonus in such amount as the Management Committee determines to be appropriate considering the efforts expended and the results achieved by the Executive, such bonus to be ordinarily no less than five percent (5%) nor more than one hundred percent (100%) of annual base compensation. Any such bonus, however, unless reimbursed in full by one or more Client Entities, will be subject to Member Approval.

3. Expenses. The Company will reimburse Executive for all usual, reasonable and necessary expenses paid or incurred by Executive in the performance of his duties hereunder in accordance with its policy for executives of the company, provided that such expenses are substantiated by written documentation and in accordance with the Company’s written policies and procedures on reimbursement of expenses as may be established from time to time by the Management Committee.

4. Employee Benefits.

(a) Executive shall be entitled to participate in all medical, dental, life insurance, retirement, profit sharing, stock incentive, disability and all other plans now made available, or which may be made available in the future, to executives of the Company.

(b) Executive shall be entitled to annual vacation in accordance with the Company’s policy for executives as such time.

5. Term of Agreement. This Agreement shall have an initial term of three years commencing on the date hereof. This Agreement shall be renewed automatically for succeeding terms of one year each unless either party gives notice to the other at least three (3) months prior to the expiration of any term (including the initial term) of his or its determination not to renew.

6. Termination. Executive’s employment hereunder may be terminated by the Company, on the one hand, or the Executive, on the other hand, as applicable, prior to the expiration of this Agreement, under the following circumstances:

(a) Death. Executive’s employment hereunder shall terminate upon his death. In the case of Executive’s death, the Company shall pay to Executive’s beneficiaries or estate, as appropriate, promptly after Executive’s death, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the date of his termination. This subsection 6(a) shall riot limit the entitlement of Executive’s estate or beneficiaries to any death or other benefits then available to Executive under any life insurance or other benefit plan or policy which is maintained by the Company for Executive’s benefit.

(b) Disability.

(i) If the Company determines in good faith that Executive has incurred a Disability (as defined below) during the term of this Agreement, the Company may give Executive written notice of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the thirtieth (30^th) day after receipt of such notice by Executive, provided that within the thirty (30) days after such receipt, Executive shall not have returned to full-time performance of his duties. Executive shall continue to receive his annual base compensation and benefits until the date of termination. In the case of Executive’s Disability, the Company shall pay to Executive promptly after the Executive’s termination, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the Executive’s termination. This subsection 6(b) shall not limit the entitlement of Executive or his estate or beneficiaries to any disability or other benefits then available to Executive under any disability insurance or other benefit plan or policy which is maintained by the Company for Executive’s benefit.

(ii) For the purpose of this Section, “Disability” shall mean Executive’s failure to perform his duties to the Company on a full-time basis for a total of 12 consecutive weeks during any 12-month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to Executive or Executive’s legal representative (such agreement as to acceptability not to be withheld unreasonably).

(c) Cause.

(i) The Company may terminate Executive’s employment hereunder for Cause (as defined below). In the case of the Executive’s termination for cause, the Company shall promptly pay to the Executive (or his representative) the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the date the Executive is terminated and the Executive shall be entitled to no other compensation.

(ii) For purposes of this Agreement, “Cause” to terminate Executive’s employment hereunder shall exist upon a finding by the Management Committee of the Company that Executive has (i) engaged in acts or omissions with respect to the Company or any one or more of the Client Entities which constitute intentional misconduct or a knowing violation of law; (2) engaged in gross negligence in the performance of his duties; or (3) frequently and repeatedly failed to perform services which have been reasonably requested of him by the Management Committee and which are consistent with the terms of the Agreement; provided, however, that “Cause” shall not exist unless and until the Company provides Executive with (a) at least fifteen (15) days prior written notice of its intention to terminate his employment for Cause and a written statement describing the nature of the Cause, and (b) a reasonable opportunity and a reasonable period of time to cure any curable acts or omissions on which the finding of cause is based. If the Executive cures the acts or omissions on which the finding of Cause is based, the Company shall not have Cause to terminate the Executive’s employment hereunder.

(d) Good Reason.

(i) The Executive may terminate his employment for Good Reason (as defined below). In the event that the Executive terminates his employment with the Company for Good Reason, the Company shall pay to Executive promptly after the Executive’s termination, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through Executive’s termination. In addition, the Company shall pay the Executive separation pay as set forth in Section 7 and provide the additional benefits set forth in Section 7.

(ii) For purposes of this Agreement, Executive shall have “Good Reason” to terminate his employment with the Company in the event of (a) any breach by the Company of, or default by the Company under, the provisions of the Agreement which Executive in good faith regards as material; provided, however, that in the case of any curable non-monetary breach of default, Executive shall not have Good Reason to terminate his employment unless and until he has provided the Company with written notice of such breach at least fifteen (15) days in advance of his intended termination date and a reasonable period of time to cure such breach ox default; or (b) any substantial diminution of duties or status, or other imposition by the Company of unreasonable requirements or working conditions on Executive which are not withdrawn or corrected within a thirty (30) day period following notice by Executive to the Company of such diminution or imposition.

(e) Without Cause. The Company may terminate Executive’s employment hereunder without Cause upon ninety (90) days written notice. In the event the Company terminates the Executive’s employment without Cause, the Company shall pay to Executive promptly after Executive’s termination, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the Executive’s termination. In addition, the Company shall pay the Executive separation pay as set forth in Section 7 and provide the additional benefits set forth in Section 7.

7. Separation Pay. Upon termination of Executive’s employment with the Company without Cause or by the Executive with Good Reason, Executive shall be entitled to receive aggregate severance payments equal to three times (3X) his annual base compensation at such time. Such aggregate separation payments shall be paid in cash upon the termination of Executive’s employment. In addition, if Executive’s employment is terminated by the Company without Cause or by the Executive with Good Reason and Executive is no longer eligible for employee benefits because of such termination, Executive shall be entitled, and the Company shall provide, benefits substantially equivalent to those benefits in the nature of health and welfare benefits to which Executive was entitled immediately prior to such termination for the remainder of the term of this Agreement under Section 5 hereof but only to the extent that Executive is not entitled to comparable benefits from another employer or provider and subject to any express limitations in any applicable plan.

8. Restrictive Covenant.

(a) Employee hereby agrees that for a period of one (1) year from an employment termination, he shall not, directly or indirectly, induce or recruit any employee of the Company to apply for or accept employment with any other person or entity.

(b) Executive hereby agrees that both during the term of his employment and for a period of three (3) years after an employment termination, he will not reveal, report, publish, disclose or transfer, directly or indirectly, any Confidential Information for any purpose except in the ordinary course of the business of the Company. For purposes of this Section 8, the term “Confidential Information” shall include all information and strategies of the Company and/or any one or more Client Entities, records, data, and any and all other confidential or proprietary information and trade secrets of the Company and/or any one or more Client Entities.

(c) While Executive is employed by the Company, without the prior approval of the Management Committee, Executive may not, directly or indirectly, own, operate, control or otherwise invest or participate or engage in (either as principal, agent, employee, employer, consultant, stockholder, partner, or in any other individual representative capacity) any other business that is in competition with the business of the Company or of any one or more of the Client Entities, except for ownership (without any other involvement) of not more than one percent (1%) of the outstanding stock of a publicly-owned company. If such prior approval of a majority of the Management Committee of the Company is obtained, Executive may engage in the activities consented to and in so doing shall incur no liability to the Company or to any one or more of the Client Entities.

(d) if, in any judicial proceeding, a court shall refuse to enforce one or more of the separate covenants referred to in this Section 8, (i) because the time limit therein is too long, it is expressly understood and agreed that for the purpose of such proceeding such time limitations shall be deemed reduced by the minimum amount necessary to permit the enforcement of such covenant or covenants; or (ii) because, taken together, they are more extensive (whether as to geographic area, scope of business, or otherwise) than necessary to protect the business and goodwill of the Company, or otherwise, it is expressly understood and agreed that such of those covenants which, if eliminated, would permit the remaining separate covenants to be enforced in such proceeding shall, for the purpose of such proceeding, be deemed eliminated from the provisions hereof.

(e) The covenants contained in this Section 8 are cumulative of the rights of the Company (or any successor thereto) under the laws of the State of California, the United States of America and other applicable laws with respect to the rights to protect Confidential information.

(f) Executive hereby agrees that the remedy at law for any breach or threatened breach of any of the covenants Contained in this Section 8 will be inadequate and that the company, the Company (or any successor thereto) shall be entitled to equitable relief including, without limitation, specific performance and injunctive relief.

(g) Nothing in this Section 8 shall be interpreted as in any way limiting Executive’s right to exercise his rights as a shareholder of GLR, as a partner of either G&L Realty Partnership, LP or G&L Senior Care Partnership, LP, or as a member of Senior Care, LLC, or as a director, managing director or management committee members of any of the above entities or any of their respective subsidiaries.

9. Waiver or modification. Any waiver, alteration or modification of any of the provisions of this Agreement or cancellation or replacement of this Agreement shall not be valid unless made in writing and signed by the parties hereto. Waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

10. Construction. This Agreement shall be governed by the laws of the State of California.

11. Hinging Effect: Entire Agreement.

11. 1 The rights and obligations of the Company and Executive under this Agreement shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and Executive.

11.2 This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, amendments, memoranda or understandings between the Company and Executive.

12. No Mitigation of Damages. Executive shall have no duty to seek other employment to mitigate damages in connection with a termination of Executive’s employment, and any income earned by Executive shall not offset any obligations of the company to Executive under this Agreement.

13. Assignment. Executive may not assign his duties under this Agreement.

14. Counterparts. This Agreement may be executed in counterparts, each of which shall be construed as an original for all purposes, but all of which taken together shall constitute one and the same Agreement.

15. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be delivered in person, sent by facsimile or by registered or certified United States mail, postage and fees prepaid, to the addresses of the parties set forth below, or such other address or facsimile number as shall be furnished by notice hereunder by any such party. Except as otherwise expressly provided for herein, each such notice or communication shall be effective when delivered at the address specified in this Section 13. Any notice or communication delivered by telecopier, facsimile or similar means shall be confirmed by hard copy delivered as soon as practicable.

The Company:	G&L Realty Corp, LLC
	439 North Bedford Drive Beverly Hills, California 90210
Executive:	Daniel M. Gottlieb
	439 North Bedford Drive Beverly Hills, California 90210

No failure or refusal to accept delivery of any envelope containing such notice shall affect the validity of such notice or the giving thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

G&L REALTY CORP, LLC

By:	/s/ Steven D. Lebowitz
Title:	Managing Director
	/s/ Daniel M. Gottlieb
	Daniel M. Gottlieb

EX-10.7

EXHIBIT 10.7

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”) is made and entered into this 31^st of March, 2005, by and between G&L Realty Corp LLC, a Nevada limited liability company (the “Company”) and Steven D. Lebowitz (“Executive”) with reference to the following facts

1. Employment and Duties.

(a) The Company hereby employs Executive who will serve as an executive officer of the Company. Executive acknowledges and agrees that the Company is a management company and that, as a part of his duties, he may be requested to serve as an executive officer of (i) the Company’s parent company, G&L Realty Corp, a Maryland corporation (“GLR”), (ii) one or more of GLR’s subsidiaries or affiliates, (iii) G&L Senior Care Properties, LLC, (“Senior Care LLC”), and/or any one or more of Senior Care LLC’s subsidiaries or affiliates (the entities referred to in clauses (i) through (iv) above being referred to as the “Client Entities”), and agrees, if so requested, to serve in such capacities.

(b) Executive shall devote a reasonable amount of his working time and his best efforts to the performance of his duties hereunder and to advance the interests of the Company and such one or more of the Client Entities as the Company may direct. Notwithstanding the above, Executive may spend a reasonable amount of time with respect to charitable and civic activities (including serving on the board of directors of charitable organizations) and, subject to the limitations set forth in Section 8 of this Agreement, may make personal investments or conduct private business affairs if such activities do not interfere with the services required of Executive under this Agreement. It is specifically recognized that Executive is the owner of membership units in Senior Care LLC, of limited partnership interests in G&L Realty Partnership, LP and G&L Senior Care Partnership, LP, and of shares in GLR, and that nothing in this Agreement is intended to prevent or limit Executive from serving on the management committee and/or board of directors of any one or more such entities or from pursuing his own interests as a member, partner and/or stockholder of such entities.

(c) Executive acknowledges and agrees that he is an employee only of the Company and that he is not an employee of any of the Client Entities to which he may provide services as an employee of the Company, and that he will look exclusively to the Company for the payment of any compensation that may be owed to him with respect to any such services.

2. Compensation.

(a) Annual Base Compensation. The Company shall pay to Executive for any and all services that Executive may render to the Company an annual base compensation of Six Hundred Fifty Thousand Dollars ($650,000), payable in equal installments on the Company’s regular payroll dates. The Compensation Committee of the Management Committee of the Company shall review Executives annual base compensation after the end of each calendar year commencing with the year ended December 31, 2005 in light of additional responsibilities which may be assumed by Executive, the result of operations and prospects of the Company, the compensation being paid to other persons holding similar positions with comparable companies and such other factors as it deems relevant; provided, however, that no such raise in compensation will be effective unless approved by the Company’s members acting through the Compensation Committee of the Board of Directors of GLR

(“Member Approval”). Following each such review, and subject to Member Approval, the annual base compensation of Executive may be increased but may not be decreased below its then existing level.

(c) Bonus Compensation. In addition, at the end of each year commencing with the year ended December 31, 2004, Executive, the Management Committee shall review, and may approve, a bonus in such amount as the Management Committee determines to be appropriate considering the efforts expended and the results achieved by the Executive, such bonus to be ordinarily no less than five percent (5%) nor more than one hundred percent (100%) of annual base compensation. Any such bonus, however, unless reimbursed in full by one or more Client Entities, will be subject to Member Approval.

3. Expenses. The Company will reimburse Executive for all usual, reasonable and necessary expenses paid or incurred by Executive in the performance of his duties hereunder in accordance with its policy for executives of the company, provided that such expenses are substantiated by written documentation and in accordance with the Company’s written policies and procedures on reimbursement of expenses as may be established from time to time by the Management Committee.

4. Employee Benefits.

(a) Executive shall be entitled to participate in all medical, dental, life insurance, retirement, profit sharing, stock incentive, disability and all other plans now made available, or which may be made available in the future, to executives of the Company.

(b) Executive shall be entitled to annual vacation in accordance with the Company’s policy for executives as such time.

5. Term of Agreement. This Agreement shall have an initial term of three years commencing on the date hereof. This Agreement shall be renewed automatically for succeeding terms of one year each unless either party gives notice to the other at least three (3) months prior to the expiration of any term (including the initial term) of his or its determination not to renew.

6. Termination. Executive’s employment hereunder may be terminated by the Company, on the one hand, or the Executive, on the other hand, as applicable, prior to the expiration of this Agreement, under the following circumstances:

(a) Death. Executive’s employment hereunder shall terminate upon his death. In the case of Executive’s death, the Company shall pay to Executive’s beneficiaries or estate, as appropriate, promptly after Executive’s death, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the date of his termination. This subsection 6(a) shall riot limit the entitlement of Executive’s estate or beneficiaries to any death or other benefits then available to Executive under any life insurance or other benefit plan or policy which is maintained by the Company for Executive’s benefit.

(b) Disability.

(i) If the Company determines in good faith that Executive has incurred a Disability (as defined below) during the term of this Agreement, the Company may give Executive written notice of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the thirtieth (30^th) day after receipt of such notice by Executive, provided that within the thirty (30) days after such receipt, Executive shall not have returned to full-time performance of his duties. Executive shall continue to receive his annual base compensation and benefits until the date of termination. In the case of Executive’s Disability, the Company shall pay to Executive promptly after the Executive’s termination, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the Executive’s termination. This subsection 6(b) shall not limit the entitlement of Executive or his estate or beneficiaries to any disability or other benefits then available to Executive under any disability insurance or other benefit plan or policy which is maintained by the Company for Executive’s benefit.

(ii) For the purpose of this Section, “Disability” shall mean Executive’s failure to perform his duties to the Company on a full-time basis for a total of 12 consecutive weeks during any 12-month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to Executive or Executive’s legal representative (such agreement as to acceptability not to be withheld unreasonably).

(c) Cause.

(i) The Company may terminate Executive’s employment hereunder for Cause (as defined below). In the case of the Executive’s termination for cause, the Company shall promptly pay to the Executive (or his representative) the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the date the Executive is terminated and the Executive shall be entitled to no other compensation.

(ii) For purposes of this Agreement, “Cause” to terminate Executive’s employment hereunder shall exist upon a finding by the Management Committee of the Company that Executive has (i) engaged in acts or omissions with respect to the Company or any one or more of the Client Entities which constitute intentional misconduct or a knowing violation of law; (2) engaged in gross negligence in the performance of his duties; or (3) frequently and repeatedly failed to perform services which have been reasonably requested of him by the Management Committee and which are consistent with the terms of the Agreement; provided, however, that “Cause” shall not exist unless and until the Company provides Executive with (a) at least fifteen (15) days prior written notice of its intention to terminate his employment for Cause and a written statement describing the nature of the Cause, and (b) a reasonable opportunity and a reasonable period of time to cure any curable acts or omissions on which the finding of cause is based. If the Executive cures the acts or omissions on which the finding of Cause is based, the Company shall not have Cause to terminate the Executive’s employment hereunder.

(d) Good Reason.

(i) The Executive may terminate his employment for Good Reason (as defined below). In the event that the Executive terminates his employment with the Company for Good Reason, the Company shall pay to Executive promptly after the Executive’s termination, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through Executive’s termination. In addition, the Company shall pay the Executive separation pay as set forth in Section 7 and provide the additional benefits set forth in Section 7.

(ii) For purposes of this Agreement, Executive shall have “Good Reason” to terminate his employment with the Company in the event of (a) any breach by the Company of, or default by the Company under, the provisions of the Agreement which Executive in good faith regards as material; provided, however, that in the case of any curable non-monetary breach of default, Executive shall not have Good Reason to terminate his employment unless and until he has provided the Company with written notice of such breach at least fifteen (15) days in advance of his intended termination date and a reasonable period of time to cure such breach ox default; or (b) any substantial diminution of duties or status, or other imposition by the Company of unreasonable requirements or working conditions on Executive which are not withdrawn or corrected within a thirty (30) day period following notice by Executive to the Company of such diminution or imposition.

(e) Without Cause. The Company may terminate Executive’s employment hereunder without Cause upon ninety (90) days written notice. In the event the Company terminates the Executive’s employment without Cause, the Company shall pay to Executive promptly after Executive’s termination, the unpaid annual base compensation to which he is entitled pursuant to Section 2 through the Executive’s termination. In addition, the Company shall pay the Executive separation pay as set forth in Section 7 and provide the additional benefits set forth in Section 7.

7. Separation Pay. Upon termination of Executive’s employment with the Company without Cause or by the Executive with Good Reason, Executive shall be entitled to receive aggregate severance payments equal to three times (3X) his annual base compensation at such time. Such aggregate separation payments shall be paid in cash upon the termination of Executive’s employment. In addition, if Executive’s employment is terminated by the Company without Cause or by the Executive with Good Reason and Executive is no longer eligible for employee benefits because of such termination, Executive shall be entitled, and the Company shall provide, benefits substantially equivalent to those benefits in the nature of health and welfare benefits to which Executive was entitled immediately prior to such termination for the remainder of the term of this Agreement under Section 5 hereof but only to the extent that Executive is not entitled to comparable benefits from another employer or provider and subject to any express limitations in any applicable plan.

8. Restrictive Covenant.

(a) Employee hereby agrees that for a period of one (1) year from an employment termination, he shall not, directly or indirectly, induce or recruit any employee of the Company to apply for or accept employment with any other person or entity.

(b) Executive hereby agrees that both during the term of his employment and for a period of three (3) years after an employment termination, he will not reveal, report, publish, disclose or transfer, directly or indirectly, any Confidential Information for any purpose except in the ordinary course of the business of the Company. For purposes of this Section 8, the term “Confidential Information” shall include all information and strategies of the Company and/or any one or more Client Entities, records, data, and any and all other confidential or proprietary information and trade secrets of the Company and/or any one or more Client Entities.

(c) While Executive is employed by the Company, without the prior approval of the Management Committee, Executive may not, directly or indirectly, own, operate, control or otherwise invest or participate or engage in (either as principal, agent, employee, employer, consultant, stockholder, partner, or in any other individual representative capacity) any other business that is in competition with the business of the Company or of any one or more of the Client Entities, except for ownership (without any other involvement) of not more than one percent (1%) of the outstanding stock of a publicly-owned company. If such prior approval of a majority of the Management Committee of the Company is obtained, Executive may engage in the activities consented to and in so doing shall incur no liability to the Company or to any one or more of the Client Entities.

(d) if, in any judicial proceeding, a court shall refuse to enforce one or more of the separate covenants referred to in this Section 8, (i) because the time limit therein is too long, it is expressly understood and agreed that for the purpose of such proceeding such time limitations shall be deemed reduced by the minimum amount necessary to permit the enforcement of such covenant or covenants; or (ii) because, taken together, they are more extensive (whether as to geographic area, scope of business, or otherwise) than necessary to protect the business and goodwill of the Company, or otherwise, it is expressly understood and agreed that such of those covenants which, if eliminated, would permit the remaining separate covenants to be enforced in such proceeding shall, for the purpose of such proceeding, be deemed eliminated from the provisions hereof.

(e) The covenants contained in this Section 8 are cumulative of the rights of the Company (or any successor thereto) under the laws of the State of California, the United States of America and other applicable laws with respect to the rights to protect Confidential information.

(f) Executive hereby agrees that the remedy at law for any breach or threatened breach of any of the covenants Contained in this Section 8 will be inadequate and that the company, the Company (or any successor thereto) shall be entitled to equitable relief including, without limitation, specific performance and injunctive relief.

(g) Nothing in this Section 8 shall be interpreted as in any way limiting Executive’s right to exercise his rights as a shareholder of GLR, as a partner of either G&L Realty Partnership, LP or G&L Senior Care Partnership, LP, or as a member of Senior Care, LLC, or as a director, managing director or management committee members of any of the above entities or any of their respective subsidiaries.

9. Waiver or modification. Any waiver, alteration or modification of any of the provisions of this Agreement or cancellation or replacement of this Agreement shall not be valid unless made in writing and signed by the parties hereto. Waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

10. Construction. This Agreement shall be governed by the laws of the State of California.

11. Hinging Effect: Entire Agreement.

11.1 The rights and obligations of the Company and Executive under this Agreement shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and Executive.

11.2 This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, amendments, memoranda or understandings between the Company and Executive.

12. No Mitigation of Damages. Executive shall have no duty to seek other employment to mitigate damages in connection with a termination of Executive’s employment, and any income eared by Executive shall not offset any obligations of the company to Executive under this Agreement.

13. Assignment. Executive may not assign his duties under this Agreement.

14. Counterparts. This Agreement may be executed in counterparts, each of which shall be construed as an original for all purposes, but all of which taken together shall constitute one and the same Agreement.

15. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be delivered in person, sent by facsimile or by registered or certified United States mail, postage and fees prepaid, to the addresses of the parties set forth below, or such other address or facsimile number as shall be furnished by notice hereunder by any such party. Except as otherwise expressly provided for herein, each such notice or communication shall be effective when delivered at the address specified in this Section 13. Any notice or communication delivered by telecopier, facsimile or similar means shall be confirmed by hard copy delivered as soon as practicable.

The Company:	G&L Realty Corp, LLC
	439 North Bedford Drive
	Beverly Hills, California 90210
Executive:	Steven D. Lebowitz
	439 North Bedford Drive
	Beverly Hills, California 90210

No failure or refusal to accept delivery of any envelope containing such notice shall affect the validity of such notice or the giving thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

G&L REALTY CORP, LLC

By:	/s/ Daniel M. Gottlieb
Title:	Managing Director
	/s/ Steven D. Lebowitz
	Steven D. Lebowitz

EX-10.88

EXHIBIT 10.88

Management Agreement

This Management Agreement (the “Agreement”) is entered into as of this 30^th day of June, 2005, by and between G&L Realty Corp., a Maryland corporation (“GLR”) and G&L Realty Corp., LLC, a Nevada limited liability company (“Manager”), with reference to the following facts:

WHEREAS, GLR is currently in the business of developing, owning and operating medical office buildings (“MOBs”) having previously dividend to the holders of its common stock its senior care and assisted living assets and businesses by the distribution of its membership interests in G&L Senior Care Properties, LLC, a Nevada limited liability company (“Senior Care Properties”) to the holders of its common stock;

WHEREAS, GLR and Senior Care Properties are each managed by Manager pursuant to a Management and Cost Sharing Agreement dated as of October 29, 2004, (the “MCS Agreement”);

WHEREAS, Manager is currently owned 98% by GLR, 1% by Richard Gottlieb and 1% by Andrew Lebowitz;

WHEREAS, due to the limitations on the types of businesses in which GLR can engage, and still satisfy the criteria for classification as a real estate investment trust under the Internal Revenue Code ( a “REIT”), Manager is limited in the businesses in which it can engage;

WHEREAS, Manager would like to engage in a broader range of potential businesses and activities, including businesses and activities which are not open to GLR and the members of its consolidated group, if GLR is to maintain its classification as a REIT;

WHEREAS, the Board of Directors of GLR has been advised by the holders of GLR common stock that they believe that it would be in the best interests of common shareholders of GLR, GLR, Manager and Senior Care Properties if GLR were to dividend its interest in Manager to the holders of its common stock;

WHEREAS, the Board of Directors had declared a dividend of its membership interest in Manager to GLR’s shareholders of record on June 30, 2005, such dividend to be effective as of the close of business on June 30, 2005 (the “Effective Date”);

WHEREAS, GLR formed Manager for the purpose of employing the employees and executive officers, and owning or leasing the facilities and assets needed for

the management of GLR’s and Senior Care Properties respective businesses but, as an accommodation to Manager has continued on the payroll of its affiliate G&L Realty Partnership, LP, the Manager’s employees;

WHEREAS, the parties desire to put into place an arrangement whereby, subject to the ultimate supervision and policy making functions provided by the Board of Directors of GLR, and the more direct supervision and policy implementing functions provided by the senior executives of GLR (i.e. the Chief Executive Officer, President and Chief Financial Officer), all of the day-to-day management functions with respect to the operation of GLR and its assets will be provided by Manager, to the fullest extent permitted by applicable law, it being a goal of this arrangement that GLR be able to keep its employee count to a minimum and, overtime, realize the benefits of contracting at arms length for its various property management services; and

WHEREAS, the parties intend that this Agreement replace and supersede the MCS Agreement effective as of the close of business on the Effective Date;

NOW, THEREFORE, in consideration of the above stated premises, the terms of this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows, effective as of the close of business on the Effective Date:

1. Retention of Manager. GLR hereby retains Manager to provide such management, administrative and bookkeeping services as GLR and their respective subsidiaries may from time to time require, for a term of approximately five (5) years, ending upon the fifth June 30, 2010; provided, however, that so long as the current GLR preferred stock (the “GLR Preferred Stock”) is outstanding, this Agreement may not be terminated or modified without the approval of a majority of the independent outside directors of GLR. Thereafter, this Agreement will continue on a year to year basis unless terminated by either party on not less than one (1) year’s prior written notice. This Agreement, effective as of the close of business on the Effective Date, replaces and supersedes the MCS Agreement, which as of the effectiveness of this Agreement shall be of no further force or effect.

2. Duties of Manager.

2.1. Duties and Obligations. Manager shall provide, as an independent contractor, such management, administrative and bookkeeping services to GLR and its subsidiaries as GLR may from time to time reasonably request. Manager will, in the exercise of its duties and obligations under this Agreement, deal with GLR in good faith and exercise commercially reasonable standards and practices. In the case of property management, those commercially reasonable standards and practices will be of the type reasonably appropriate for the operation and maintenance of first class medical office buildings in the markets in which the applicable GLR Properties are located. The employees of Manager will under no

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circumstances be deemed to be the employees of GLR or any of its subsidiaries, and Manager will be responsible for paying all employment taxes and levies (including social security and other withholding taxes). Specifically, these services will include the following:

a. Property Management Services. This will include the responsibility for the day-to-day management and maintenance of GLR’s properties, including those owned, directly or indirectly, by GLR’s subsidiaries, whether owned today or hereinafter acquired (the “GLR Properties”), including, without limitation the procurement of any and all permits and authorizations required from time to time for the operation of such assets.

b. Leasing Services. This will include responsibility for marketing and leasing of GLR Properties. It will also include working with tenants and prospective tenants with respect to space planning and fit-out issues, and the supervision of the construction of tenant-fitout.

c. Property Development Services. This will include supervision of the development and/or redevelopment of GLR Properties, including (i) the selection of and negotiation of contracts with architects, engineers, environmental consultants and other design and planning professionals, (ii) the selection of and negotiation of contracts with suppliers and contractors, (iii) the supervision and direction of the land use planning and permitting process and (iv) serving as the owner’s representative with respect to the construction of improvements.

d. Property Acquisition/Disposition Services. This will include, in the case of any asset identified for purchase by GLR or any of its direct or indirect subsidiaries, the negotiation of the terms of acquisition and of any acquisition agreements, the conduct of appropriate due diligence, and the coordinate of the closing of any such acquisition. In the case of any GLR Property identified for sale by GLR, the marketing of the asset, the negotiation of any disposition agreements, and the coordination of the closing of any disposition transaction.

e. General and Administrative Services. This will include the preparation (i) of monthly, quarterly and annual financial statements and property reports, and (ii) of all reports required by the Securities Exchange Commission and/or by any securities exchange on which the GLR’s securities may from time to time be listed. Manager will be responsible for the maintenance and safe keeping of the GLR’s financial, business and legal records, and will assist and cooperate with the Company’s auditors in the performance of their duties and responsibilities. Manager will provide such projections and budgets as the GLR may from time to time reasonably request.

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2.2 Limitations on Duty of Care. Notwithstanding the above, it is recognized that:

i. The services performed by Manager are being performed on a non-exclusive basis, and Manager may provide services to other entities, including affiliates, which may from time to time be in competition with GLR and/or the GLR Properties. Manager will, however, keep the Board of GLR reasonably informed as to the scope and extent of such competitive or potentially competitive activities.

ii. It is understood that the ability of the Manager to operate and maintain the GLP Properties will reflect the budget approved for such operations and maintenance from time to time by GLR, and that the Manager is under no obligation to expend or advance its own funds to operate, safeguard, maintain or repair the GLR Properties.

2.3. Scope of Authority. The following transactions will require the approval of GLR, acting through its executive officers:

a. Entering into any lease or license, unless such lease or license is entered into on the basis of written guidelines approved in advance by the GLR.

b. Entering into any contract or agreement that would be binding upon the GLR or its assets, unless such contract or agreement is entered into on the basis of written guidelines approved in advance by the GLR.

c. Entering into any contract or agreement with respect to the disposition of any assets of GLR, unless such contract or agreement is entered into on the basis of written guidelines approved in advance by GLR.

2.4. Office Space. As an accommodation to GLR and in light of the number of GLR Properties that are located in the area commonly known as the Beverly Hills Triangle, Manager will perform its services hereunder principally from the executive office space maintained by GLR at 439 North Bedford Drive. No charge will be made by GLR for the use of this space; provided, however, that after the Transition Period, as such term is defined below, all utilities will be for the account of the Manager and will not constitute a reimbursable expense of the Manager.

3. Contract Oversight. The performance by Manager under this Agreement will be subject to the general oversight of the Board of Directors of GLR, which shall be entitled to full and complete access to the books and records of the Manager, and to reasonable access, during regular business hours, to the Manager’s officers and employees.

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4. Personnel.

4.1. Sufficient Personnel. Manager will be responsible for maintaining sufficient personnel to provide the services required under this Agreement. Except as may otherwise be specified from time to time by GLR, all services shall be provided by personnel supplied by Manager or by independent contractors retained by and reporting to the Manager. GLR will have no responsibility for any such employees or independent contractors, who will report to and operate under the exclusive control of Manager.

4.2. Payroll Services. GLR will, through its subsidiary G&L Realty Partnership, L.P. continue to provide payroll services for Manager through and including December 31, 2005. Thereafter, Manager will take direct responsibility for such payroll function. Manager agrees to reimburse to GLR any and all expenses incurred by it or its affiliates with respect to providing such payroll services and to indemnify GLR and its affiliates against any and all liabilities, costs and expenses with respect to the provision of such services.

4.3. Direct Reimbursement for Certain Payroll Expenses. GLR will directly reimburse Manager for the payroll costs of those employees of Manager who provide maintenance and property management services directly to GLR’s buildings and who were directly allocated to the buildings prior to June 30, 2005 and any such future replacements for or additions to such employees.

5. Management Fee.

5.1 Transition Period Cost Sharing. Initially, in consideration of the services provided by Manager, GLR agrees, with respect to the period ended December 31, 2005 (the “Transition Period”), to contribute to the costs and expenses of Manager an amount equal to 35% of the costs of Manager incurred with respect to the provision of services to GLR and to Senior Care Properties and its affiliates, with the intention that with respect to the Transition Period 100%, but no more than 100%, of the costs and expenses of the Manager are recouped from GLR and Senior Care Properties and its affiliates on such a 35/65 basis. Such amounts shall be funded by GLR monthly in arrears, as billed by Manager in accordance with this Agreement. All payments shall be made not less than thirty (30) days of billing. Notwithstanding the above, Manager may elect to maintain cash reserves so as to have at all times not less than one nor more than three months working capital available to it, in which case the amounts needed to fund such working capital reserve shall be paid by GLR and Senior Care Properties within thirty (30) days of demand by Manager, such amounts to be funded in proportion to the allocation ratios of GLR and Senior Care Properties then in effect. Any amounts not timely paid will bear interest at the rate of 1.5% per month, or the maximum amount allowed by applicable law, which ever is less, until paid.

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5.2 Post Transition Period Fee Structure. Following the Effective Date, the parties will meet and negotiate in good faith a revised fee structure, such fee structure to be effective for periods following the Transition Period. This revised fee structure will be based upon the format set out in clauses 5.2.1 through 5.2.5.

5.2.1 For Property Management Services: A fee equal to 6% of the gross receipts from the properties managed.

5.2.2 For Property Development Services: A fee equal to 1% of the hard and soft costs of the project (calculated exclusive of land costs).

5.2.3 For Acquisition/Disposition Services: A fee equal to 0.5% of the purchase price of any property acquired and 0.5% of the sales price of any property sold.

5.2.4 General and Administrative Expenses: The Company and Manager will meet and confer not later than September 30 of each year with the intent to establish a general and administrative budget for the following year. In the event that no agreement can be reached, the budget for the prior year will be used, adjusted for inflation.

5.3 Reimbursement of Expenses. After the initial period, GLR will reimburse the Manager for all reasonable out-of-pocket expenses, including the cost of any on-site managers or on-site personnel provided at the request of GLR, but not any home office or general and administrative personnel.

5.4 Working Capital Budget. Not later than September 30 of each year, beginning September 30, 2005, the Manager and GLR will meet and confer in order to determine the projected working capital budget and capital improvements budget for the following year, commencing as of January 1^st of each such year. Any such budget will be subject to the reasonable review and approval of GLR’s independent outside directors. On January 1^st, any working capital reserve will be adjusted to reflect such agreed upon working capital budget and capital improvements budget.

5.5 Bonuses. GLR will not be liable for any bonus payments to any officer or employee of Manager, except for bonus payments specifically approved by a majority of the outside independent directors of GLR or bonus payments made in accordance with the annual budget for such year.

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5.6 Fee Cap. The right of Manager to receive any compensation for its services under this Agreement other than such funds as are necessary to cover its actual costs of providing such services, shall be subordinate to the rights of the holders of the GLR Preferred Stock.

6. Ancillary Tenant Services. It is acknowledged and agreed that Manager may provide, as an amenity to GLR’s tenants, a range of ancillary services and/or products of the type which, if provided by a REIT would produce non-qualified income, and that the GLR will have no participation in such income. The provision of such services will be subject to the approval of GLR, such approval not to be unreasonably withheld, so long as the Manger (i) clearly discloses to the tenants to whom it offers such ancillary services and products that it is an entity separate and distinct from GLR and that GLR does not endorse or guarantee such services or products and (ii) indemnifies GLR against any and all liabilities with respect to the offering and/or provision of such ancillary services or products.

7. Indemnity: Insurance: and Limitations on Liability.

7.1. Indemnity. GLR will indemnify Manager against any liability to third parties resulting from the performance by Manager of its duties under this Agreement, except to the extent that such liability is ultimately determined to be the direct result of the gross negligence or criminal misconduct of the Manager or bad faith breach of this Agreement by Manager. Manager will indemnify GLR against any liability to third parties resulting from the gross negligence or criminal misconduct of Manager or breach by Manager of its obligations under this Agreement; provided, in the last listed case, such breach was the result of conduct other than action take or omitted in the good faith belief that such act or omission was consistent with Manager’s duties and obligations under this Agreement and otherwise in the best interests of GLR. GLR will advance all costs and expenses reasonably incurred by Manager in connection with the defense and investigation or any third party claim, pending final judicial resolution of liability.

7.2. Insurance. GLR and Manager will work together to maintain in place a comprehensive regime of casualty and liability insurance, naming each of GLR and Manager as named insureds with waivers of subrogation. The cost of such insurance shall be an expense of GLR, except to the extent such insurance also covers Senior Care Properties and/or any one or more of its affiliates, in which case the cost of such insurance will be allocated between GLR and Senior Care Properties and such one or more affiliates on a mutually agreeable basis.

7.3. Limitations on Liability. In no event will Manager be liable to GLR except for its gross negligence, criminal misconduct or breach of this Agreement; provided, in the last listed case, such breach was the result of conduct other than action take or omitted in the good faith belief that such act or omission

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was consistent with Manager’s duties and obligations under this Agreement and otherwise in the best interests of GLR. GLR hereby waives any claim against or right of recovery against GLR, except as provided in the immediately preceding sentence. In no event will GLR have any claim, and hereby waives any claim that it might in the future otherwise have, and agrees not to sue, any officer, director, manager, employee, or affiliate of Manager based on conduct or omission by such individual when acting in his or her capacity as an officer, director, manager, employee, or affiliate of Manager. GLR acknowledges that Manager is a limited liability company, and agrees that it will look solely to Manager with respect to any future claim that GLR might have against Manager under this Agreement and/or with respect to the services provided by Manager under this Agreement, and that in no event will it bring suit against any member (or former member) of Manager with respect to any such claim, whether based upon assertions or alter ego, piercing the corporate veil, fraudulent conveyance or any other legal or equitable theory.

8. Accounting Books and Records. The accounting books and records of the Manager shall be maintained in accordance with generally accepted accounting principles, applied on a consistent basis, and shall be audited annually by an independent accounting firm selected by Manager, but subject to the approval of GLR, such approval not to be unreasonably withheld or delayed. Initially, the auditing firm will be the same firm as audits the accounts of GLR. The cost of any such audit during the Interim Period shall be treated as an operating cost of the Manager, to be allocated between GLR and Senior Care Properties and its affiliates like any other operating cost of the Manager. Thereafter, the cost of such audit will be a cost of Manager.

9. Dispute Resolution.

9.1 If a dispute arises regarding the interpretation of, arising out of, or related to this Agreement that cannot be resolved through informal means, the parties hereto shall submit such dispute to mediation in accordance with the Commercial Mediation Rules of the American Arbitration Association if they can agree to do so, otherwise to formal arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association; provided, however, that if the parties begin in mediation, any party to the dispute may require arbitration at any time upon written notice in accordance with the Commercial Arbitration Rules.

9.2 To the extent permitted by applicable law, arbitration proceedings shall be conducted by a single agreed upon arbitrator. If the parties cannot agree on an arbitrator, then each party shall select one arbitrator who shall select a third arbitrator. Any arbitrations shall be held in Clark County, Nevada, or at such other location as the parties may mutually agree. Without limitation of their general authority, the arbitrators shall have the right to order reasonable discovery in accordance with the Nevada Rules of Civil Procedure. The final decision of the arbitrators shall be binding and enforceable without

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further legal proceedings in court or otherwise; provided, however, that any party may enter judgment upon the award in any court of competent jurisdiction. The final decision arising from arbitration shall be accompanied by a written opinion and decision, which shall describe the rationale underlying the award and shall include findings of fact and conclusions of law.

9.3 All parties shall have a duty to participate in mediation or arbitration proceedings in good faith and to pursue the same in a timely manner.

9.4 Notwithstanding any provision of this Section 9, the requirement to mediate or arbitrate disputes shall not apply to any action for equitable relief with respect to this Agreement or any matter it contemplates. The forum for any such action shall be the appropriate court in Clark County, Nevada, and all Parties agree to both subject matter and in personam jurisdiction in that forum for such purpose.

9.5 Notwithstanding any provision of this Section 9.5, the parties consent to the jurisdiction of the appropriate court in Clark County, Nevada, for the entry and enforcement of any judgment upon any arbitration award rendered, and all parties agree to both subject matter and in personam jurisdiction for such purposes.

10. Miscellaneous.

10.1 Notices. Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be hand delivered, sent via facsimile, overnight delivery or registered or certified mail, return receipt requested. Notice shall be effective: (a) if hand delivered, when delivered; (b) if sent via facsimile, on the day of transmission thereof on a proper facsimile machine with confirmation; (c) if sent via overnight delivery, on the day of delivery thereof by a reputable overnight courier service, delivery charges prepaid and with signed acknowledgement of delivery; and (d) if mailed, on the fourth business day after the deposit of such item in the mail, postage prepaid, return receipt requested. Notices shall be addressed or sent to the parties of their last known address or facsimile telephone numbers; provided that the address, telephone, email or fax number of any party may be changed from time to time by notice given pursuant to this section.

10.2 Binding Effect. Except as otherwise provided in this Agreement, every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, transferees, assigns, heirs and personal representatives.

10.3 Construction. The terms of this Agreement were negotiated at arm’s length by the parties hereto. The covenants, terms and provisions contained herein shall not be construed in favor of or against any party because that party or its counsel drafted this Agreement, but shall be construed simply according to its fair meaning as if all parties prepared this Agreement, and any rules of construction to the contrary are hereby specifically waived.

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10.4 Time. In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall not be included, but the time shall begin to run on the next succeeding day. The last day of the period so computed shall be included, unless it is a Saturday, Sunday or legal holiday, in which event the period shall run until the end of the next day that is not a Saturday, Sunday or legal holiday.

10.5 Headings. Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.

10.6 Severability. Except as otherwise provided in the succeeding sentence, every provision of this Agreement is intended to be severable, and, if any term or provision of this Agreement is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the legality or validity of the remainder of this Agreement.

10.7 Variation of Terms. All terms and any variations thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the person or persons may require.

10.8 Governing Law. The laws of Nevada shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties arising hereunder. All rights and remedies of each person under this Agreement shall be cumulative and in addition to all other rights and remedies which may be available to the person from time to time, whether under this Agreement, at law, in equity or otherwise.

10.9 Counterpart Execution. This Agreement may be executed in any number of counterparts with the same effect as if all of the parties had signed the same document. All counterparts shall be construed together and shall constitute one agreement.

10.10 Attorneys’ Fees. The prevailing party in any dispute arising from the terms or subject matter of this Agreement shall be entitled to payment by the other party of the prevailing party’s costs and expenses, including, without limitation, such party’s attorneys’ fees, incurred in connection with resolving such dispute.

10.11 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of any party.

10.12 Third Party Beneficiaries. There are no third party beneficiaries to this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first set forth above.

G&L Realty Corp., a Maryland corporation
By:	/s/ Daniel M. Gottlieb
Its:	Chief Executive Officer

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G&L Realty Corp., LLC, a Nevada limited liability company
By:	/s/ Steven D. Lebowitz
Its:	Managing Director

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EX-10.89

EXHIBIT 10.89

NOTE DIVIDEND AGREEMENT

This NOTE DIVIDEND AGREEMENT (“Agreement”) is entered into as of this 30^th day of March, 2005, by and between Daniel Gottlieb, Steven Lebowitz (each, a “Common Stockholder” and collectively and together with their successors, assigns or other transferees, the “Common Stockholders”) on the one hand, and G&L Realty Corp., a Maryland corporation (the “Company”), on the other hand.

Recitals

a. The Company has filed an election under Section 856(c)(l) of Internal Revenue Code of 1986, as amended (the “IRC”) to be treated as a “real estate investment trust” (“REIT”) for income tax purposes.

b. The IRC imposes numerous requirements that the Company must meet in order to retain its status as a REIT. The Company’s preservation of REIT status is desirable from a tax standpoint to all stockholders.

c. The Company has outstanding a single class of common stock with equal rights (the “Common Stock”). The Common Stockholders are the sole stockholders of the Common Stock. The Common Stockholders control the voting with respect to the Company.

d. The Company currently has outstanding two series of preferred shares (the “Preferred Shares”) that are widely held and are traded on the New York Stock Exchange. The currently outstanding Preferred Shares are collectively entitled to a liquidation preference of $67,047,825. As used in this Agreement the term “Liquidation Preference” will mean the aggregate liquidation preference (i) of such shares of the Company’s Preferred Shares as may be outstanding from time to time in the future, which may be a number of Preferred Shares greater than, equal to or less than the number of Preferred Shares currently outstanding, and (ii) of such shares of any new or additional series or classes of preferred stock which may be issued in the future by the Company from time to time.

e. The Company owns numerous assets (“Assets”) that are encumbered by substantial debt and that are currently believed to have total value in excess of total basis, which would result in recognition of gain upon a taxable disposition of the Assets.

f. In order to assure that the Company will be able to satisfy the Liquidation Preference in the event of a taxable sale of its properties and to preserve the Company’s REIT status, the Common Stockholders are willing to agree in certain circumstances and upon certain terms and conditions specified in this Agreement to cause the Company to declare and pay a dividend to the Common Stockholders by promissory note and, in connection with any such promissory note dividend, to agree to make capital contributions to the Company to provide the Company with sufficient funds to pay off any such promissory note dividend.

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NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Common Stockholders and the Company agree as follows:

1. Agreement to Cause Company to Satisfy Liquidation Preference in Cash and to Pay Note Dividend and Make Additional Capital Contributions.

(a) The Common Stockholders agree that upon the occurrence of a “Triggering Event” (as defined in Section 2 of this Agreement), they shall cause the Company to first satisfy (or make adequate provision for) the Liquidation Preference, to satisfy (or make adequate provision for the satisfaction as they become due) of all other debts, obligations and other liabilities of the Company, and then to declare a dividend to the Common Stockholders in cash and, to the extent necessary, by promissory notes (a “Note Dividend”) through the issuance of a promissory note (the “Dividend Promissory Note”) in the “Zero Out Amount” (as defined in Section 2 of this Agreement). The Note Dividend shall be payable to the Common Stockholders in proportion to their ownership of the Common Stock at the time of its declaration, and in the event that there is more than one Common Stockholder, then separate Dividend Promissory Notes shall be issued to each Common Stockholder in that principal amount equal to each such Common Stockholder’s proportionate interest in such Note Dividend. In connection with the declaration of any such Note Dividend, the Common Stockholders shall be obligated to make additional capital contributions to the Company in accordance with Paragraph l(c) of this Agreement (the “Capital Contribution Obligation”). The Capital Contribution Obligation shall be in proportion to the Common Stockholders’ ownership of the Common Stock at the time of the declaration of the Note Dividend. The declaration of the Note Dividend shall be authorized by resolutions of the Board of Directors of the Company substantially in the form set forth on Exhibit “A” of this Agreement. The determination of whether adequate provision has been made will be made by the independent directors (as such term is defined by the New York Stock Exchange, the “Independent Directors”) of the Company.

(b) The Dividend Promissory Note shall be substantially in the form set forth on Exhibit “B” of this Agreement, and shall: (i) be payable upon demand of any holder, within ninety (90) days of any such demand; (ii) provide for a rate of interest equal to the “Applicable Federal Rate” in accordance with IRC §§ 1274(d) and 7782 for the time of its issuance; (iii) provide for semi-annual interest payments; (iv) have a maturity date five (5) years after issuance, absent earlier demand; (v) provide for a right, upon not less than ninety (90) days prior written notice by the Company of partial prepayment from time to time or full prepayment at any time without penalty; (vi) be non-amortizing and subject to repayment of the principal amount at maturity (or earlier exercise of any demand or prepayment right specified in this Agreement) only; (vii) be subordinate to any and all other debts, obligations and other liabilities of the Company, whether then existing or subsequently arising, (viii) be non-transferable except with the written approval of the Independent Directors or, upon the death of any Common Stockholder, the heirs of such Common Stockholder, and (ix) be subject to offset in the amount of any debt, obligation or other liability owed by any holder of such Dividend Promissory Note,

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including, without limitation, such Common Stockholder’s proportionate Capital Contribution Obligation. Any purchaser, assignee or transferee of any Dividend Promissory Note, whether or not permitted by this Agreement or applicable law, will take and hold his, her or its interest in such Dividend Promissory Note subject to this right of the Company to offset the Capital Contribution Obligation of the initial holder of such Dividend Promissory Note.

(c) The Capital Contribution Obligation shall provide for contribution of cash by the Common Stockholders no later than the last day of the month preceding the month in which interest and/or principal payments are due on the Dividend Promissory Note (either due to maturity or earlier exercise of any demand or prepayment right specified in this Agreement).

(d) No sale, assignment or other transfer of Common Shares by any holder of any Dividend Promissory Note will relieve such person from liability for such person’s Capital Contribution Obligation.

2. Conditions Under Which Note Dividend Shall Be Declared and Capital Contribution Obligation Triggered.

(a) The Common Stockholders agree that if a “Triggering Event” occurs on or before the “Triggering Event Deadline Date,” they shall cause the Company to declare and pay a Note Dividend to the Common Stockholders in the “Zero-Out Amount.” The “Triggering Event Deadline Date” shall be the earlier of the following:

(i) the date of the final dissolution and liquidation of the Company, such that all of the debts, obligations and other liabilities of the Company have been satisfied or adequately provided for under applicable law so as to relieve the directors and common stockholders of the Company of any further liability or obligation with respect to such debt, obligations and other liabilities;

(ii) the first anniversary of the date on which all of the equity interests of the Company entitled to a Liquidation Preference have been retired; and

(iii) the date on which the Independent Directors, by majority vote of such Independent Directors, adopt a resolution terminating the provisions of this Agreement.

(b) In connection with the declaration of any Note Dividend under this Agreement, the Company shall designate the Note Dividend to be a “capital gain dividend” in accordance with IRC 857(b)(3)(C), to the fullest extent possible to reflect “net capital gain” recognized by the Company in the taxable year in which a Triggering Event occurs.

(c) A “Triggering Event” is a sale, exchange, disposition, transfer or other transaction involving the Assets that is treated for United States federal income tax purposes as giving rise to currently recognized taxable gain to the Company (a “Taxable Disposition”) in such amount that, absent the declaration of Note Dividend, under then applicable federal and state income tax rules, the Company would have insufficient cash, cash equivalents or other Assets that can be readily reduced to cash (i) to satisfy the Liquidation Preference (the

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“Liquidation Preference Test”), to satisfy, in the reasonable opinion of the Independent Directors all of the Company’s other debts, obligations and liabilities as they become due (the “Creditor Test”), and (iii) to distribute to stockholders 100% of any taxable income with respect to the year in which such sale, exchange, disposition, transfer or other transaction involving the Assets Occurs (the “Distribution Test”).

(d) The “Zero-Out Amount” is an amount of a Note Dividend that, together with Company cash that is available for distribution to the Common Stockholders after satisfaction of the Liquidation Preference and any and all other debts, obligations and liabilities of the Company (“Cash Available for Distribution to Common Stockholders”), would result in zero federal and state tax liability to the Company with respect to the Taxable Disposition upon payment of such Note Dividend and cash dividend from Cash Available for Distribution to Common Stockholders.

(e) The terms “Triggering Event” and “Zero-Out Amount” are illustrated by the following purely hypothetical example:

Example 1: (i) the Assets have a gross value, excluding debt, of $120 million; (ii) the Company has liabilities of $40 million; (iii) the Company’s basis in the Assets is zero; (iv) the Company sells all of the Assets for a purchase price of $120 million which includes $80 million in cash and the buyer’s assumption of all of the Company’s liabilities of $40 million; (v) the Company currently recognizes taxable gain on such sale of $120 million; (vi) the Liquidation Preference at such time is $67 million; (vii) all other debts, obligations and other liabilities of the Company are reasonably estimated by the Independent Directors at $5 million, and (vii) under then current law in order to avoid taxation at the Company level, it is necessary to distribute $120 million. There is a Triggering Event because even though the Company would have sufficient cash to satisfy the Liquidation Preference Test and the Creditor Test, it would still have insufficient cash to meet the Distribution Test. The Zero-Out Amount would be $45 million, such amount being the difference between the $120 million in taxable income and the $40 million in debt assumed by the buyer and the $5 million reserved to pay third party creditors. In connection with such Note Dividend, the Common Stockholders would likewise have a Capital Contribution Obligation of $45 million.

3. Limitations / Conditions. In addition to the conditions set forth in Section 2 of this Agreement, the Common Stockholders’ obligations under this Agreement are subject to these limitations and conditions:

(a) This Agreement shall apply only as long as the Company maintains REIT status, without regard to the declaration of a Note Dividend hereunder. If the Company’s status as a REIT is voluntarily or involuntarily terminated at any time other than due to a dissolution of the Company or transfer of substantially all of the Company’s Assets or in connection with the Company’s obligation to pay out as dividends a percentage of its taxable income under IRC 857(a), this Agreement shall terminate at the time of such termination of REIT status and all obligations hereunder shall cease. If the Company’s REIT status is retroactively terminated by the IRS after a declaration of a Note Dividend hereunder, the Common Stockholders may freely

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seek to revoke, rescind or otherwise undo such prior declaration of a Note Dividend, without any liability to the Company under this Agreement, and the Company shall reasonably assist the Common Stockholders, if and as requested by the Common Stockholders, with respect to any relief sought. Notwithstanding the above, the Common Stockholders agree to take all steps reasonably necessary or otherwise prudent to preserve the REIT status of the Company and not to take any act or acts which would place the Company’s REIT status at risk absent the prior written approval of the Independent Directors. This obligation will survive any termination of this Agreement, unless otherwise specified in writing by the Independent Directors.

(b) This Agreement shall not be construed to prevent the Board of Directors from declaring a Note Dividend in an amount larger than the Zero-Out Amount with respect to a Triggering Event or in any way to affect the rights of the Board of Directors with respect to the Declaration of Dividends.

(c) Except as expressly provided, this Agreement shall not be construed to restrict or obligate the Common Stockholders or the Company in any way with respect to the Common Stockholders’ the Company’s entry or non-entry into any particular transaction or the form of any particular transaction, including, without limitation, any requirement to enter into a Taxable Disposition.

(d) This Agreement shall be binding upon any buyer, assignee or transferee of all or any portion of the Common Stock, in accordance with its terms. Each Common Stockholder agrees (i) to give not less than thirty (30) days written notice to the Independent Directors of any proposed sales, assignment or other transfer, (ii) to provide to any proposed buyer, assignee or transferee a copy of this agreement, (iii) in connection with any such sale, assignment or transfer to receive the written acknowledgement of the buyer, assignee or transferee of the terms of this Agreement and agreement to be bound by the terms of this Agreement as though an original signatory of this Agreement and (iv) upon the request of the Independent Directors, to surrender his, her or its share certificates so that an appropriate legend reflecting the existence of this Agreement may be placed upon such share certificates.

(e) All duties and obligation of the members of the Board of Directors and the Company under this Agreement are expressly subject to the due and faithful performance by the Directors of their fiduciary duties as directors of the Company under applicable law. The Common Stockholders expressly waive any claim that they might now or in the future have with respect to action or inaction taken by any one or more directors under or with respect to this Agreement and or under or with respect to any Dividend Promissory Note, if taken by such director or directors in the good faith belief that such action or inaction was in accordance with such fiduciary duties.

4. Miscellaneous.

(a) The failure of any party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights.

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(b) No changes or modifications or waivers to this Agreement will be effective unless in writing and signed by all of the parties.

(c) In the event that any provision of this Agreement shall be determined to be illegal or unenforceable, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

(d) This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to the conflicts of laws provisions thereof; provided, however, that in determining the obligations of directors, the propriety of the making of dividends and/or of any other distributions to stockholders and/or any other matter of internal corporate law, the laws of the State of incorporation of the Company at the time of such action or inaction on the part of any one or more directors, and/or the making dividends and/or of any other distributions to stockholders, or the occurrence of the matter then under review shall control.

(e) Headings herein are for convenience of reference only and shall in no way affect interpretation of the Agreement.

IN WITNESS WHEREOF, this Agreement is executed as of the date first set forth above.

Common Stockholders:
/s/ Daniel M. Gottlieb
Daniel M. Gottlieb
/s/ Steven D. Lebowitz
Steven D. Lebowitz
Company:
By:	/s/ John H. Rauch
Name:	John H. Rauch
Title:	Senior Vice President

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Exhibit “A”

RESOLUTIONS OF THE BOARD OF DIRECTORS OF

G&L REALTY CORP.

In accordance with the Bylaws of this corporation and the [insert reference to controlling state law], the Board of Directors is authorized to take action by written consent without a meeting.

The undersigned, constituting not less than a majority of the members of the Board of Directors of this corporation, hereby adopt the following resolutions:

WHEREAS, it is deemed to be in the best interest of this corporation to pay to the holders of record of its common stock as of             ,              (the “Common Stockholders”) a dividend in the amount of                      (the “Dividend”);

WHEREAS, the Dividend is to be paid after this corporation satisfies the liquidation preference, in the amount of $            , to which the holders of its preferred stock are entitled (the “Liquidation Preference”);

WHEREAS, after reviewing this corporation’s financial statements, the Board of Directors has determined that, after giving effect to the distribution in satisfaction of the Liquidation Preference and the payment of the Dividend, this corporation’s total assets will exceed its liabilities and this corporation will be able to pay its debts as they become due in the usual course of business, so that the payment of the Dividend is permitted under [insert reference to controlling law];

WHEREAS, it is deemed to be in the best interest of this corporation to pay the Dividend by distributing to the Common Stockholders, in proportion to their ownership of this corporation’s common stock, (i) cash in the aggregate amount of                     , and (ii) promissory notes (the “Dividend Promissory Notes”), in the aggregate amount of                     , which Dividend Promissory Notes shall(a)

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be payable upon demand of any holder, within 30 days of any such demand; (b) bear interest at the rate of                     % per annum, (c) provide for semi-annual interest payments, (d) have a maturity date of five years, absent earlier demand for payment days of written demand for payment, (e) be non-amortizing and subject to repayment of principal only at maturity (or earlier demand), (f) otherwise be substantially in the form and content of the promissory note attached hereto as Exhibit “A”; and

WHEREAS, this corporation intends that the Dividend shall constitute a “capital gain dividend” to the fullest extent possible under 857(b)3(C) of the Internal Revenue Code of 1986, as amended (“IRC”).

NOW, THEREFORE, BE IT RESOLVED: That this corporation shall pay a Dividend to the Common Stockholders in the amount of                     .

RESOLVED FURTHER: That the Dividend shall be paid on or before             ,             .

RESOLVED FURTHER: That the Dividend shall be paid by distributing to the Common Stockholders, in proportion to their ownership of this corporation’s common stock, (i) cash in the aggregate amount of                     , and (ii) Dividend Promissory Notes in the aggregate amount of                     .

RESOLVED FURTHER: That this corporation shall take all actions required under IRC 857(b)(3)(C) to designate the Dividend as a “capital gain dividend” to the fullest extent possible under said provisions.

RESOLVED FURTHER: That any officer of this corporation be, and hereby is, authorized and directed to take any all additional actions required to effect payment of the Dividend and to carry out the intent of the foregoing resolutions.

The Secretary of the corporation is hereby directed to file this written consent and the resolutions adopted hereby with the Minutes of the proceedings of the Board of Directors.

DATED: As of                     ,             .

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Exhibit “B”

Non-Transferable Promissory Note

U.S. $                      [Date of Issuance]

1. Promise to Pay. For valuable consideration, the receipt of which is hereby acknowledged, G&L REALTY CORPORATION, a Maryland corporation (“Maker”) promises to pay to                              (“Holder”) the principal sum of                                          Dollars ($             ), with interest on the unpaid principal balance at the rate of [AFR + 2%] (             %) per annum. Interest shall accrue and be payable semi-annually on each 6-month anniversary of this Note. The entire outstanding principal balance of this Note and any accrued but unpaid interest shall be due and payable on the fifth anniversary of this Note (or if such day is not a day on which banks are generally open for business in the City of Beverly Hills, on the first day on which such banks are generally open for business; provided, however, that this Note shall be payable in full (including all accrued and unpaid interest) upon not less than ninety (90) days following Maker’s receipt of Holder’s written demand for payment. All payments under this Note shall be applied first to interest and then to principal. This Note is issued pursuant to that certain Note Dividend Agreement dated as of             , 2005, and is subject to the terms and provisions of that agreement; including without limitation the rights of set-off set forth in that agreement. Terms not defined in this Note shall have the meaning assigned to them in the Note Dividend Agreement.

2. Address of Payments. All payments on this Note are to be made or delivered to Holder, or at such other place as Holder may from time to time direct by written notice to Maker.

3. Waivers. Maker hereby waives diligence, presentment for payment, demand, protest, notice of nonpayment, notice of dishonor, notice of protest, and any and all other notices and demands whatsoever. Maker agrees to remain bound until all principal and interest payable hereunder are paid in full, notwithstanding any extensions or renewals granted with respect to this Note or the release of any party liable hereunder. Maker, and any and all endorsers hereof, also waive the right to plead any and all statutes of limitations as a defense to any demand on this Note or any and all obligations or liabilities arising out of or in connection with this Note, to the fullest extent permitted by law.

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4. Default.

4.1. Default by Maker. The failure of Maker to pay or perform as required under this Note shall constitute a default under this Note. Upon the occurrence of a default, at Holder’s option, Holder may declare immediately due and owing the entire unpaid principal balance, together with all accrued but unpaid interest, plus any other sums owing at the time of such declaration pursuant to this Note.

4.2. No Waiver by Holder. No delay or omission on the part of Holder to exercise any of its remedies hereunder, including without limitation the acceleration of the due date of this Note, shall be deemed a continuing waiver of that right or any other right. The acceptance by Holder of any payment pursuant to the terms of this Note which is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing options at that time or at any subsequent time or nullify any prior exercise of any such option without the express consent of Holder, except as and to the extent otherwise provided by law.

5. Costs of Enforcement. If Maker fails to pay any amounts due hereunder when due, or if Maker otherwise defaults under this Note, then Maker shall pay all costs of enforcement and collection, including without limitation reasonable attorneys’ fees and costs, whether or not enforcement and collection includes the filing of a lawsuit, and whether or not that lawsuit is prosecuted to judgment.

6. Binding Nature. The provisions of this Note shall be binding upon and inure to the benefit of the successors and assigns of Maker. This Note may not be assigned or otherwise transferred by Holder, except as provided in the Note Dividend Agreement.

7. Prepayment. Maker may repay all or any part of the unpaid principal balance due under this Note at any time without penalty or other charge upon not less than ninety (90) days written notice.

8. Usury Savings. Maker and Holder intend to contract in compliance with all state and federal usury laws governing the loan evidenced by this Note. Holder and Maker agree that none of the terms of this Note shall be construed as a contract for or a requirement to pay interest at a rate in excess of the maximum interest rate allowed by any applicable state or federal usury laws. If Holder receives sums which constitute interest which would otherwise increase the effective interest rate on this Note to a rate in excess of that permitted by any applicable law, then all such sums constituting interest in excess of the maximum lawful rate shall at Holder’s option

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either be credited to the payment of principal or returned to Maker. The provisions of this paragraph control the other provisions of this Note and any other agreement between Maker and Holder.

10. California Law. This Note shall be governed by and construed according to California law.

11. Severability. All provisions hereof are severable. If any provision hereof is declared invalid for any reason, that invalidity shall not affect any other provisions of this Note, all of which shall remain in full force and effect.

12. Cumulative Rights. All rights and remedies granted to Holder hereunder shall be separate and cumulative, and in addition to any other rights Holder may have at law or in equity.

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13. Interpretation. No provision of this Note is to be interpreted for or against either party because that party or that party’s legal representative drafted such provision.

Maker:

G&L REALTY CORPORATION,

a Maryland corporation

By:

Name:

Title:

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EX-14

Exhibit 14

Set forth below is our Company’s Code of Ethics as adopted by our Board of Directors.

Introduction

We, the Board of Directors of G&L Realty Corp. (“G&L”), have always believed that honesty and ethical conduct are important to achieving satisfactory business results and that illegal or unethical conduct on the part of our directors, officers or employees is not in G&L’s best interest. Accordingly, we have always acted with an implicit code of business conduct and ethics reflecting the foregoing beliefs and with the interests of the stockholders being paramount.

As a result of recent events involving allegations of misdeeds by corporate executives, independent auditors and other market participants, the Securities and Exchange Commission and the New York Stock Exchange have determined that public companies must adopt a written code of business conduct and ethics that are reasonably designed to deter wrongdoing and to promote:

• Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

• Full, fair, accurate, timely, and understandable disclosure in the various reports and documents that G&L files with, or submits to, the Securities and Exchange Commission and in G&L’s other public communications;

• Compliance with applicable governmental laws, rules and regulations;

• The prompt internal reporting to an appropriate person or persons as identified in this Code of violations of this Code; and

• Accountability for adherence to this Code.

Accordingly, we have adopted this Code, effective as of this 21^st day of March, 2006, in order to provide guidance for and a structure and mechanism pursuant to which to accomplish these intentions. This Code of Conduct takes into account the fact that all of the Common Stock of G&L is owned by our Controlling Shareholders (as such term is defined herein), and the determination of our Board of Directors, that other than those transactions which pose a threat to the holders of our preferred stock, our Controlling Shareholders should be granted broad leeway and discretion in determining what is and what is not a conflict of interest and whether a transaction involving an actual or potential conflict of interest should be approved.

As used in this Code:

• the term “Company” is intended to refer to and to encompass both G&L and all of its various subsidiaries;

• the term “Company Personnel” is intended to refer to all of the directors, officers and employees of G&L and, in addition, any Senior Executive Officer or Senior Financial Officer;

• the term “Conflicts Committee” means the Audit Committee of the Board of Directors of G&L.

• the term “Controlling Shareholders” means Daniel M. Gottlieb and Steven D. Lebowitz.

• the term “Senior Executive Officer” is intended to include our chief executive officer, chief financial officer, and each executive vice president of G&L, or any other person performing a similar function, regardless of title and any senior operating officer of the Company as may be designated by resolution of the G&L Board of Directors from time-to-time;

• the term “Senior Financial Officer” is intended to include our chief financial officer, controller(s), principal accounting officer and any other person performing a similar function, regardless of title and any other financial or accounting officer of the Company as may be designated by resolution of the G&L Board of Directors form time to time.

1. Avoidance of Conflicts of Interests

Officers, directors, and employees of the Company should never allow their personal interests to interfere with the interests of our Company as a whole and should avoid situations where their personal interests conflict or potentially conflict with the interests of the Company or its affiliates. Officers, directors and employees must be particularly careful to avoid representing the Company in any transaction with others with whom there is any outside business affiliation or relationship.

Following disclosure, conflict of interest transactions will only be permitted if approved in accordance with this Code. The Board of Directors maintains a standing Conflicts Committee specifically to review transactions that may involve conflicts of interest between our Company and our stockholders, directors, Chief Executive Officer, Senior Financial Officers and/or Senior Executive Officers.

A conflict of interest may be approved or waived (i) in the case of our Chief Executive Officer, Senior Financial Officers and Senior Executive Officers only by the Board of Directors, acting either by majority vote at a meeting or by unanimous written consent, and (ii) in the case of any other Company Employee, by our Chief Executive Officer, or Chief Financial Officer or such one or more other Senior Executive Officers as our Chief Executive Officer or Chief Financial Officer may from time to time designate.

In recognition of the fact that conflicts of interest may occur from time to time in the normal course of business, and that transactions or business relationships that involve conflicts of interest may from time to time be in the best interests of the Company, the approval or granting of consents to conflicts of interest in the ordinary course of business will not be deemed to constitute “waivers” of the provisions of this Code. Also, in the case of transactions done or goods or services provided pursuant to an agreement or arrangement approved as provide in this Code, it shall not be required that individual transactions, or individual instances where goods or services are provided under such agreement or arrangement be separately approved, so long as such activities are consistent with such approved agreement or arrangement. It shall not be deemed to be a conflict of interest for purposes of this code for a director, or any one or more affiliates of a director, to provide goods or services to the Company so long as the agreements or arrangement pursuant to which such goods or services are being provided has been disclosed to the Board of Directors and approved by the Controlling Shareholders.

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2. Public Disclosure of Information Required by the Securities Laws

Officers, directors and employees will seek to report all information accurately and honestly, and as otherwise required by applicable reporting requirements.

3. Compliance with Applicable Laws, Rules and Regulations

You must endeavor to respect and obey, to the extent applicable, the laws of the United States and of the various jurisdictions in which we operate. In particular, you must never knowingly violate federal securities laws, rules and regulations.

We know and appreciate that it is sometimes difficult to understand or determine whether a particular act or omission is or is not in violation of applicable law. Also, we know and appreciate that it may not be possible or practical to be in 100% compliance with all of the various laws and regulations that may impact upon our business from time to time and that it is unlikely that any business enterprise could ever represent that it was at any given time in 100% compliance with all of the various laws and regulations that might be applicable to it. For example, it is not intended that ordinary course traffic or parking violations, or failures to correct minor or immaterial violations of zoning laws, building codes, or permit requirements, or failure to timely file ministerial type governmental reports (where the failure to file such report is not likely to have a material adverse effect upon the Company) should be treated as violations of this Code.

4. Compliance Procedures; Reporting Misconduct or Other Ethical Violations

You should promptly report any unethical, dishonest or illegal behavior, or any other behavior that you believe in good faith to be in violation of this Code or of any other Company policies and procedures, to your supervisor. If you have any doubt about whether your conduct or that of any other person violates this Code or compromises our Company’s reputation, please discuss the issue with your supervisor. Alternatively, if you are for any reason uncomfortable with discussing such matter with your supervisor, or if you are not satisfied with their responses to such information as you may have brought to their attention, then you should communicate such information directly to the Board of Directors, or any Controlling Shareholder, or, in the event that such conduct involves a Director or Controlling Shareholder, to the Chairman of the Company, Conflicts Committee.

5. Enforcement of the Code of Business Conduct and Ethics

Any intentional violation of this Code by any Company Personnel will be subject to disciplinary action, including possible termination of employment. The degree of discipline imposed may be influenced by, among other things, (i) the severity of the violation, (ii) the extent of the risk of potential loss to the Company likely to result from such violation, (iii) whether the person involved (a) acted with the intention of violating this Code, (b) voluntarily disclosed the violation to us or to persons he or she reasonably believed to be the appropriate officers of our Company to whom to make such disclosure, and (c) cooperated with us in any

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subsequent investigation or corrective action, (iv) whether the person acted in the good faith belief that his or her actions were in accordance with this code and/or in the best interests of the Company and (v) whether the violation was a first time violation or part of a pattern of ongoing or repeated violations of the Code.

In the case of any violation of this Code by any Company Personnel other than a Controlling Shareholder, a G&L Director, our Chief Executive Officer, our Chief Financial Officer or any Senior Executive Officer, the matter of investigation and discipline will be the responsibility of the Chief Executive Officer and his or her designees. In the case of any violation or alleged violation of this Code by any a G&L Director, our Chief Executive Officer, Chief Financial Officer or any Senior Executive Officer, such matter of investigation and discipline will be the responsibility of the G&L Board of Directors. In the case of any violation or alleged violation of this Code by a Controlling Shareholder, such matter of investigation and discipline will be the responsibility of the Conflicts Committee; provided, however, that except in the case of matters involving the violation or alleged violation of Federal Securities Laws and/or conflicts of interest that would be materially deleterious to the interests of the holders of our preferred stock, the decision of the Conflicts Committee may be overruled by the unanimous action of the Controlling Shareholders. In dealing with violations of this Code, the Board of Directors will be influenced and guided by how the SEC and the New York Stock Exchange handles such violations.

6. Miscellaneous Provisions

6.1 No Third Party Beneficiaries. It is our intention that this Code constitute and provide a structure and mechanism for the internal control of our Company’s business and affairs, in accordance with our intention that our Company’s business be conducted in an honest and ethical manner. It is not our intention that this Code be used by or relied upon by persons other than our Company as a source for imposing liability or responsibilities upon our Company, you or any of your fellow Company Personnel above and beyond that already imposed by existing law. Accordingly, it is our intention that there be no third party beneficiaries to this Code and that no person other than our Company, acting through us, the G&L Board of Directors, have any standing, derivatively or otherwise, to assert that any person has violated this Code or that our Company or any other person has suffered damage as a result of any such alleged violation of this Code or to collect damages based upon the violation of this Code or to otherwise seek enforcement of this Code.

6.2 Protections Afforded by Law. Furthermore, this Code is not intended to override or negate any of the protections afforded to Company Personnel under the laws of the various jurisdictions in which we do business (including, by way of example and not limitation, the provisions of Maryland Law and the Articles of Incorporation of G&L) or any existing indemnity agreements or future indemnity agreements that may be approved by our common stockholders.

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EX-21

Exhibit 21

G&L Realty Corp.

List of Subsidiaries

March 31, 2006

1. G&L Realty Partnership, L.P., a Delaware limited partnership

2. 435 N. Roxbury Drive, Ltd., a California limited partnership

3. G&L Grabel San Pedro, LLC

4. G&L Holy Cross, LLC

5. G&L Holy Cross Managers Corp., a California corporation

6. G&L Valencia, LLC

7. G&L Lyons, LLC

8. G&L Coronado (1998), LLC

9. Lakeview Associates, LLC

10. Tustin Heritage Place, LLC

11. G&L Tustin II, LLC

12. G&L Tustin III, LLC

13. G&L Senior Care Partnership, L.P.

14. GLR/Yorba Linda, LLC

15. 405 Bedford, LLC

16. 415 Bedford, LLC

17. 416 Bedford, LLC

18. 435 Bedford, LLC

19. G&L 436 Bedford, LLC

20. G&L Sherman Oaks, LLC

21. G&L 4150 Regents, LLC

22. G&L Fourth Street, LLC

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Daniel M. Gottlieb, certify that:

1. I have reviewed this annual report on Form 10-K of G&L Realty Corp.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of our annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2006

/s/ Daniel M. Gottlieb

Daniel M. Gottlieb

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY THE CHIEF ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, David E. Hamer, certify that:

1. I have reviewed this annual report on Form 10-K of G&L Realty Corp.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of our annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2006

/s/ David E. Hamer

David E. Hamer

Chief Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of G & L Realty Corp. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel M. Gottlieb, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Daniel M. Gottlieb

Daniel M. Gottlieb

Chief Executive Officer

March 31, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of G & L Realty Corp. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David E. Hamer, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ David E. Hamer

David E. Hamer

Chief Accounting Officer

March 31, 2006